Nutanix Q4 2025: Contradictions Emerge in Federal Deals, NRR, AI Maturity, and Kubernetes Platform

The above is the analysis of the conflicting points in this earnings call

Date of Call: August 27, 2025

Financials Results

• Revenue: $653M, up 19% YOY
• EPS: $0.37 per diluted share (non-GAAP)
• Gross Margin: 88.3% (non-GAAP)
• Operating Margin: 18% (non-GAAP), above guidance of 15.5%–16.5%

Guidance:

• Q1’26 revenue: $670–$680M.
• Q1’26 non-GAAP operating margin: 19.5%–20.5%; shares ~296M.
• FY26 revenue: $2.90–$2.94B (~15% YOY at midpoint).
• FY26 non-GAAP operating margin: 21%–22% (up vs FY25 at midpoint).
• FY26 free cash flow: $790–$830M (~27.7% margin at midpoint).
• Expect slightly lower average contract duration YOY; renewals cohort grows but slower than FY25.
• Macro and U.S. federal variability embedded in outlook.
• Small but growing FY26 contribution from Dell PowerFlex; Cisco/Dell partner ACV to grow.
• ~$25M delayed hiring and $10–$15M contra-expense headwind to OpEx in FY26.
• ARR/NRR methodology updated starting Q1’26; share repurchase authorization +$350M.

Business Commentary:

• Revenue and Financial Performance:
• Nutanix reported revenue of $653 million for Q4, up 19% year-over-year.

• The growth was driven by strong free cash flow generation and an increase in Annual Recurring Revenue (ARR).

• Customer Acquisition and Retention:

• Nutanix added over 2,700 new customers in fiscal year 2025, marking their highest number in four years.

• This increase was attributed to strong performance in landing new customers across various customer tiers, including the Global 2000.

• Product and Partnership Developments:

• The company enhanced its GPT-in-a-Box 2.0 capabilities and extended hybrid multi-cloud support to Google Cloud.

• These developments were aimed at expanding the platform's capabilities and supporting modern applications.

• Federal Government Business Challenges:

• Nutanix faced longer deal cycles and increased variability in the U.S. federal vertical due to personnel changes and reviews.
• The company remains optimistic about their platform's focus on modernization and lowering TCO.

Sentiment Analysis:

• Management said Q4 “exceeded all of our guided metrics,” with revenue up 19% YOY and strong free cash flow. FY25 revenue rose 18% YOY; free cash flow was $750M (30% margin) and Rule of 40 was 48%. FY25 marked the first full year of positive GAAP net income. FY26 outlook guides ~15% revenue growth at midpoint with higher operating margin and strong free cash flow, while noting manageable headwinds (macro, U.S. federal).

Q&A:

• Question from Jason Noah Ader (William Blair): How big is the Finanz Informatik (FI) deal and are there more like it in the pipeline?
  Response: FI is a significant multiyear win; pipeline includes other large deals, though timing is unpredictable.

• Question from Jason Noah Ader (William Blair): Why did NRR decline a couple of points sequentially?
  Response: Timing of ARR credits/deferrals was a net headwind; larger initial new-logo deals dampen expansion rates; scale effects make maintaining the same NRR harder.

• Question from Meta A. Marshall (Morgan Stanley): How should we think about Dell PowerFlex vs. Pure Storage customers and early traction?
  Response: PowerFlex targets very large G2000 customers with concentrated deployments; Pure has a broader base, is in early access, and both should contribute modestly in FY26 with growing impact over time.

• Question from Meta A. Marshall (Morgan Stanley): What are you seeing in U.S. federal demand?
  Response: Longer deal cycles and variability due to personnel changes/reviews; historically ≤10% of revenue with Q1 seasonality; reflected in guidance.

• Question from Matthew Vincent Martino (Goldman Sachs): Where is enterprise AI maturity and GPT‑in‑a‑Box 2.0 traction?
  Response: Enterprise AI is early; initial use cases (fraud/AML, support, summarization) are emerging; potential inflection over the next couple of years.

• Question from Matthew Vincent Martino (Goldman Sachs): How do you manage revenue timing from multiyear deals and activation visibility into FY26?
  Response: Some large deals provision licenses/cash over time; known schedules and assumptions are embedded in FY26 guidance.

• Question from James Edward Fish (Piper Sandler): Guidance dynamics—new ACV vs. renewals, NRR/ARR framing for FY26?
  Response: Renewals pool grows but slower than FY25; ARR is a stock metric and not guided; NRR can fluctuate due to timing and larger initial deals.

• Question from James Edward Fish (Piper Sandler): Are large transactions skewing 7‑ or 8‑figure, and outlook?
  Response: Pipeline includes both; company aims to keep growing large deals; $1M+ land‑and‑expand ACV deals rose >60% YoY in FY25.

• Question from Unidentified Analyst (RBC Capital Markets): What macro demand trends are embedded in guidance?
  Response: Outlook includes macro uncertainty and U.S. federal variability, but demand for Nutanix solutions remains solid.

• Question from Unidentified Analyst (RBC Capital Markets): How much VMware displacement opportunity remains and FY26 share shift assumptions?
  Response: Vast majority remains; early innings (around second inning); medium/large migrations underway, very large will take longer—multiyear journey.

• Question from Michael Joseph Cikos (Needham & Company): PowerFlex wins—timing vs. expectations and go‑to‑market with Dell?
  Response: Wins arrived earlier than expected; customers came through early access; Nutanix engages directly with collaborative support from Dell.

• Question from Michael Joseph Cikos (Needham & Company): How does a slight decline in average contract duration affect revenue?
  Response: Shorter duration reduces upfront license revenue; rising renewals mix also compresses duration—both are reflected in FY26 guidance.

• Question from Samik Chatterjee (JPMorgan): Update on Google Cloud engagement and Pure Storage timing?
  Response: Pure is on track for GA by year‑end with early access underway; GCP support is in public preview with early customer interest.

• Question from Samik Chatterjee (JPMorgan): Why isn’t FY26 free cash flow higher given operating income growth?
  Response: Shorter durations reduce upfront cash collections; FCF guidance reflects this timing effect.

• Question from Ruplu Bhattacharya (BofA Securities): Why only modest FY26 operating margin expansion, and is guidance conservative?
  Response: Headwinds include ~$25M delayed hiring, $10–$15M tapering contra‑expense, and annualizing FY25 hires; guidance reflects best current estimates.

• Question from Ruplu Bhattacharya (BofA Securities): ARR drivers—pricing power, expansion, new logos; NRR potential?
  Response: Land motion strong; expansion may moderate due to larger initial deals; renewal pricing typically inflationary; competitive pricing dynamic; portfolio attach remains a lever.

• Question from W. Chiu (Raymond James): What does Nutanix provide in the Pure partnership and what market does it target?
  Response: Nutanix supplies hypervisor, networking, ops management, security; Pure supplies storage—targets VMware replacement while preserving Pure arrays.

• Question from W. Chiu (Raymond James): Do Broadcom cease‑and‑desist letters create incremental opportunity?
  Response: Limited impact; mission‑critical customers generally prefer supported deployments regardless.

• Question from Brandon Lee Nispel (KeyBanc Capital Markets): What’s driving the implied OpEx increase and lower contribution margins?
  Response: Annualizing FY25 hires, wage increases, ~$25M delayed hiring catch‑up, reduced contra‑R&D partner payments; incremental spend is modest, focused on R&D (external storage, NKP) and selective S&M.