Item 2. Management’s Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion and analysis of our financial condition, results of operations and cash flows should be read in conjunction with (1) the unaudited condensed consolidated financial statements and the related notes thereto included elsewhere in this Quarterly Report on Form 10-Q and (2) the audited consolidated financial statements and notes thereto and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in our Annual Report on Form 10-K for the fiscal year endedJuly 31, 2022 filed onSeptember 21, 2022 . The last day of our fiscal year isJuly 31 . Our fiscal quarters end onOctober 31 ,January 31 ,April 30 andJuly 31 . This discussion contains forward-looking statements based upon current expectations that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under the heading "Risk Factors" in Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year endedJuly 31, 2022 and in Part II, Item 1A of this Quarterly Report on Form 10-Q. See also "Special Note Regarding Forward-Looking Statements" above.
Overview
Nutanix, Inc. ("we," "us," "our" or "Nutanix") provides a leading enterprise cloud platform, which we call the Nutanix Cloud Platform, that consists of software solutions and cloud services that power our customers' enterprise infrastructure. Our solutions deliver a consistent cloud operating model across edge, private-, hybrid- and multicloud environments for all applications and their data. Our solutions allow organizations to simply move their workloads, including enterprise applications, high-performance databases, end-user computing and virtual desktop infrastructure ("VDI") services, container-based modern applications, and analytics applications, between on-premises and public clouds. Our goal is to provide a single, simple, open software platform for all hybrid and multicloud applications and their data. The Nutanix Cloud Platform can be deployed on-premises at the edge or in data centers, running on a variety of qualified hardware platforms, in popular public cloud environments such as AWS and Microsoft Azure through Nutanix Cloud Clusters, or, in the case of our cloud-based software and software-as-a-service ("SaaS") offerings, via hosted service. Non-portable software licenses for our platform are delivered or sold alongside configured-to-order appliances, with a license term equal to the life of the associated appliance. Our subscription term-based licenses are sold separately, or can also be sold alongside configured-to-order appliances. Our subscription term-based licenses typically have terms ranging from one to five years. Our cloud-based SaaS subscriptions have terms extending up to five years. Configured-to-order appliances, including ourNutanix -branded NX hardware line, can be purchased from one of our channel partners, original equipment manufacturers ("OEMs") or, in limited cases, directly fromNutanix . Our enterprise cloud platform typically includes one or more years of support and entitlements, which provides customers with the right to software upgrades and enhancements as well as technical support. Purchases of term-based licenses and SaaS subscriptions have support and entitlements included within the subscription fees and are not sold separately. Purchases of non-portable software are typically accompanied by the purchase of separate support and entitlements. Product revenue is generated primarily from the licensing of our solutions. Support, entitlements and other services revenue is primarily derived from the related support and maintenance contracts. Prior to fiscal 2019, we delivered most of our solutions on an appliance, thus our revenue included the revenue associated with the appliance and the included non-portable software, which lasts for the life of the associated appliance. However, starting in fiscal 2018, as a result of our business model transition toward software-only sales, more of our customers began buying appliances directly from our OEMs while separately buying licenses for our software solutions from us or one of our channel partners. In addition, starting in fiscal 2019, as a result of our transition towards a subscription-based business model, more of our customers began purchasing separately sold subscription term-based licenses that could be deployed on a variety of hardware platforms. As we continue our transition to a subscription-based business model, we expect a greater portion of our products to be delivered through subscription term-based licenses or cloud-based SaaS subscriptions. We had a broad and diverse base of over 23,000 end customers as ofOctober 31, 2022 , including approximately 990 Global 2000 enterprises. We define the number of end customers as the number of end customers for which we have received an order by the last day of the period, excluding partners to which we have sold products for their own demonstration purposes. A single organization or customer may represent multiple end customers for separate divisions, segments or subsidiaries, and the total number of end customers may contract due to mergers, acquisitions, or other consolidation among existing end customers. 34
——————————————————————————–
Table of Contents
NUTANIX, INC.
Management’s Discussion and Analysis of Financial Condition and Results of
Operations (Continued) Our solutions are primarily sold through channel partners and OEMs, and delivered directly to our end customers. Our solutions serve a broad range of workloads, including enterprise applications, databases, virtual desktop infrastructure, unified communications and big data analytics, and we support both virtualized and container-based applications. We have end customers across a broad range of industries, such as automotive, consumer goods, education, energy, financial services, healthcare, manufacturing, media, public sector, retail, technology and telecommunications. We also sell to service providers, who utilize our enterprise cloud platform to provide a variety of cloud-based services to their customers. We continue to invest in the growth of our business over the long-run, including the development of our solutions and investing in sales and marketing to capitalize on our market opportunities, while improving our operating cash flow performance by focusing on go-to-market efficiencies. By maintaining this balance, we believe we can drive toward profitable growth. As discussed further in the "Impact of the COVID-19 Pandemic" and "Factors Affecting Our Performance" sections below, both in response to the ongoing and evolving COVID-19 pandemic and as part of our overall efforts to improve our operating cash flow performance, we have proactively taken steps to manage our expenses. As a result, our overall spending on such efforts will fluctuate, and may decline, from quarter to quarter in the near-term.
Impact of the COVID-19 Pandemic
The ongoing and evolving pandemic caused by the COVID-19 virus (collectively with any variants or related strains thereof, "COVID-19" and the ongoing pandemic caused thereby, the "COVID-19 pandemic") significantly curtailed the movement of people, goods and services worldwide, imposed unprecedented strains on governments, health care systems, educational institutions, businesses and individuals around the world, including in nearly all of the regions in which we operate, and has resulted in significant volatility and uncertainty in the global economy. The COVID-19 pandemic has impacted and may continue to impact our workforce and operations, as well as those of our customers, vendors, suppliers, partners, and communities, and there is uncertainty in the nature and degree of its continued effects over time. In response to the COVID-19 pandemic, we took a number of actions to protect and assist our employees, customers, and partners, including: temporarily closing all of our offices (including ourCalifornia headquarters) around the world; encouraging our employees to work remotely; implementing travel restrictions that allow only the most essential business travel; and postponing, cancelling, withdrawing from, or converting to virtual-only experiences (where possible and appropriate) our in-person customer, industry, analyst, investor, and employee events. While we have generally reopened our offices around the world, for so long as the pandemic continues, our employees may continue to be exposed to health and safety risks, and governmental protocols may require us to again close those offices that have since been reopened. The COVID-19 pandemic and the measures taken in response to the pandemic, including our own measures, have already caused, and may continue to cause, various adverse effects on the global economy and our business, including: curtailed demand for certain of our solutions; reduced IT spending; delays in or abandonment of planned or future purchases; lengthened sales cycles, particularly with new customers and partners who do not have prior experience with our solutions; supply chain disruptions; increased cybersecurity risks or other security challenges; delays or disruptions to our product roadmap and our ability to deliver new products, features, or enhancements; and voluntary and involuntary delays in the ability to ship, and the ability of our end customers to accept delivery of, the hardware platforms on which our software solutions run. Reduced manufacturing capacity caused by the pandemic, together with measures taken in response to the pandemic, have led to increased supply chain challenges with increased hardware supply chain delays resulting in an increasing percentage of orders having start dates in future quarters and certain customers delaying their purchase of our software pending availability of the hardware on which our software runs. Travel bans, shutdowns, social distancing restrictions and remote work policies also make it difficult or impossible to deliver on-site services to our partners and end customers, and to meet with our current and potential end customers in person. We have also seen positive impacts, including increased demand for our virtual desktop, desktop-as-a-service, and end-user computing solutions as a result of our end customers enabling their employees to work remotely. 35
——————————————————————————–
Table of Contents
NUTANIX, INC.
