Nutanix, Inc. (NTNX) Q2 2026 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call presents a mixed outlook. While the company shows strong customer acquisition, partnerships, and optimistic guidance, it faces significant supply chain constraints affecting revenue. The guidance reduction due to timing issues and unchanged bookings growth reflect uncertainty. Positive aspects like increased free cash flow guidance and strategic partnerships are balanced by revenue timing challenges and supply constraints, leading to a neutral sentiment.
Key Financial Performance
Quarterly Revenue $723 million, above the guidance range of $705 million to $715 million. This represents strong performance despite supply chain challenges.
Annual Recurring Revenue (ARR) $2.36 billion, a 16% year-over-year growth. Growth attributed to healthy demand for solutions and strong bookings.
Net Dollar-Based Retention Rate (NRR) 107%, indicating strong customer retention and expansion.
Non-GAAP Gross Margin 88.6%, reflecting efficient cost management.
Non-GAAP Operating Margin 26.2%, higher than the guided range of 20.5% to 21.5% due to lower operating expenses and higher revenue.
Non-GAAP Net Income $164 million, or $0.56 per share, driven by strong revenue and cost management.
GAAP Net Income $103 million, or $0.36 per share.
Free Cash Flow $191 million, representing a free cash flow margin of 26%. This was supported by strong bookings and operational efficiency.
Cash and Cash Equivalents $1.874 billion, down from $2.062 billion in Q1 due to share repurchases and employee-related tax liabilities.
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Operating Highlights
Strategic Partnership with AMD: Nutanix announced a multiyear collaboration with AMD to develop and market a Nutanix-powered agentic AI platform for enterprises and service providers. AMD will invest $150 million in Nutanix common stock and fund up to $100 million for R&D and go-to-market efforts. The first platform is expected to launch in late 2026.
Enhancements to Nutanix Cloud Platform: Introduced updates to strengthen security and operational resilience, catering to traditional, cloud-native, and AI workloads. These updates target highly regulated sectors and sovereign cloud deployments.
New Customer Wins: Added over 1,000 new customers in Q2, marking the strongest quarterly new logo additions in 8 years. Notable wins include a Global 2000 financial services provider, a North American healthcare services provider, and an EMEA-based IT services provider.
AI and Hybrid Cloud Adoption: Nutanix's platform is increasingly adopted for AI applications, hybrid multi-cloud models, and modern IT infrastructure. Significant wins include deployments for AI use cases and cloud migrations.
Revenue and ARR Growth: Quarterly revenue reached $723 million, exceeding guidance, and ARR grew 16% year-over-year to $2.36 billion.
Supply Chain Challenges: Supply chain issues, including CPU and memory shortages, are delaying server procurement for customers, impacting revenue and free cash flow timing. Nutanix is mitigating this with flexible deployment options and promotions.
Focus on AI and Modern Applications: Nutanix is positioning itself as a leader in enterprise AI and hybrid multi-cloud solutions, leveraging partnerships and platform enhancements to drive long-term growth.
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Risk or Challenges
Supply Chain Challenges: Acute supply chain challenges, including shortages of memory, CPUs, and other components, are leading to higher prices and longer lead times for servers. This is delaying customers' ability to procure servers, impacting the timing of revenue and free cash flow generation.
Revenue and Cash Flow Timing: The supply chain issues are causing delays in the recognition of revenue and free cash flow for orders linked to server hardware shipments. This timing issue affects near-term financial performance, although the overall revenue and cash flow expected over time remain unchanged.
Customer Procurement Delays: Customers are facing difficulties in procuring servers from hardware partners, which is delaying their deployment timelines and impacting Nutanix's ability to recognize revenue and cash flow in the short term.
Pricing Pressures: Increases in memory and CPU prices due to supply shortages are creating cost pressures, although longer lead times are a more significant challenge than pricing.
Dynamic Operating Environment: The company operates in a dynamic environment with ongoing uncertainties, which could impact strategic execution and financial performance.
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Guidance & Outlook
Revenue Guidance for Q3 FY 2026: Revenue is expected to be in the range of $680 million to $690 million.
Full Year FY 2026 Revenue Guidance: Revenue is projected to be between $2.8 billion and $2.84 billion.
Non-GAAP Operating Margin Guidance: For Q3 FY 2026, the non-GAAP operating margin is expected to be between 16% and 17%. For the full fiscal year 2026, it is projected to remain at 21% to 22%.
Free Cash Flow Guidance: For the full fiscal year 2026, free cash flow is expected to be between $745 million and $775 million, representing a free cash flow margin of 27% at the midpoint.
Supply Chain Impact on Revenue and Cash Flow: The challenging supply environment is delaying customers' ability to procure servers, impacting the timing of revenue and free cash flow recognition. This is expected to shift some revenue and cash flow out of FY 2026, but the overall revenue and cash flow from FY 2026 bookings remain unchanged.
Bookings Growth Expectation: Total Contract Value (TCV) bookings growth is expected to exceed revenue growth for FY 2026, indicating strong demand for Nutanix solutions.
Seasonality of Free Cash Flow: Free cash flow in the second half of FY 2026 is expected to be more weighted towards Q4 rather than Q3.
Strategic Partnership with AMD: The partnership focuses on developing a Nutanix-powered agentic AI platform, with the first jointly developed platform expected to be delivered in late 2026.
AI and Hybrid Cloud Growth Opportunity: Nutanix sees AI and hybrid cloud as significant long-term growth opportunities, with plans to support enterprise inferencing and agentic applications across various environments.
