Nutanix, has announced financial results for its second quarter of fiscal year 2018, ended January 31, 2018.

Second Quarter Fiscal Year 2018 Financial Highlights

• Revenue: $286.7 million, growing 44% year-over-year from $199.2 million in the second quarter of fiscal 2017, reflecting the elimination of approximately $14 million in hardware revenue in the quarter as the company executes its shift toward increasing software revenue*
• Billings: $355.9 million, growing 57% year-over-year from $227.4 million in the second quarter of fiscal 2017
• Gross Profit: GAAP gross profit of $178.2 million, up 46% year-over-year from $122.4 million in the second quarter of fiscal 2017; Non-GAAP gross profit of $182.2 million, up 45% year-over-year from $126.0 million in the second quarter of fiscal 2017
• Net Loss: GAAP net loss of $62.6 million, compared to a GAAP net loss of $76.4 million in the second quarter of fiscal 2017; Non-GAAP net loss of $23.2 million, compared to a non-GAAP net loss of $23.0 million in the second quarter of fiscal 2017
• Net Loss Per Share: GAAP net loss per share of $0.39, compared to a GAAP net loss per share of $0.54 in the second quarter of fiscal 2017; Non-GAAP net loss per share of $0.14, compared to a non-GAAP net loss per share of $0.16 in the second quarter of fiscal 2017
• Cash and Short-term Investments: $918.3 million, up 159% from the second quarter of fiscal 2017 primarily as a result of $509 million in net proceeds from its 0% 5-year Convertible Senior Notes issued in the quarter
• Deferred Revenue: $478.0 million, up 57% from the second quarter of fiscal 2017
• Operating Cash Flow: $46.4 million, compared to $19.8 million in the second quarter of fiscal 2017
• Free Cash Flow: $32.4 million, compared to $7.1 million in the second quarter of fiscal 2017

Reconciliations between GAAP and non-GAAP financial measures and key performance measures are provided in the tables of this press release.

“We had an outstanding quarter that demonstrated our strong execution across many business initiatives. Our shift toward a software-centric strategy is on track and we aligned our sales compensation in February to support this transition,” said Dheeraj Pandey, Chairman, Founder and CEO of Nutanix. “Our continued success with Global 2000 customers, the strength of our large deal execution and record number of new customers prove that we are reducing friction for our customers and providing them with a consumer-grade experience that is unmatched.”

“We are proud of our performance in Q2. During the quarter, we saw record results across all geographies, with particularly strong performances from our EMEA and APJ regions. Our 57% billings growth year-over-year and our 45% increase in non-GAAP gross profit year-over-year drove a better than expected bottom line,” said Duston Williams, CFO of Nutanix. “Our software and support billings also rose significantly during the quarter, demonstrating our progress as we transition to a software-centric business model. Our strong execution on our strategic initiatives, together with our successful convertible debt offering, put us in a strong position for the future.”

Recent Company Highlights

• Continued Customer Growth: Nutanix ended the second quarter of fiscal 2018 with 8,870 end-customers, adding a record 1,057 new end-customers during the quarter. Second quarter customer wins included Arca Continental, DB Systel, JetBlue Airways, Multi Commodity Exchange of India Limited (MCX), Nexen (a CNOOC Limited Company), and Schroders
• Accelerated Number of $1 Million+ Deals: 57 customers with deals over $1 million in the quarter, up 104% year-over-year
• Named a Leader in the Gartner Magic Quadrant for Hyperconverged Infrastructure¹:Nutanix believes its placement in the Leaders quadrant is a strong validation of its leadership in the market it pioneered and of its vision to become the next-generation operating system for the enterprise cloud
• Released Version 5.5: Featuring Calm automation and orchestration, Nutanix released its version 5.5, the largest and most comprehensive release in its history, with new features and enhancements to the Nutanix Enterprise Cloud OS software
• Signed 5 Software and Support Deals Greater than $3 Million: Nutanix signed five software and support deals worth more than $3 million, of which three were worth more than $5 million during the quarter, all with Global 2000 customers
• Issued $575 million Zero Coupon Convertible Senior Notes: The company fortified its balance sheet with the issuance of $575 million zero coupon convertible senior notes due in 2023, adding $509 million in net proceeds to its cash and short-term investments during the quarter
• Signed Definitive Agreement to Acquire Minjar: Announced in a separate release issued today that the company had signed a definitive agreement to acquire Minjar and its Botmetric service, a cloud technology solutions company helping enterprises embrace the cloud effectively and optimize their multi-cloud environments for performance and cost
• Hired Industry Leaders in Key Roles: Further augmented the leadership team with the addition of Aaron Bean, Chief Human Resources Officer; Rodney Foreman, VP, Global Channel Sales; Ben Gibson, Chief Marketing Officer; Ricardo Jenez, SVP, Development; and Chris Kozup, SVP, Global Marketing
• Plans Inaugural Investor Day: Nutanix will hold its first investor day for analysts and institutional investors on Monday, March 12th at the Nasdaq Marketsite

Q3 Fiscal 2018 Financial Outlook

For the third quarter of fiscal 2018, Nutanix expects:

• Revenues between $275 and $280 million; assuming the elimination of approximately $45 million in pass-through hardware revenue*;
• Non-GAAP gross margin between 67% and 68%;
• Non-GAAP operating expenses between $218 and $220 million;
• Non-GAAP net loss per share between $0.19 and $0.21, using 167 million weighted shares outstanding.