Management’s Discussion and Analysis of Financial Condition and Results of
Operations (Continued) The duration, scope and ultimate impact of the COVID-19 pandemic on the global economy and our business remain highly fluid and cannot be predicted with certainty, and the full effect of the pandemic and the actions we have taken in response may not be fully reflected in our results of operations and financial performance until future periods. Our management team is focused on guiding our company through the challenges presented by COVID-19 and remains committed to driving positive business outcomes. Although we do not currently expect the pandemic to affect our financial reporting systems, internal control over financial reporting or disclosure controls and procedures, the continued impact of the pandemic on our business and financial performance will be highly dependent upon numerous factors, many of which are beyond our control. See the section titled "Risk Factors" in Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year endedJuly 31, 2022 for further discussion of the possible impact of the COVID-19 pandemic, as well as the actions we have taken in response, on our business and financial performance.
Key Financial and Performance Metrics
We monitor the following key financial and performance metrics:
As of and for the
Three Months Ended
October 31,
2021 2022
(in thousands, except percentages)
Total revenue $ 378,517 $ 433,609
Year-over-year percentage increase 21.0 % 14.6 %
Subscription revenue $ 337,901 $ 402,924
Total billings $ 398,025 $ 469,730
Subscription billings $ 359,323 $ 441,430
Annual contract value ("ACV") billings $ 183,334 $ 231,928
Annual recurring revenue ("ARR") $ 952,638 $ 1,280,574
Gross profit $ 297,071 $ 351,114
Non-GAAP gross profit $ 310,749 $ 361,694
Gross margin 78.5 % 81.0 %
Non-GAAP gross margin 82.1 % 83.4 %
Operating expenses $ 434,327 $ 431,371
Non-GAAP operating expenses $ 352,626 $ 351,100
Operating loss $ (137,256 ) $ (80,257 )
Non-GAAP operating (loss) income $ (41,877 ) $ 10,594
Operating margin (36.3 )% (18.5 )%
Non-GAAP operating margin (11.1 )% 2.4 %
Total deferred revenue $ 1,333,334 $ 1,481,576
Net cash provided by operating activities $ 6,939 $ 65,513
Free cash flow $ (1,905 ) $ 45,811
Total end customers (1) 20,700 23,130
(1)
The total end customer count reflects standard adjustments/consolidation to
certain customer accounts within our system of record and is rounded to the
nearest 10.
36
——————————————————————————–
Table of Contents
NUTANIX, INC.
Management’s Discussion and Analysis of Financial Condition and Results of
Operations (Continued)
Disaggregation of Revenue and Billings
The following table depicts the disaggregation of revenue and billings by type,
consistent with how we evaluate our financial performance:
Three Months Ended
October 31,
2021 2022
(in thousands)
Disaggregation of revenue:
Subscription revenue $ 337,901 $ 402,924
Non-portable software revenue 14,337 7,783
Hardware revenue
2,163 624
Professional services revenue 24,116 22,278
Total revenue
$ 378,517 $ 433,609 Disaggregation of billings: Subscription billings$ 359,323 $ 441,430
Non-portable software billings 14,337 7,783
Hardware billings
2,163 624
Professional services billings 22,202 19,893
Total billings
$ 398,025 $ 469,730 Subscription revenue - Subscription revenue includes any performance obligation which has a defined term and is generated from the sales of software entitlement and support subscriptions, subscription software licenses and cloud-based software as a service offerings.
•
Ratable - We recognize revenue from software entitlement and support subscriptions and SaaS offerings ratably over the contractual service period, the substantial majority of which relate to software entitlement and support subscriptions. These offerings represented approximately$183.1 million and$213.4 million of our subscription revenue for the three months endedOctober 31, 2021 and 2022, respectively.
•
Upfront – Revenue from our subscription software licenses is generally
recognized upfront upon transfer of control to the customer, which happens when
we make the software available to the customer. These subscription software
licenses represented approximately
subscription revenue for the three months ended
respectively.
Non-portable software revenue - Non-portable software revenue includes sales of our enterprise cloud platform when delivered on a configured-to-order appliance by us or one of our OEM partners. The software licenses associated with these sales are typically non-portable and can be used over the life of the appliance on which the software is delivered. Revenue from our non-portable software products is generally recognized upon transfer of control to the customer. Hardware revenue - In transactions where the hardware appliance is purchased directly fromNutanix , we consider ourselves to be the principal in the transaction and we record revenue and costs of goods sold on a gross basis. We consider the amount allocated to hardware revenue to be equivalent to the cost of the hardware procured. Hardware revenue is generally recognized upon transfer of control to the customer.
Professional services revenue – We also sell professional services with our
products. We recognize revenue related to professional services as they are
performed.
37
——————————————————————————–
Table of Contents
NUTANIX, INC.
Management’s Discussion and Analysis of Financial Condition and Results of
Operations (Continued)
Non-GAAP Financial Measures and Key Performance Measures
We regularly monitor total billings, subscription billings, ACV billings, ARR, non-GAAP gross profit, non-GAAP gross margin, non-GAAP operating expenses, non-GAAP operating income (loss), non-GAAP operating margin, free cash flow, and total end customers, which are non-GAAP financial measures and key performance measures, to help us evaluate our growth and operational efficiencies, measure our performance, identify trends in our sales activity and establish our budgets. We evaluate these measures because they:
•
are used by management and the Board of Directors to understand and evaluate our performance and trends, as well as to provide a useful measure for period-to-period comparisons of our core business, particularly as we progress through our transition to a subscription-based business model;
•
are widely used as a measure of financial performance to understand and evaluate
companies in our industry; and
•
are used by management to prepare and approve our annual budget and to develop
short-term and long-term operational and compensation plans, as well as to
assess our actual performance against our goals.