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Shareholder Return Plan
Share Repurchase Program: In Q2, Nutanix repurchased $333 million worth of common stock under its existing share repurchase authorization. This included a $300 million accelerated share repurchase transaction and approximately $33 million worth of stock repurchased through the ongoing share repurchase program. Additionally, $48 million of cash was used to retire shares related to employees' tax liability for their quarterly RSU vesting. These actions were aimed at managing share dilution.
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Key Q&A
Q:What is the magnitude of the VMware replacement opportunity compared to 12 months ago?
A:Rajiv Ramaswami stated that nothing has changed from an opportunity perspective. The company continues to add new customers at a healthy rate, with over 1,000 customers added in the last quarter. AHV adoption has reached an all-time high, and partnerships with AWS and Google have been extended, making migrations easier from VMware. He emphasized that this is a multiyear journey.
Q:What gives confidence in the implied Q4 upsell despite supply chain constraints?
A:Rukmini Sivaraman explained that Q4 is traditionally a strong quarter due to fiscal year-end incentives for sellers. The guidance is based on current supply visibility and market conditions. She also highlighted a 24% growth in RPO at the end of Q2 as a leading indicator.
Q:Why is there a discrepancy between mid-teens TCV bookings and RPO bookings growth?
A:Rajiv Ramaswami clarified that the exclusion of cancelable backlog from reported RPO impacts the RPO bookings calculation. Including cancelable backlog, which is rarely canceled, aligns the growth rate with the mid-teens TCV bookings growth.
Q:How are customers balancing hardware purchasing delays with savings from deploying Nutanix hardware?
A:Rajiv Ramaswami noted that customers are taking various approaches, such as ordering hardware ahead of price increases, using external storage, or migrating to public cloud. Nutanix offers flexibility to support migrations on existing hardware or public cloud, mitigating hardware cost constraints.
Q:What are the current revenue headwinds and strategies to maintain bookings momentum?
A:Rajiv Ramaswami explained that supply constraints around CPU are a significant headwind. To maintain momentum, Nutanix offers flexible licensing, start dates, and supports migrations to public cloud or existing hardware. Future start dates are factored into the forecast.
Q:What is the timeline and target customer base for the AMD partnership?
A:Rajiv Ramaswami stated that the first solution will be delivered by the end of the calendar year. The target customers are enterprises, particularly in regulated industries or those requiring data sovereignty. Service providers offering GPU as a service are also a focus.
Q:What are the dynamics impacting fiscal Q3 margins and free cash flow?
A:Rukmini Sivaraman explained that Q3 margins are seasonally lower due to revenue patterns and ongoing investments. Free cash flow is impacted by longer server lead times delaying billing and collection. The AMD investment does not affect free cash flow as it is not part of operating cash flow.
Q:What is the impact of delayed server availability and future start dates on revenue?
A:Rukmini Sivaraman stated that supply chain issues are the more significant factor impacting revenue guidance. Future start dates are also expected to be higher in the second half, but the primary issue is server availability.
Q:What is the size and growth rate of AI-related revenue opportunities?
A:Rajiv Ramaswami noted that AI-related revenue was negligible 1.5 years ago but is now growing from a small base. Enterprise AI adoption is in its early stages, with potential for significant growth as enterprises build custom AI applications.
Q:What is the rationale behind the AMD equity investment?
A:Rajiv Ramaswami explained that the investment aligns AMD's interests with Nutanix's success and strengthens their partnership. The dilution is minimal, and the collaboration positions Nutanix as a leader in enterprise AI platforms.
Q:Why did NRR decelerate this quarter?
A:Rukmini Sivaraman attributed the deceleration to revenue recognition delays, timing delays in U.S. Fed renewals, and the increasing ACV dollars required to offset churn as ARR grows.
Q:What is the impact of cancelable bookings on RPO growth?
A:Rukmini Sivaraman stated that cancelable bookings remain a small portion of total RPO but can cause variability in growth rates. These bookings are rarely canceled and are being phased out over time.
Q:What is the expected timeline for supply constraints to ease?
A:Rajiv Ramaswami stated that CPU supply is the current bottleneck, followed by memory. The situation is expected to normalize over the next couple of years, but exact timing is uncertain.
Q:What is the focus of Nutanix's investment strategy?
A:Rukmini Sivaraman highlighted investments in go-to-market coverage, portfolio specialists, and R&D for Kubernetes, AI platforms, and external storage support. The company is balancing growth opportunities with operational efficiency.
Q:Review of Unclear Management Responses
A:Management avoided providing a clear timeline for when supply constraints would ease, stating that it is uncertain and depends on industry-wide efforts. Additionally, they did not quantify the impact of delayed server availability versus future start dates on revenue, citing both as significant factors without specific breakdowns.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
AI AMD
AI NKP
AI application
AI collaboration
AI market
AI platform
AI set
AI workload
AMD compute
AMD investment
AMD opportunity
NC
North American
Platform
Rajiv
Sivaraman
alternative infrastructure
automation
booking
business footprint
chain challenge
choice cloud
estate cloud
flexibility
logo addition
memory
opportunity AI
platform AI
platform hardware
platform win
portion estate
price
server timing
service provider
shortage
storage platform
supply chain
support storage
time server
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The earnings call presents mixed signals: strong gross margins and a solid cash position are positive, but increased operating expenses and widening net losses are concerning. The Q&A reveals positive early indications for new platforms, yet lacks detailed guidance, which may worry investors. The reduced revenue guidance, despite strong cash flow guidance, adds uncertainty. Overall, the mixed financial performance and cautious guidance suggest a neutral stock price movement.
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