Executive Summary / Key Takeaways

• Nutanix is successfully executing a transformation to a sustainable, profitable growth model, evidenced by strong financial performance including significant free cash flow generation and expanding operating margins.
• The company's hybrid multicloud platform and ongoing innovation in areas like AI and modern applications are resonating with customers seeking IT modernization and TCO optimization, particularly amidst competitive disruption.
• Strategic partnerships with industry leaders like Dell (DELL), Cisco (CSCO), AWS (AMZN), and Pure Storage (PSTG) are providing crucial go-to-market leverage and expanding Nutanix's addressable market, including into the large 3-tier storage installed base.
• While macroeconomic uncertainty and elongated sales cycles, especially for larger deals, present ongoing risks, Nutanix's growing pipeline and strong renewal performance underpin its outlook.
• Management's updated guidance reflects confidence in continued top-line growth and further margin expansion, supported by targeted investments in sales, marketing, and R&D.

The Evolution of a Cloud Leader

Nutanix, founded in 2009, pioneered the hyperconverged infrastructure (HCI) market, fundamentally changing how businesses built and managed their data centers. Over the past decade and a half, the company has strategically evolved beyond its HCI roots to become a leader in cloud software, offering a unified platform designed to run applications and manage data seamlessly across core data centers, the edge, and public clouds. This transformation included a pivotal shift to a subscription-based business model, providing customers with flexible licensing and predictable costs over defined durations.

This subscription model is central to Nutanix's financial architecture. Revenue from term-based software licenses is generally recognized upfront when the software is made available, while revenue from software entitlement, support subscriptions, and SaaS offerings is recognized ratably over the contract term. This structure means that while upfront licenses contribute immediately to revenue, the significant portion derived from ratable services builds a predictable, recurring revenue stream over time. As of April 30, 2025, contracted but not yet recognized revenue stood at approximately $2.43 billion, with nearly half expected to be recognized within the next 12 months, highlighting the growing visibility and stability provided by this model.

The company's vision is clear: simplify hybrid multicloud deployments and free customers to focus on business outcomes. Its mission is to delight customers with an open hybrid multicloud platform offering rich data services for any application, anywhere. This strategic direction is a direct response to evolving IT buyer expectations shaped by hybrid and multicloud paradigms, generative AI, and modern applications, all demanding simplicity, agility, scalability, portability, and pay-as-you-grow economics.

Technological Foundation and Innovation Engine

At the heart of Nutanix's offering is the Nutanix Cloud Platform, built on its proprietary technology. This platform provides a consistent cloud operating model across diverse environments. A key component is the AHV hypervisor, Nutanix's own virtualization technology, which is seeing increasing adoption, particularly among new customers. The platform also includes robust networking, security micro-segmentation, and a comprehensive management suite.

Nutanix is actively innovating to expand the platform's capabilities and address emerging market needs. Recent developments include:

• Generative AI Support: The launch of GPT-in-a-Box 2.0 and Nutanix Enterprise AI (NAI) simplifies the deployment of GenAI applications. NAI streamlines the deployment, scaling, and running of inferencing endpoints for large language models, enabling enterprises to run AI workloads close to their data on-prem or at the edge. Nutanix is partnered with NVIDIA (NVDA), integrating NVIDIA AI Enterprise components to speed deployment of Agentic AI applications.
• Modern Applications: Nutanix Kubernetes Platform (NKP) and Cloud Native AOS are designed to support modern, containerized applications, providing resilient storage and data services wherever they run, including native Kubernetes substrates and bare metal. The acquisition of D2IQ bolstered its Kubernetes capabilities.
• Hybrid Cloud & Portability: Nutanix Cloud Clusters (NC2) enables seamless workload mobility between private clouds and public clouds like AWS, Microsoft Azure (MSFT), and soon Google Cloud (GOOGL) (early access summer 2025). This provides customers with consistent management and automation across their hybrid estate.
• External Storage Integration: Recognizing the vast installed base of traditional 3-tier storage, Nutanix is strategically enabling its platform to support external storage arrays. Support for Dell PowerFlex became generally available at the end of April 2025, and a new partnership with Pure Storage aims to support FlashArray by the end of calendar year 2025. This initiative allows Nutanix to penetrate environments without requiring a complete hardware refresh, expanding its addressable market.

These technological advancements offer tangible benefits to customers, such as reduced total cost of ownership (TCO), improved operational efficiency, increased automation, and greater flexibility in deploying and managing diverse workloads, including demanding AI applications. For investors, this innovation engine is crucial as it strengthens Nutanix's competitive moat, drives customer adoption and expansion, and positions the company to capitalize on major industry trends like hybrid cloud and AI.