Total billings is a performance measure which we believe provides useful information to our management and investors, as it represents the dollar value under binding purchase orders received and billed during a given period. Subscription billings is a performance measure that we believe provides useful information to our management and investors as it allows us to better track the growth of the subscription-based portion of our business, which is a critical part of our business plan. ACV billings is a performance measure that we believe provides useful information to our management and investors as they allow us to better track the topline growth of our business during our transition to a subscription-based business model because it takes into account variability in term lengths. ARR is a performance measure that we believe provides useful information to our management and investors as it allows us to better track the topline growth of our subscription business because it only includes non-life-of-device contracts and takes into account variability in term lengths. Non-GAAP gross profit, non-GAAP gross margin, non-GAAP operating expenses, non-GAAP operating income (loss), and non-GAAP operating margin are performance measures which we believe provide useful information to investors, as 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. Free cash flow is a performance measure that we believe provides useful information to management and investors about the amount of cash used in or generated by the business after necessary capital expenditures. 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. Total billings, subscription billings, ACV billings, ARR, non-GAAP gross profit, non-GAAP gross margin, non-GAAP operating expenses, non-GAAP operating income (loss), non-GAAP operating margin, and free cash flow have limitations as analytical tools and they should not be considered in isolation or as substitutes for analysis of our results as reported under generally accepted accounting principles inthe United States . Total billings, subscription billings, non-GAAP gross profit, non-GAAP gross margin, non-GAAP operating expenses, non-GAAP operating income (loss), non-GAAP operating margin, and free cash flow are not substitutes for total revenue, subscription revenue, gross profit, gross margin, operating expenses, operating loss, operating margin, or net cash provided by (used in) operating activities, respectively. There is no GAAP measure that is comparable to ACV billings or ARR, so we have not reconciled either ACV billings or ARR numbers included in this Quarterly Report on Form 10-Q to any GAAP measure. 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 and not to rely on any single financial measure to evaluate our business.
We calculate our non-GAAP financial and key performance measures as follows:
Total billings - We calculate total billings by adding the change in deferred revenue between the start and end of the period to total revenue recognized in the same period.
Subscription billings – We calculate subscription billings by adding the change
in subscription deferred revenue between the start and end of the period to
subscription revenue recognized in the same period.
38
——————————————————————————–
Table of Contents
NUTANIX, INC.
Management’s Discussion and Analysis of Financial Condition and Results of
Operations (Continued)
ACV billings - We calculate ACV billings as the sum of the ACV for all contracts
billed during the period. ACV is defined as the total annualized value of a
contract, excluding amounts related to professional services and hardware. We
calculate the total annualized value for a contract by dividing the total value
of the contract by the number of years in the term of such contract, using,
where applicable, an assumed term of five years for contracts that do not have a
specified term.
ARR - We calculate ARR as the sum of ACV for all non-life-of-device contracts in
effect as of the end of a specific period. For the purposes of this calculation,
we assume that the contract term begins on the date a contract is booked, unless
the terms of such contract prevent us from fulfilling our obligations until a
later period, and irrespective of the periods in which we would recognize
revenue for such contract.
Non-GAAP gross profit and Non-GAAP gross margin - We calculate non-GAAP gross
margin as non-GAAP gross profit divided by total revenue. We define non-GAAP
gross profit as gross profit adjusted to exclude stock-based compensation
expense, amortization of acquired intangible assets, restructuring charges,
impairment of lease-related assets, and costs associated with other
non-recurring transactions. Our presentation of non-GAAP gross profit and
non-GAAP gross margin should not be construed as implying that our future
results will not be affected by any recurring expenses or any unusual or
non-recurring items that we exclude from our calculation of these non-GAAP
financial measures.
Non-GAAP operating expenses - We define non-GAAP operating expenses as total
operating expenses adjusted to exclude stock-based compensation expense,
restructuring charges, impairment of lease-related assets, costs associated with
business combinations, such as amortization of acquired intangible assets and
other acquisition-related costs and costs associated with other non-recurring
transactions. Our presentation of non-GAAP operating expenses should not be
construed as implying that our future results will not be affected by any
recurring expenses or any unusual or non-recurring items that we exclude from
our calculation of this non-GAAP financial measure.
Non-GAAP operating income (loss) and Non-GAAP operating margin - We calculate
non-GAAP operating margin as non-GAAP operating income (loss) divided by total
revenue. We define non-GAAP operating income (loss) as operating loss adjusted
to exclude stock-based compensation expense, amortization of acquired intangible
assets, restructuring charges, impairment of lease-related assets, and costs
associated with other non-recurring transactions. Our presentation of non-GAAP
operating income (loss) and non-GAAP operating margin should not be construed as
implying that our future results will not be affected by any recurring expenses
or any unusual or non-recurring items that we exclude from our calculation of
these non-GAAP financial measures.
Free cash flow - We calculate free cash flow as net cash provided by (used in)
operating activities less purchases of property and equipment, which measures
our ability to generate cash from our business operations after our capital
expenditures.
Total end customers - We define the number of end customers as the number of end
customers for which we have received an order by the last day of the period,
excluding partners to which we have sold products for their own demonstration
purposes. A single organization or customer may represent multiple end customers
for separate divisions, segments, or subsidiaries, and the total number of end
customers may contract due to mergers, acquisitions, or other consolidation
among existing end customers.
39
——————————————————————————–
Table of Contents
NUTANIX, INC.
Management’s Discussion and Analysis of Financial Condition and Results of
Operations (Continued)
The following table presents a reconciliation of total billings, non-GAAP gross
profit, non-GAAP gross margin, non-GAAP operating expenses, non-GAAP operating
income (loss), non-GAAP operating margin, and free cash flow to the most
directly comparable GAAP financial measures, for each of the periods indicated:
Three Months Ended
October 31,
2021 2022
(in thousands, except percentages)
Total revenue $ 378,517 $ 433,609
Change in deferred revenue 19,508 36,121
Total billings (non-GAAP) $ 398,025 $ 469,730
Gross profit $ 297,071 $ 351,114
Stock-based compensation 10,202 7,505
Amortization of intangible assets 3,476 2,810
Restructuring charges - 265
Non-GAAP gross profit $ 310,749 $ 361,694
Gross margin 78.5 % 81.0 %
Stock-based compensation 2.7 % 1.7 %
Amortization of intangible assets 0.9 % 0.6 %
Restructuring charges - 0.1 %
Non-GAAP gross margin 82.1 % 83.4 %
Operating expenses $ 434,327 $ 431,371
Stock-based compensation (80,345 ) (73,450 )
Amortization of intangible assets (651 ) (349 )
Restructuring charges - (5,552 )
Early exit of lease-related assets - (920 )
Other (705 ) -
Non-GAAP operating expenses $ 352,626 $ 351,100
Loss from operations $ (137,256 ) $ (80,257 )
Stock-based compensation 90,547 80,955
Amortization of intangible assets 4,127 3,159
Restructuring charges - 5,817
Early exit of lease-related assets - 920
Other 705 -
Non-GAAP (loss) income from operations $ (41,877 ) $ 10,594
Operating margin (36.3 )% (18.5 )%
Stock-based compensation 23.9 % 18.7 %
Amortization of intangible assets 1.1 % 0.7 %
Restructuring charges - 1.3 %
Early exit of lease-related assets - 0.2 %
Other 0.2 % -
Non-GAAP operating margin (11.1 )% 2.4 %
Net cash provided by operating activities $ 6,939 $ 65,513
Purchases of property and equipment (8,844 ) (19,702 )
Free cash flow (non-GAAP) $ (1,905 ) $ 45,811
40
——————————————————————————–
Table of Contents
NUTANIX, INC.
