Nutanix Execs Talk VMware-Broadcom, Layoffs As Stock Spikes

‘Yes, there is definitely a higher level of engagement from VMware customers as a result of what’s going on out there, and they’re more open to discussions with us,’ says Nutanix CEO Rajiv Ramaswami.

Nutanix CEO Rajiv Ramaswami

Nutanix Stock Soaring After Q4 Financial Earnings Results

As Nutanix announced generating $386 million in revenue during its fourth fiscal quarter, Nutanix executives also discussed employee layoffs and competition with VMware as it prepares to be acquired by Broadcom.

“We’re seeing more talent out there, from VMware, looking for new career opportunities,” said Rajiv Ramaswami, CEO of Nutanix, during the company’s fourth-quarter earnings call with media and analysts.

“Yes, there is definitely a higher level of engagement from VMware customers as a result of what’s going on out there, and they’re more open to discussions with us,” said Nutanix’s CEO.

Nutanix Earnings Results

The San Jose, Calif.-based hybrid cloud and hyperconverged software specialist generated $386 million in fourth-quarter sales, down 1 percent year over year, but above Nutanix’s previous guidance range of $340 million to $360 million.

Nutanix’s annual recurring revenue in the quarter reached $1.2 billion, representing an increase of 37 percent year over year.

The company’s annual contract value (ACV) billings grew 10 percent year over year to $193 million.

Looking at Nutanix’s entire fiscal year 2022, which ended July 31, 2022, the company generated $1.58 billion in total revenue, up 13 percent year over year.

Nutanix reported $756 million in ACV billings for its entire fiscal year 2022, up 27 percent year over year.

In terms of free cash flow, Nutanix generated free cash flow of $18.5 million in fiscal year 2022, compared with having negative $158 million cash flow in fiscal year 2021.

“For the first time since 2018, we achieved positive free cash flow for the entire fiscal year,” said Ramaswami.

Nutanix Layoffs

Aside from the financial results, executives spoke about Nutanix’s recent layoffs and potential employee cuts ahead, competition with VMware as well as full-year financial guidance for its current fiscal year 2023.

“ We made the difficult decision to reduce our head count by letting go of approximately 270 employees, about 4 percent of our total head count,” said Nutanix CFO Rukmini Sivaraman. “We expect [this] to result in estimated annualized expense reduction of approximately $55 million to $60 million.”

CRN breaks down the five biggest takeaways from Nutanix’s fourth-quarter earnings report.

Nutanix Through ‘Most’ Of Its Layoffs; Cuts Were In Sales And Marketing

Nutanix said it recently cut 270 employees, which is about 4 percent of its total head count, in a move to drive sustainable, profitable growth.

Nutanix’s layoffs will result in an estimated annualized expense reduction of approximately $55 million to $60 million.

“We are through most of the notifications; several of the head count reductions are complete. However, as we all know, we’re a global company, and so there are some notifications and exits that are still due to happen,” said Sivaraman.

Nutanix’s CFO said the company expects layoffs to be “largely complete” by the end of its current first fiscal quarter.

“And then, we have a few that are outstanding for Q2,” he added. “[But] most of them are expected to be complete in Q1.”

In terms of where the employee reduction came from, Nutanix leaders said most layoffs were in sales and marketing.

“The majority of the impact was in sales and marketing. And within sales, it was mostly non-quota-carrying salespeople,” said Nutanix’s CEO. “Then the rest was across all the other functional areas.”

Nutanix leaders said the layoffs didn’t impact a specific region but were spread across the globe.

“It is a global action that we’ve taken depending on what we’ve seen as our priorities and where we want to invest—versus we don’t want to or we’ve sort of decided to optimize in certain areas,” said Nutanix’s CFO. “I think it is fair to assume that it was a global action.”

Ramaswami said Nutanix will make sure it is investing the appropriate amount in sales and marketing, “but combine that with productivity and make sure that our percentage spend is going down as a function of revenue.”

Nutanix: VMware Talent ‘Looking For New Career Opportunities’

Nutanix was questioned about VMware launching a slew of innovation at its VMware Explore event this week as well as how the market is reacting to VMware’s upcoming acquisition by Broadcom for $61 billion.

“Yes, there is definitely a higher level of engagement from VMware customers as a result of what’s going on out there, and they’re more open to discussions with us,” said Ramaswami.