Competitive Dynamics and Strategic Positioning

The cloud infrastructure market is highly competitive, with Nutanix facing established players like VMware (VMW) (now part of Broadcom (AVGO)), Pure Storage, IBM (IBM), and Dell EMC, as well as public cloud giants like AWS and Microsoft Azure. Nutanix positions itself as a differentiated alternative, emphasizing simplicity, flexibility, and a consistent operating model across hybrid environments, in contrast to what it characterizes as the complexity and vendor lock-in associated with some traditional offerings.

The recent industry M&A activity, particularly the Broadcom acquisition of VMware, has created significant disruption and opportunity. Nutanix is seeing increased engagement from customers looking for alternatives due to concerns over pricing changes and support. This dynamic is contributing to Nutanix's strong new logo growth, which has seen significant year-over-year increases. While large enterprises often have multi-year contracts and hardware refresh cycles that can slow migration, Nutanix is winning deals across the spectrum, including large Global 2000 accounts and smaller commercial customers. The company's a la carte approach, allowing customers to buy only what they need, contrasts with competitors pushing full stacks, providing a perceived advantage in flexibility and cost optimization.

Partnerships are a critical element of Nutanix's competitive strategy. Selling primarily through channel partners and OEMs like Dell and Cisco provides significant go-to-market leverage and extends Nutanix's reach. Cisco has been a consistent contributor to new logo growth. The Dell relationship, while earlier, is expected to contribute through both the reselling of Nutanix HCI appliances (Dell XC Plus, now GA) and the new external storage support (PowerFlex). The partnership with Pure Storage further expands the ability to address the 3-tier storage market. Collaborations with public cloud providers like AWS and Microsoft Azure (for NC2 and marketplace availability) and Google Cloud are essential for enabling hybrid multicloud deployments and competing effectively in those environments. Nutanix is also increasing its focus on the cloud service provider (CSP) and managed service provider (MSP) market, seeing a significant opportunity due to changes in the competitive landscape.

While Nutanix's technology offers advantages in efficiency and flexibility, competitors like VMware have a larger installed base and broader ecosystem, Pure Storage excels in raw storage performance, IBM has a vast global reach and consulting arm, and Dell EMC benefits from its hardware dominance. Nutanix's challenge is to convert its technological and operational advantages into sustained market share gains and financial outperformance against these formidable rivals, who may leverage their scale and financial strength for aggressive competitive actions.

Financial Performance and Path to Profitability

Nutanix has demonstrated significant progress on its path to sustainable, profitable growth. For the three months ended April 30, 2025 (Q3 FY25), the company reported total revenue of $639.0 million, a 21.8% increase year-over-year. Subscription revenue, the core of the business, grew 25.3% year-over-year to $609.7 million, now representing 95.4% of total revenue. For the nine months ended April 30, 2025, total revenue was $1.88 billion, up 17.7% year-over-year, with subscription revenue growing 19.3% to $1.79 billion.

Gross profit for Q3 FY25 was $556.0 million, resulting in a GAAP gross margin of 87.0%. Non-GAAP gross margin was even stronger at 88.2%. For the nine months, GAAP gross profit was $1.63 billion (86.7% margin), and non-GAAP gross profit was $1.66 billion (88.0% margin). These high and expanding gross margins reflect the profitability inherent in Nutanix's software-centric, subscription model.

Operating expenses increased year-over-year as the company invests for growth. For Q3 FY25, total operating expenses were $507.3 million. Sales and marketing increased 6% to $260.4 million, research and development increased 17% to $186.4 million, and general and administrative increased 18% to $60.5 million. For the nine months, total operating expenses were $1.49 billion, up from $1.34 billion in the prior year period. Despite these investments, operating leverage is improving. GAAP income from operations for Q3 FY25 was $48.6 million (7.6% margin), a significant improvement from a loss of $11.6 million in the prior year quarter. For the nine months, GAAP income from operations was $141.3 million (7.5% margin), compared to income of $19.8 million in the prior year period. Non-GAAP operating income for Q3 FY25 was $137.1 million (21.5% margin), and for the nine months was $416.6 million (22.1% margin).

Net income also turned positive. GAAP net income for Q3 FY25 was $63.4 million ($0.22 per diluted share), compared to a loss of $15.6 million in Q3 FY24. For the nine months, GAAP net income was $149.7 million ($0.52 per diluted share), a substantial improvement from a loss of $1.3 million in the prior year period. Non-GAAP net income for Q3 FY25 was $125 million ($0.42 per diluted share).