Management’s Discussion and Analysis of Financial Condition and Results of
Operations (Continued)
The following table presents a reconciliation of subscription billings and
professional services billings to the most directly comparable GAAP financial
measures, for each of the periods indicated:
Three Months Ended
October 31,
2021 2022
(in thousands)
Subscription revenue $ 337,901 $ 402,924
Change in subscription deferred revenue 21,422 38,506
Subscription billings $ 359,323 $ 441,430
Professional services revenue $ 24,116 $ 22,278
Change in professional services deferred revenue (1,914 ) (2,385 )
Professional services billings
$ 22,202 $ 19,893
Factors Affecting Our Performance
We believe that our future success will depend on many factors, including those described below. While these areas present significant opportunity, they also present risks that we must manage to achieve successful results. See the section titled "Risk Factors" in Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year endedJuly 31, 2022 and the section titled "Risk Factors" in Part II, Item 1A of this Quarterly Report on Form 10-Q for details. If we are unable to address these challenges, our business and operating results could be materially and adversely affected.
Investment in Profitable Growth
We continue to invest in our growth over the long-run, while improving our
operating cash flow performance by focusing on go-to-market efficiencies. By
maintaining this balance, we believe we can drive toward profitable growth.
Investment in Sales and Marketing - Our ability to achieve billings and revenue growth depends, in large part, on our ability to capitalize on our market opportunity, including our ability to recruit, train and retain sufficient numbers of ramped sales personnel to support our growth. As part of our investment in our growth over the long-run, we plan to invest in sales and marketing, including investing in our sales and marketing teams and continuing our focus on opportunities with major accounts, large deals, and commercial accounts, as well as other sales and marketing initiatives to increase our pipeline growth. However, our overall sales headcount is below our targets, which may negatively impact our billings and revenue growth. While we are actively recruiting additional sales representatives, it will take time to replace, train, and ramp them to full productivity. As a result, our overall sales and marketing expense may fluctuate, and may decline, in the near term. We estimate, based on past experience, that our average sales team members typically become fully ramped up around the start of their fourth quarter of employment with us, and as our newer employees ramp up, we expect their increased productivity to contribute to our revenue growth. As ofOctober 31, 2022 , we considered approximately 73% of our global sales team members to be fully ramped, while the remaining approximately 27% of our global sales team members are in the process of ramping up. As we continue to focus some of our newer and existing sales team members on major accounts and large deals, and as we continue our transition toward a subscription-based business model, it may take longer, potentially significantly, for these sales team members to become fully productive, and there may also be an impact to the overall productivity of our sales team. As part of our overall efforts to improve our free cash flow performance, we have also proactively taken steps to increase our go-to-market productivity and over time, we intend to reduce our overall sales and marketing spend as a percentage of revenue. These measures include improving the efficiency of our demand generation spend, focusing on lower cost renewals, increasing leverage of our channel partners, and optimizing headcount in geographies based on market opportunities. Investment in Research and Development and Engineering - We also intend, in the long term, to grow our global research and development and engineering teams to enhance our solutions, including our newer subscription-based products, improve integration with new and existing ecosystem partners and broaden the range of technologies and features available through our platform.
We believe that these investments will contribute to our long-term growth,
although they may adversely affect our profitability in the near term.
41
——————————————————————————–
Table of Contents
NUTANIX, INC.
Management’s Discussion and Analysis of Financial Condition and Results of
Operations (Continued)
Transition to Subscription
Starting in fiscal 2019, as a result of our transition towards a subscription-based business model, more of our customers began purchasing separately sold subscription term-based licenses that could be deployed on a variety of hardware platforms. As we continue our transition to a subscription-based business model, we expect a greater portion of our products to be delivered through subscription term-based licenses or cloud-based SaaS subscriptions. Shifts in the mix of whether our solutions are sold on a subscription basis have and could continue to result in fluctuations in our billings and revenue. Subscription sales consist of subscription term-based licenses and offerings with ongoing performance obligations, including software entitlement and support subscriptions and cloud-based SaaS offerings. Since revenue is recognized as performance obligations are delivered, sales with ongoing performance obligations may reflect lower revenue in a given period. In addition, other factors relating to our shift to selling more subscription term-based licenses may impact our billings, revenue and cash flow. For example, our term-based licenses generally have an average term of approximately three years and thus result in lower billings and revenue in a given period when compared to our historical life of device license sales, which have a duration equal to the life of the associated appliance, which we estimate to be approximately five years. In addition, starting in fiscal 2021, we began compensating our sales force based on ACV instead of total contract value, and while we expect that the shift to an ACV-based sales compensation plan will incentivize sales representatives to maximize ACV and minimize discounts, it could also further compress the average term of our subscription term-based licenses. Furthermore, our customers may, including in response to the uncertainty caused by the COVID-19 pandemic, decide to purchase our software solutions on shorter subscription terms than they have historically, and/or request to only pay for the initial year of a multi-year subscription term upfront, which could negatively impact our billings, revenue and cash flow in a given period when compared to historical life-of-device or multiple-year term-based license sales. Revenue for our solutions, whether or not sold as a subscription term-based license, is generally recognized upon transfer of control to the customer. For additional information on revenue recognition, see Note 2 of Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.
Market Adoption of Our Products
The public cloud and, more recently, hybrid cloud paradigms, have changed IT buyer expectations about the simplicity, agility, scalability, portability and pay-as-you-grow economics of IT resources, which represent a major architectural shift and business model evolution. A key focus of our sales and marketing efforts is creating market awareness about the benefits of our enterprise cloud platform. This includes our newer products outside of our core hyperconverged infrastructure offering, both as compared to traditional datacenter architectures as well as the public cloud, particularly as we continue to pursue large enterprises and mission critical workloads and transition toward a subscription-based business model. The broad nature of the technology shift that our enterprise cloud platform represents, the relationships our end customers have with existing IT vendors, and our transition toward a subscription-based business model sometimes lead to unpredictable sales cycles. We hope to compress and stabilize these sales cycles as market adoption increases, as we gain leverage with our channel partners, as we continue to educate the market about our subscription-based business model and as our sales and marketing efforts evolve. Our business and operating results will be significantly affected by the degree to and speed with which organizations adopt our enterprise cloud platform.