*The elimination of hardware revenue is based on the estimated cost of hardware in transactions where our customers purchase such hardware directly from our contract manufacturers.

Supplementary materials to this earnings release, including the company’s second quarter fiscal 2018 investor presentation, can be found at https://ir.nutanix.com/company/financial/.

¹ Gartner does not endorse any vendor, product or service depicted in its research publications, and does not advise technology users to select only those vendors with the highest ratings or other designation. Gartner research publications consist of the opinions of Gartner’s research organization and should not be construed as statements of fact. Gartner disclaims all warranties, expressed or implied, with respect to this research, including any warranties of merchantability or fitness for a particular purpose.

All forward-looking non-GAAP financial measures contained in this section titled “Q3 Fiscal 2018 Financial Outlook” exclude stock-based compensation expense and amortization of intangible assets and may also exclude, as applicable, other special items. The company has not reconciled guidance for non-GAAP gross margin and non-GAAP loss per share to their most directly comparable GAAP measures because such items that impact these measures are not within its control and are subject to constant change. While the actual amounts of such items will have a significant impact on the company’s non-GAAP gross margin and non-GAAP loss per share, a reconciliation of the non-GAAP financial measure guidance to the corresponding GAAP measures is not available without unreasonable effort.

Webcast and Conference Call Information

Nutanix executives will discuss the company’s fiscal second quarter financial results on a conference call at 4:30 p.m. Eastern time/1:30 p.m. Pacific time today. To listen to the call via telephone, dial 1-833-227-5841 in the United States or 1-647-689-4068 from outside the United States. The conference ID is 1984527. This call will be webcast live and available to all interested parties on our Investor Relations website at ir.nutanix.com. Shortly after the conclusion of the conference call, a replay of the audio webcast will be available on the Nutanix Investor Relations website. A telephonic replay will be available for one week following the conference call at 1-800-585-8367 or 1-416-621-4642, conference ID 1984527.

New Accounting Standard

The Company adopted ASC 606, the new standard related to revenue recognition effective August 1, 2017. Prior period information has been adjusted to reflect the adoption of this new standard.

Non-GAAP Financial Measures and Other Key Performance Measures

To supplement our condensed consolidated financial statements, which are prepared and presented in accordance with GAAP, we use the following non-GAAP financial and other key performance measures: billings, non-GAAP gross profit, non-GAAP gross margin, non-GAAP operating expenses, non-GAAP net loss, pro forma non-GAAP net loss per share, and free cash flow. In computing these non-GAAP financial measures, we exclude certain items such as stock-based compensation and the related income tax impact, costs associated with our acquisitions (such as amortization of acquired intangible assets, revaluation of contingent consideration, income tax related impact, and other acquisition-related costs), loss on debt extinguishment, amortization of debt discount and debt issuance costs and changes in the fair value of our preferred stock warrant liability. Billings is a performance measure which our management believes provides useful information to investors because it represents the amounts under binding purchase orders received by us during a given period that have been billed, and we calculate billings by adding the change in deferred revenue between the start and end of the period to total revenue recognized in the same period. Free cash flow is a performance measure that our management believes provides useful information to management and investors about the amount of cash generated by the business after necessary capital expenditures, and we define free cash flow as net cash (used in) provided by operating activities less purchases of property and equipment. Non-GAAP gross profit, adjusted gross margin and non-GAAP operating expense are performance measures which our management believes provides useful information to investors because they provide meaningful supplemental information regarding our performance and liquidity by excluding certain expenses and expenditures such as stock-based compensation expense that may not be indicative of our ongoing core business operating results. We use these non-GAAP financial and key performance measures for financial and operational decision-making and as a means to evaluate period-to-period comparisons. However, these non-GAAP financial and key performance measures have limitations as analytical tools and you should not consider them in isolation or as substitutes for analysis of our results as reported under GAAP. Billings, non-GAAP gross profit, non-GAAP gross margin, non-GAAP operating expenses, non-GAAP net loss, pro forma non-GAAP net loss per share, and free cash flow are not substitutes for total revenue, gross profit, gross margin, operating expenses, net loss, net loss per share, or net cash (used in) provided by operating activities, respectively. In addition, other companies, including companies in our industry, may calculate non-GAAP financial measures and key performance measures differently or may use other measures to evaluate their performance, all of which could reduce the usefulness of our non-GAAP financial measures and key performance measures as tools for comparison. We urge you to review the reconciliation of our non-GAAP financial measures and key performance measures to the most directly comparable GAAP financial measures included below in the tables captioned “Reconciliation of Revenue to Billings,” “Reconciliation of GAAP to Non-GAAP Profit Measures,” and “Reconciliation of GAAP Net Cash (Used In) Provided By Operating Activities to Non-GAAP Free Cash Flow,” and not to rely on any single financial measure to evaluate our business.