Cash flow generation has been a major highlight. Net cash provided by operating activities for the nine months ended April 30, 2025, was $601.9 million, a significant increase from $428.2 million in the prior year period, primarily driven by the increase in net income from operations. Free cash flow for the nine months was $542.4 million, compared to $373.4 million in the prior year period.

As of April 30, 2025, Nutanix held $872.6 million in cash and cash equivalents and $1.01 billion in short-term investments, totaling $1.88 billion in liquid assets. The company also has access to a $500 million revolving credit facility, which remained undrawn as of April 30, 2025.

Capital allocation includes share repurchases. Under an existing authorization, Nutanix repurchased approximately 0.6 million shares for $37.5 million in Q3 FY25 and 0.9 million shares for $57.5 million in the first nine months of FY25. Additionally, the company used $200 million of the net proceeds from its December 2024 convertible notes offering to repurchase approximately 3.1 million shares in privately negotiated transactions.

Outlook and Forward Momentum

Nutanix provided guidance for the fourth quarter of fiscal year 2025 and updated its full-year fiscal year 2025 outlook, reflecting confidence in continued growth and profitability improvements.

For Q4 FY25, the company expects:

• Revenue: $635 million to $645 million
• Non-GAAP Operating Margin: 15.5% to 16.5%
• Fully Diluted Weighted Average Shares Outstanding: Approximately 297 million

Based on the Q4 guidance, the updated full-year FY25 outlook is:

• Revenue: $2.52 billion to $2.53 billion (approximately 17.5% year-over-year growth at the midpoint)
• Non-GAAP Operating Margin: Approximately 20.5%
• Free Cash Flow: $700 million to $730 million (approximately 28% margin at the midpoint)

This updated full-year guidance represents an increase across all guided metrics compared to previous expectations. Key assumptions underpinning this outlook include a macro and demand environment similar to Q3, continued strength in landing new logos, steady performance in expanding with existing customers, and good renewal performance. Average contract duration is expected to remain relatively flat.

Management plans to continue increasing investments in sales and marketing and R&D in Q4, which is factored into the sequential decrease in non-GAAP operating margin from Q3 to Q4, although the full-year margin is expected to expand significantly year-over-year. These investments are targeted at capitalizing on the large market opportunity and driving innovation.

While the pipeline is growing, particularly with larger deals, the company anticipates continued variability in timing and deal structure due to elongated sales cycles and increased scrutiny on spend. The U.S. federal business also presents some near-term variability. However, the strong growth in the available-to-renew pool and the increasing leverage from partnerships are expected to support future revenue streams.

Risks and Considerations

Despite the positive momentum, several risks could impact Nutanix's performance and the investment thesis:

• Macroeconomic Headwinds: Continued economic uncertainty, inflation, and fluctuating interest rates could further elongate sales cycles and impact customer spending patterns.
• Large Deal Variability: The increasing mix of larger deals in the pipeline, while representing significant opportunity, introduces greater unpredictability in quarterly results due as they take longer to close and involve more complex negotiations.
• Competition: Intense competition from well-established players and public cloud providers could pressure pricing and market share gains.
• Execution Risk: Successfully integrating new technologies (like external storage support), ramping up new sales personnel, and effectively leveraging partnerships are critical for achieving growth targets.
• Debt Obligations: While current liquidity appears sufficient, the company's convertible senior notes and revolving credit facility require cash for interest payments and potential principal repayment or conversion settlement, which could strain resources if cash flow generation falters or refinancing terms are unfavorable.
• Product Transitions: The ongoing shift to a subscription model and introduction of new offerings could cause temporary confusion or concern among customers, potentially impacting adoption or renewal rates.

Conclusion

Nutanix has successfully navigated a complex business model transition and is demonstrating compelling progress towards sustainable, profitable growth. The company's hybrid multicloud platform, underpinned by continuous technological innovation in areas like AI and modern applications, is well-positioned to address the evolving needs of enterprises seeking modernization and efficiency. Strategic partnerships are amplifying its go-to-market capabilities and expanding its reach into new market segments.

While macroeconomic uncertainty and competitive dynamics present ongoing challenges, Nutanix's strong financial performance, including robust revenue growth, expanding margins, and significant free cash flow generation, provides a solid foundation. The updated guidance reflects management's confidence in the company's trajectory, supported by a growing pipeline and disciplined investments. For investors, the story of Nutanix is one of a former HCI pioneer transforming into a key player in the hybrid multicloud era, leveraging its technology and partnerships to capture a significant market opportunity while demonstrating a clear path to improved profitability and cash flow. The ability to continue executing on its strategic initiatives and effectively manage the inherent variability in its business will be key determinants of its long-term success.