We plan to continue to leverage our relationships with our channel and OEM
partners and expand our network of cloud and ecosystem partners, all of which
help to drive the adoption and sale of our solutions with our end customers. We
sell our solutions primarily through our partners, and our solutions primarily
run on hardware appliances which are purchased from our channel or OEM partners.
We believe that increasing channel leverage, particularly as we expand our focus
on opportunities in commercial accounts, by investing in sales enablement and
co-marketing with our channel and OEM partners in the long term will extend and
improve our engagement with a broad set of end customers. Our reliance on
manufacturers, including our channel and OEM partners, to produce the hardware
appliances on which our software runs exposes us to supply chain delays, which
impair our ability to provide services to end customers in a timely manner. Our
business and results of operations will be significantly affected by our success
in leveraging our relationships with our channel and OEM partners and expanding
our network of cloud and ecosystem partners.
42
——————————————————————————–
Table of Contents
NUTANIX, INC.
Management’s Discussion and Analysis of Financial Condition and Results of
Operations (Continued)
Customer Retention and Expansion
Our end customers typically deploy our technology for a specific workload initially. After a new end customer's initial order, which includes the product and associated software entitlement and support subscription and services, we focus on expanding our footprint by serving more workloads. We also generate recurring revenue from our software entitlement and support subscription renewals, and given our transition to a subscription-focused business model, software and support renewals will have an increasing significance for our future revenue streams as existing subscriptions come up for renewal. We view continued purchases and upgrades as critical drivers of our success, as the sales cycles are typically shorter as compared to new end customer deployments, and selling efforts are typically less. As ofOctober 31, 2022 , approximately 74% of our end customers who have been with us for 18 months or longer have made a repeat purchase, which is defined as any purchase activity, including renewals of term-based licenses or software entitlement and support subscription renewals, after the initial purchase. Additionally, end customers who have been with us for 18 months or longer have total lifetime orders, including the initial order, in an amount that is more than 7.1x greater, on average, than their initial order. This number increases to approximately 21.3x, on average, for Global 2000 end customers who have been with us for 18 months or longer as ofOctober 31, 2022 . These multiples exclude the effect of one end customer who had a very large and irregular purchase pattern that we believe is not representative of the purchase patterns of all of our other end customers. Our business and operating results will depend on our ability to retain and sell additional solutions to our existing and future base of end customers. Our ability to obtain new and retain existing customers will in turn depend in part on a number of factors. These factors include our ability to effectively maintain existing and future customer relationships, continue to innovate by adding new functionality and improving usability of our solutions in a manner that addresses our end customers' needs and requirements, and optimally price our solutions in light of marketplace conditions, competition, our costs and customer demand. Furthermore, our ongoing transition to a subscription-based business model and ongoing product transitions, such as our updated pricing and packaging to simplify our product portfolio, may cause concerns among our customer base, including concerns regarding changes to pricing over time, and may also result in confusion among new and existing end customers, for example, regarding our pricing models. Such concerns and/or confusion can slow adoption and renewal rates among our current and future customer base.
Components of Our Results of Operations
Revenue
We generate revenue primarily from the sale of our enterprise cloud platform, which can be deployed on a variety of qualified hardware platforms or, in the case of our cloud-based SaaS offerings, via hosted service or delivered pre-installed on an appliance that is configured to order. Non-portable software licenses are delivered or sold alongside configured-to-order appliances and can be used over the life of the associated appliance. Our subscription term-based licenses are sold separately, or can be sold alongside configured-to-order appliances. Our subscription term-based licenses typically have a term of one to five years. Our cloud-based SaaS subscriptions have terms extending up to five years. Configured-to-order appliances, including ourNutanix -branded NX hardware line, can be purchased from one of our channel partners, OEMs or, in limited cases, directly fromNutanix . Our enterprise cloud platform typically includes one or more years of support and entitlements, which provides customers with the right to software upgrades and enhancements as well as technical support. Our platform is primarily sold through channel partners and OEMs. Revenue is recognized net of sales tax and withholding tax. 43
——————————————————————————–
Table of Contents
NUTANIX, INC.
Management’s Discussion and Analysis of Financial Condition and Results of
Operations (Continued) Product revenue - Product revenue consists of software and hardware revenue. A majority of our product revenue is generated from the sale of our enterprise cloud operating system. We also sell renewals of previously purchased software licenses and SaaS offerings. Revenue from our software products is generally recognized upon transfer of control to the customer, which is typically upon shipment for sales including a hardware appliance, upon making the software available to the customer when not sold with an appliance or as services are performed with SaaS offerings. In transactions where the hardware appliance is purchased directly fromNutanix , we consider ourselves to be the principal in the transaction and we record revenue and costs of goods sold on a gross basis. We consider the amount allocated to hardware revenue to be equivalent to the cost of the hardware procured. Hardware revenue is generally recognized upon transfer of control to the customer. Support, entitlements and other services revenue - We generate our support, entitlements and other services revenue primarily from software entitlement and support subscriptions, which include the right to software upgrades and enhancements as well as technical support. The majority of our product sales are sold in conjunction with software entitlement and support subscriptions, with terms ranging from one to five years. Occasionally, we also sell professional services with our products. We recognize revenue from software entitlement and support contracts ratably over the contractual service period, which typically commences upon transfer of control of the corresponding products to the customer. We recognize revenue related to professional services as they are performed.
Cost of Revenue
Cost of product revenue - Cost of product revenue consists of costs paid to third-party OEM partners, hardware costs, personnel costs associated with our operations function, consisting of salaries, benefits, bonuses and stock-based compensation, cloud-based costs associated with our SaaS offerings, and allocated costs, consisting of certain facilities, depreciation and amortization, recruiting and information technology costs allocated based on headcount. Cost of support, entitlements and other services revenue - Cost of support, entitlements and other services revenue includes personnel and operating costs associated with our global customer support organization, as well as allocated costs. We expect our cost of support, entitlements and other services revenue to increase in absolute dollars as our support, entitlements and other services revenue increases. Operating Expenses Our operating expenses consist of sales and marketing, research and development and general and administrative expenses. The largest component of our operating expenses is personnel costs. Personnel costs consist of wages, benefits, bonuses and, with respect to sales and marketing expenses, sales commissions. Sales and marketing - Sales and marketing expense consists primarily of personnel costs. Sales and marketing expense also includes sales commissions, costs for promotional activities and other marketing costs, travel costs and costs associated with demonstration units, including depreciation and allocated costs. Commissions are deferred and recognized as we recognize the associated revenue. We expect sales and marketing expense to continue, in the long term, to increase in absolute dollars as part of our long-term plans to invest in our growth. However, as part of our overall efforts to improve our operating cash flow performance, we have also proactively taken steps to increase our go-to-market productivity and over time, we intend to reduce our overall sales and marketing spend as a percentage of revenue. For example, inAugust 2022 , we announced that we will be decreasing our global headcount by approximately 4%, primarily in sales and marketing, as part of our continued effort to drive toward sustainable profitable growth. We have also recently seen higher-than-normal attrition among our sales representatives, and while we are actively recruiting additional sales representatives, it will take time to replace, train, and ramp them to full productivity. As a result, our sales and marketing expense will fluctuate, and may decline, in the near-term. 44
——————————————————————————–
Table of Contents
NUTANIX, INC.