“We’re seeing more talent out there, from VMware, looking for new career opportunities,” he added.

Broadcom sent shockwaves throughout the IT industry earlier this year when it unveiled its planned acquisition of VMware. The blockbuster deal has already been approved by both companies’ boards and is set to close by the end of Broadcom’s fiscal year, which ends October 2022. However, VMware employees and channel partners have expressed concerns with the deal regarding potential layoffs ahead and a possible reduction in innovation.

Nutanix executives were also asked about recent product launches at VMware Explore, the company’s new flagship conference held this week.

“With respect to the portfolio itself, we feel very good about where our portfolio is at this point,” said Ramaswami. “If you look at our fundamental differentiation, the platform provides a lot of simplicity. We make these problems really, really simple—and it’s from the beginning. We haven’t put together two or three different products to build a solution. We’ve engineered assets from the very beginning.”

Nutanix’s CEO added that “win rates continue to increase related to our competition against both our large competitors as well as our legacy three-tier competition. So, we feel pretty good about the product side.”

Nutanix Stock Jumps 28 Percent

Following Nutanix’s fourth-quarter earnings results Wednesday night, the company’s stock is surging as of Thursday morning.

Nutanix stock is currently trading up 28 percent Thursday at $22.26 per share.

Nutanix’s stock price has not been trading this high since May 2022.

The stock jump is likely due to Nutanix beating Wall Street financial expectations for its fourth quarter, generating $1.2 billion in annual recurring revenue–up 37 percent year over year—as well as achieving a positive free cash flow for the first time since 2018.

“ Fiscal year 2022 was a significant year as we saw the thesis around our subscription business model and diligent expense management start to bear fruit, with renewals performing better than expected and positive free cash flow for the year,” said Sivaraman. “We expect to continue to make steady progress each year towards continued top-line growth and profitability.”

Nutanix also projected it will deliver about $75 million to $100 million of free cash flow for its fiscal year 2023.

Nutanix Weighs In On Supply Chain

As supply chain challenges continue to rock the IT industry as a whole, Nutanix said constraints with its server partners—which include Hewlett Packard Enterprise, Dell Technologies and Lenovo—were better than expected.

“Supply chain constraints with our server partners, while remaining a significant challenge in the quarter, were better than we had expected,” said Nutanix’s CEO.

Nutanix said supply chain issues did not improve during its fourth quarter but was not as bad as the company had expected.

“I want to be clear that it did not improve in Q4 relative to Q3. It actually did get worse in Q4, as we expected. It just didn’t get to be quite as bad as we thought,” said Sivaraman. “I think it’s an important point that supply chain challenges that we saw, the percentage of orders that came in with a future start date, did increase in Q4 relative to Q3.”

Overall, Nutanix executives said the supply chain challenges are not having a significant impact on its business.

Fiscal Year 2023 Revenue Projection: $1.78 Billion

Nutanix provided guidance for its current first fiscal quarter 2023 of between $410 million and $415 million, which would represent 9 percent growth year over year.

The company expects ACV billings of between $210 million and $215 million in its current first quarter, which would represent a 16 percent growth rate year over year.

The San Jose, Calif.-based company also provided full-year 2023 financial guidance.

Nutanix predicts it will generate approximately $1.78 billion in total revenue in fiscal year 2023, which would represent a year-over-year growth rate of 12 percent.

ACV billings is expected to be upward of $900 million for fiscal year 2023, up 19 percent year over year.

The fiscal year 2023 revenue guidance assumes that supply chain dynamics will remain relatively the same through the first half of the year and would start to ease modestly in the second half of the year.

“We did exit Q4 and fiscal year 2022 with record levels of backlog. So we’re factoring that in as well into the fiscal year 2023 guidance,” said Sivaraman.

Nutanix’s CEO Ramaswami said the company’s priority this year remains driving toward sustainable, profitable growth.

“To enable this, we will continue to judiciously invest in the growth of the business, execute on our growing base of renewals and diligently manage expense levels,” he said.

“We see the business achieving positive non-GAAP operating income and continuing to be free-cash-flow-positive in FY23. We plan to do this through a combination of strong continued top-line growth and diligent expense management,” said Ramaswami. “We remain confident about the opportunity ahead of us and enter FY23 with a sense of excitement and cautious optimism.”