Management’s Discussion and Analysis of Financial Condition and Results of
Operations (Continued)
Research and development - Research and development ("R&D") expense consists
primarily of personnel costs, as well as other direct and allocated costs. We
have devoted our product development efforts primarily to enhancing the
functionality and expanding the capabilities of our solutions. R&D costs are
expensed as incurred, unless they meet the criteria for capitalization. We
expect R&D expense, in the long term, to increase in absolute dollars as part of
our long-term plans to invest in our future products and services, including our
newer subscription-based products, although R&D expense may fluctuate as a
percentage of total revenue and, on an absolute basis, from quarter to quarter.
General and administrative - General and administrative ("G&A") expense consists
primarily of personnel costs, which include our executive, finance, human
resources and legal organizations. G&A expense also includes outside
professional services, which consists primarily of legal, accounting and other
consulting costs, as well as insurance and other costs associated with being a
public company and allocated costs. We expect G&A expense, in the long term, to
increase in absolute dollars, particularly due to additional legal, accounting,
insurance and other costs associated with our growth, although G&A expense may
fluctuate as a percentage of total revenue and, on an absolute basis, from
quarter to quarter.
Other Income (Expense), Net
Other income (expense), net consists primarily of interest income and expense, which includes the amortization of the debt issuance costs associated with our 0% convertible senior notes due 2023 (the "2023 Notes"), our 2.50% convertible senior notes due 2026 (the "2026 Notes") and our 0.25% convertible senior notes due 2027 (the "2027 Notes"), changes in the fair value of the derivative liability associated with the 2026 Notes, non-cash interest expense on the 2026 Notes, the amortization of the debt discount on the 2026 Notes, interest expense on the 2027 Notes, debt extinguishment costs, interest income related to our short-term investments, and foreign currency exchange gains or losses.
Provision for Income Taxes
Provision for income taxes consists primarily of income taxes for certain foreign jurisdictions in which we conduct business and state income taxes inthe United States . We have recorded a full valuation allowance related to our federal and state net operating losses and other net deferred tax assets and a partial valuation allowance related to our foreign net deferred tax assets due to the uncertainty of the ultimate realization of the future benefits of those assets. 45
——————————————————————————–
Table of Contents
NUTANIX, INC.
Management’s Discussion and Analysis of Financial Condition and Results of
Operations (Continued)
Results of Operations
The following tables set forth our condensed consolidated results of operations
in dollars and as a percentage of total revenue for the periods presented. The
period-to-period comparison of results is not necessarily indicative of results
for future periods.
Three Months Ended
October 31,
2021 2022
(in thousands)
Revenue:
Product $ 180,105 $ 208,574
Support, entitlements and other services 198,412 225,035
Total revenue 378,517 433,609
Cost of revenue:
Product (1)(2) 14,221 12,516
Support, entitlements and other services (1) 67,225 69,979
Total cost of revenue 81,446 82,495
Gross profit 297,071 351,114
Operating expenses:
Sales and marketing (1)(2) 250,033 236,072
Research and development (1) 144,266 149,195
General and administrative (1) 40,028 46,104
Total operating expenses 434,327 431,371
Loss from operations (137,256 ) (80,257 )
Other expense, net (278,549 ) (13,416 )
Loss before provision for income taxes (415,805 ) (93,673 )
Provision for income taxes 4,047 5,443
Net loss $ (419,852 ) $ (99,116 )
(1) Includes stock-based compensation expense as
follows:
Product cost of revenue$ 1,751 $ 2,159 Support, entitlements and other services cost of revenue 8,451 5,346 Sales and marketing 29,132 20,472 Research and development 38,479 38,622 General and administrative 12,734 14,356 Total stock-based compensation expense$ 90,547
(2) Includes amortization of intangible assets as follows:
Product cost of revenue
$ 3,476 $ 2,810 Sales and marketing 651
349
Total amortization of intangible assets$ 4,127 $ 3,159 46
——————————————————————————–
Table of Contents
NUTANIX, INC.
Management's Discussion and Analysis of Financial Condition and Results of
Operations (Continued)
Three Months Ended
October 31,
2021 2022
(as a percentage of total revenue)
Revenue:
Product 47.6 % 48.1 %
Support, entitlements and other services 52.4 % 51.9 %
Total revenue 100.0 % 100.0 %
Cost of revenue:
Product 3.7 % 2.9 %
Support, entitlements and other services 17.8 % 16.1 %
Total cost of revenue 21.5 % 19.0 %
Gross profit 78.5 % 81.0 %
Operating expenses:
Sales and marketing 66.1 % 54.5 %
Research and development 38.1 % 34.4 %
General and administrative 10.6 % 10.6 %
Total operating expenses 114.8 % 99.5 %
Loss from operations (36.3 )% (18.5 )%
Other expense, net (73.6 )% (3.1 )%
Loss before provision for income taxes (109.9 )% (21.6 )%
Provision for income taxes 1.1 % 1.3 %
Net loss (111.0 )% (22.9 )%
47
——————————————————————————–
Table of Contents
NUTANIX, INC.
Management’s Discussion and Analysis of Financial Condition and Results of
Operations (Continued)
Comparison of the Three Months Ended
Revenue
Three Months Ended
October 31, Change
2021 2022 $ %
(in thousands, except percentages)
Product $ 180,105 $ 208,574 $ 28,469 16 %
Support, entitlements
and other services 198,412 225,035 26,623 13 %
Total revenue $ 378,517 $ 433,609 $ 55,092 15 %
Three Months Ended
October 31, Change
2021 2022 $ %
(in thousands, except percentages)
U.S. $ 217,150 $ 255,730 $ 38,580 18 %
Europe, the Middle
East and Africa 83,995 100,253 16,258 19 %
Asia Pacific 65,683 69,103 3,420 5 %
Other Americas 11,689 8,523 (3,166 ) (27 )%
Total revenue $ 378,517 $ 433,609 $ 55,092 15 %
The increase in product revenue for the three months ended October 31, 2022 , as
compared to the prior year period, was due primarily to increases in software
revenue resulting from growth in software renewals due to our transition to
selling subscription term-based licenses and an increased adoption of our
products, partially offset by the impact of the shorter average contract terms
resulting from this transition. For the three months ended October 31, 2021 , the
total average contract term was approximately 3.1 years. For the three months
ended October 31, 2022 , the total average contract term was approximately 3.0
years. Total average contract term represents the dollar-weighted term across
all subscription and life-of-device contracts billed during the period, using an
assumed term of five years for licenses without a specified term, such as
life-of-device licenses.
Support, entitlements and other services revenue increased for the three months
ended October 31, 2022 , as compared to the prior year period, in conjunction
with the growth of our end customer base and the related software entitlement
and support subscription contracts and renewals.
Cost of Revenue and Gross Margin
Three Months Ended
October 31, Change
2021 2022 $ %
(in thousands, except percentages)
Cost of product revenue $ 14,221 $ 12,516 $ (1,705 ) (12 )%
Product gross margin 92.1 % 94.0 %
Cost of support,
entitlements and
other services revenue $ 67,225 $ 69,979 $ 2,754 4 %
Support, entitlements
and other services
gross margin 66.1 % 68.9 %
Total gross margin 78.5 % 81.0 %
Cost of product revenue
Cost of product revenue decreased for the three months ended October 31, 2022 ,
as compared to the prior year period, due primarily to a corresponding decrease
in hardware revenue. Slight fluctuations in hardware revenue and cost of product
revenue are anticipated, as we expect to continue selling small amounts of
hardware for the foreseeable future.
Product gross margin increased by 1.9 percentage points for the three months
ended October 31, 2022 , as compared to the prior year period, due primarily to
increasing software revenue, as we continued to focus on more software-only
transactions, which have a higher margin as compared to hardware sales.
48
——————————————————————————–
Table of Contents
NUTANIX, INC.
Management’s Discussion and Analysis of Financial Condition and Results of
Operations (Continued)
Cost of support, entitlements and other services revenue
Cost of support, entitlements and other services revenue increased for the three months endedOctober 31, 2022 , as compared to the prior year period, due primarily to higher personnel-related costs, resulting from growth in our global customer support organization. Support, entitlements and other services gross margin increased by 2.8 percentage points for the three months endedOctober 31, 2022 , as compared to the prior year period, due primarily to support, entitlements and other services revenue growing at a higher rate than personnel-related costs. Operating Expenses Sales and marketing Three Months Ended October 31, Change 2021 2022 $ % (in thousands, except percentages) Sales and marketing$ 250,033 $ 236,072 $ (13,961 ) (6 )% Percent of total revenue 66.1 % 54.5 % Sales and marketing expense decreased for the three months endedOctober 31, 2022 , as compared to the prior year period, due primarily to lower headcount-related costs, including stock-based compensation expense and commissions expense, driven by the 7% decrease in sales and marketing headcount fromOctober 31, 2021 toOctober 31, 2022 , as well as lower marketing costs resulting from our increased focus on expense management. The decrease was partially offset by an increase in costs related to certain sales events that moved from virtual to in-person. Research and development Three Months Ended October 31, Change 2021 2022 $ % (in thousands, except percentages) Research and development$ 144,266 $ 149,195 $ 4,929 3 % Percent of total revenue 38.1 % 34.4 % Research and development expense increased for the three months endedOctober 31, 2022 , as compared to the prior year period, due primarily to higher personnel-related costs resulting from growth in our R&D headcount, which grew 8% fromOctober 31, 2021 toOctober 31, 2022 .
General and administrative
Three Months Ended
October 31, Change
2021 2022 $ %
(in thousands, except percentages)
General and administrative
Percent of total revenue
10.6 % 10.6 % General and administrative expense increased for the three months endedOctober 31, 2022 , as compared to the prior year period, due primarily to an increase in personnel-related costs resulting from growth in our G&A headcount, which grew 15% fromOctober 31, 2021 toOctober 31, 2022 , as well as higher legal and outside services costs. 49
——————————————————————————–
Table of Contents
NUTANIX, INC.
Management's Discussion and Analysis of Financial Condition and Results of
Operations (Continued)
Other Expense, Net
Three Months Ended
October 31, Change
2021 2022 $ %
(in thousands, except percentages)
Interest income, net $ 554 $ 5,512 $ (4,958 ) (895 )%
Change in fair value of
derivative liability (198,038 ) - (198,038 ) (100 )%
Amortization of debt
discount and issuance
costs and interest
expense (14,757 ) (15,730 ) 973 7 %
Debt extinguishment costs (64,911 ) - (64,911 ) (100 )%
Other (1,397 ) (3,198 ) 1,801 129 %
Other expense, net $ (278,549 ) $ (13,416 ) $ (265,133 ) (95 )%
Other income (expense), net decreased for the three months ended October 31,
2022 , as compared to the prior year period, due primarily to the change in the
fair value of the derivative liability related to the 2026 Notes and the debt
extinguishment costs resulting from the exchange of $416.5 million in aggregate
principal amount of the 2023 Notes for $477.3 million in aggregate principal
amount of the 2027 Notes.
Provision for Income Taxes
Three Months Ended
October 31, Change
2021 2022 $ %
(in thousands, except percentages)
Provision for income taxes
The increase in the income tax provision for the three months endedOctober 31, 2022 , as compared to the prior year period, was due primarily to higher foreign taxes as a result of higher taxable earnings in foreign jurisdictions, as we continued to grow our business internationally, as well as lower tax benefits on stock options exercised in the current period due to lower stock prices. We continue to maintain a full valuation allowance on ourU.S. federal and state deferred tax assets and a partial valuation allowance related to our foreign net deferred tax assets.
Liquidity and Capital Resources
As ofOctober 31, 2022 , we had$480.6 million of cash and cash equivalents,$2.9 million of restricted cash and$907.4 million of short-term investments, which were held for general corporate purposes. Our cash, cash equivalents and short-term investments primarily consist of bank deposits, money market accounts and highly rated debt instruments of theU.S. government and its agencies and debt instruments of highly rated corporations. InJanuary 2018 , we issued convertible senior notes with a 0% interest rate for an aggregate principal amount of$575.0 million . InSeptember 2021 , we entered into privately negotiated exchange and note repurchase transactions, after which$145.7 million in aggregate principal amount of 2023 Notes remains outstanding. There are no required principal payments on the 2023 Notes prior to their maturity. We intend to settle the principal amount of the 2023 Notes in cash upon maturity inJanuary 2023 . For additional information, see Note 5 of Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q. InSeptember 2020 , we issued$750.0 million in aggregate principal amount of 2.50% convertible senior notes due 2026 toBCPE Nucleon (DE) SPV, LP , an entity affiliated withBain Capital, LP . For additional information, see Note 5 of Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q. InSeptember 2021 , we issued convertible senior notes with a 0.25% interest rate for an aggregate principal amount of$575.0 million due 2027, of which$477.3 million in principal amount was issued in exchange for approximately$416.5 million principal amount of the 2023 Notes and the remaining$97.7 million in principal amount was issued for cash. There are no required principal payments on the 2027 Notes prior to their maturity. For additional information, see Note 5 of Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q. 50
——————————————————————————–
Table of Contents
NUTANIX, INC.
Management’s Discussion and Analysis of Financial Condition and Results of
Operations (Continued) Due to investments in our business as well as the potential cash flow impacts resulting from our continued transition to a subscription-based business model, we expect our operating and free cash flow to continue to fluctuate during the next 12 months. Notwithstanding that fact, we believe that our cash and cash equivalents and short-term investments will be sufficient to meet our anticipated cash needs for working capital and capital expenditures for at least the next 12 months. Our future capital requirements will depend on many factors, including our growth rate, the timing and extent of spending to support development efforts, the expansion of sales and marketing activities, the introduction of new and enhanced product and service offerings, the continuing market acceptance of our products, the impact of COVID-19 pandemic on our business, our end customers and partners, and the economy, and the timing of and extent to which our customers transition to shorter-term contracts or request to only pay for the initial term of multi-year contracts as a result of our transition to a subscription-based business model.
Cash Flows
The following table summarizes our cash flows for the periods presented:
Three Months Ended
October 31,
2021 2022
(in thousands)
Net cash provided by operating activities $ 6,939 $ 65,513
Net cash used in investing activities (8,871 ) (8,237 )
Net cash provided by financing activities 67,259
20,330
Net increase in cash, cash equivalents and restricted cash
Cash Flows from Operating Activities
Net cash provided by operating activities was$65.5 million for the three months endedOctober 31, 2022 , compared to$6.9 million for the three months endedOctober 31, 2021 . Better cash collections performance helped drive the increase in cash provided by operating activities for the three months endedOctober 31, 2022 .
Cash Flows from Investing Activities
Net cash used in investing activities of$8.9 million for the three months endedOctober 31, 2021 included$290.1 million of short-term investment purchases and$8.8 million of purchases of property and equipment, partially offset by$272.0 million of maturities of short-term investments and$18.0 million of sales of short-term investments. Net cash used in investing activities of$8.2 million for the three months endedOctober 31, 2022 included$256.2 million of short-term investment purchases and$19.7 million of purchases of property and equipment, partially offset by$267.7 million of maturities of short-term investments.
Cash Flows from Financing Activities
Net cash provided by financing activities of$67.3 million for the three months endedOctober 31, 2021 included$89.1 million of proceeds from the issuance of the 2027 Notes in the subscription transactions that closed inSeptember 2021 , net of issuance costs,$39.9 million of proceeds from the termination of portions of the convertible note hedge transactions previously entered into in connection with the 2023 Notes, and$30.1 million of proceeds from the sale of shares through employee equity incentive plans, partially offset by$58.6 million of repurchases of our Class A common stock,$18.4 million of payments for the termination of portions of the warrant transactions previously entered into in connection with the 2023 Notes, and$14.7 million of debt extinguishment costs. Net cash provided by financing activities of$20.3 million for the three months endedOctober 31, 2022 included$22.2 million of proceeds from the sale of shares through employee equity incentive plans, partially offset by$1.9 million of payments for finance lease obligations. 51
——————————————————————————–
Table of Contents
NUTANIX, INC.
Management’s Discussion and Analysis of Financial Condition and Results of
Operations (Continued)
Material Cash Requirements and Other Obligations
The following table summarizes our material cash requirements and other
obligations as of
Payments Due by Period
Less than 1 Year to 3 to More than
Total 1 Year 3 Years 5 Years 5 Years
(in thousands)
Principal amount payable on
convertible
senior notes (1) $ 1,508,426 $ 145,704 $ - $ 1,362,722 $ -
Interest on convertible senior
notes (1) 2,632 116 - 2,516 -
Operating leases (undiscounted
basis) (2) 145,979 38,427 44,911 27,342 35,299
Other commitments (3) 96,749 88,877 6,164 1,708 -
Guarantees with contract
manufacturers 79,265 79,265 - - -
Total $ 1,833,051 $ 352,389 $ 51,075 $ 1,394,288 $ 35,299
(1)
Includes accrued paid-in-kind interest on the 2026 Notes and accrued interest on
the 2027 Notes. For additional information regarding our convertible senior
notes, refer to Note 5 of Notes to Condensed Consolidated Financial Statements
included in Part I, Item 1 of this Quarterly Report on Form 10-Q.
(2)
For additional information regarding our operating leases, refer to Note 6 of
Notes to Condensed Consolidated Financial Statements included in Part I, Item 1
of this Quarterly Report on Form 10-Q.
(3)
Purchase obligations and other commitments pertaining to our daily business
operations.
From time to time, in the normal course of business, we make commitments with
our contract manufacturers to ensure them a minimum level of financial
consideration for their investment in our joint solutions. These commitments are
based on revenue targets or on-hand inventory and non-cancelable purchase orders
for non-standard components. We record a charge related to these items when we
determine that it is probable a loss will be incurred and we are able to
estimate the amount of the loss. Our historical charges have not been material.
As of
positions, which are reflected on our condensed consolidated balance sheet.
These accrued liabilities are not reflected in the contractual obligations
disclosed in the table above, as it is uncertain if or when such amounts will
ultimately be settled.
Critical Accounting Policies and Estimates
Our condensed consolidated financial statements are prepared in accordance withU.S. GAAP. The preparation of these condensed consolidated financial statements requires management to make estimates, assumptions and judgments that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the applicable periods. We evaluate our estimates, assumptions and judgments on an ongoing basis. Our estimates, assumptions and judgments are based on historical experience and various other factors that we believe to be reasonable under the circumstances. Different assumptions and judgments would change the estimates used in the preparation of our condensed consolidated financial statements, which, in turn, could change the results from those reported.
There have been no material changes to our critical accounting policies and
estimates as compared to those described in our Annual Report on Form 10-K for
the fiscal year ended
Recent Accounting Pronouncements
See Note 1 of Notes to Condensed Consolidated Financial Statements included in
Part I, Item 1 of this Quarterly Report on Form 10-Q for a full description of
recent accounting pronouncements.
52
——————————————————————————–
Table of Contents
© Edgar Online, source
link