Nutanix's Q4 2025 Earnings Call: Contradictions Emerge in NRR, Operating Margins, and Federal Outlook

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

Date of Call: None provided

Financials Results

• Revenue: $653.0M, up 19% YOY; above guidance of $635–$645M
• EPS: $0.37 non-GAAP diluted EPS; GAAP $0.13; YOY not disclosed
• Gross Margin: 88.3% non-GAAP; FY25 gross margin was 88.1%, up 140 bps YOY
• Operating Margin: 18% non-GAAP in Q4, above guidance (15.5%–16.5%); FY25 was 21.1%, up ~500 bps YOY

Guidance:

• Q1 FY26 revenue: $670M–$680M; non-GAAP operating margin: 19.5%–20.5%.
• FY26 revenue: $2.90B–$2.94B (~15% YOY at midpoint).
• FY26 non-GAAP operating margin: 21%–22% (up at midpoint).
• FY26 free cash flow: $790M–$830M (~27.7% margin at midpoint).
• Expect mid- to high-3‑digit new logos per quarter; macro/Fed and FX uncertainty included.
• Renewals ACV grows YOY but slower than FY25; slight YOY decline in average contract duration.
• Some large deals with deferred license provisioning/cash affect timing.
• Dell PowerFlex/Pure contributions small but growing; Cisco/Dell partner ACV to increase.
• OpEx headwinds: ~$25M delayed hiring and $10–$15M from tapering partner payments.
• ARR/NRR methodology update starts Q1; share repurchase authorization +$350M.

Business Commentary:

• Revenue and Customer Acquisition:
• Nutanix reported revenue of $653 million for Q4 FY2025, representing a 19% year-over-year increase.
• The company added over 2,700 new customers in FY2025, with a particular focus on the Global 2,000 segment.

• This growth was driven by strong new customer acquisition and expansion within existing customer tiers.

• Financial Performance and Free Cash Flow:

• Nutanix achieved a free cash flow of $750 million in FY2025, marking a 26% year-over-year increase.
• The company's financial stability is reflected in a free cash flow margin of 30% and a Rule of 40 score of 48.

• These results were due to strong financial discipline, operational efficiency, and a focus on sustainable growth.

• Enterprise AI and Cloud Platform Enhancements:

• Nutanix released GPT in a Box version 2.0 and enhanced Nutanix Enterprise AI, integrating with NVIDIA AI Enterprise.
• The company extended its hybrid multi-cloud capabilities by adding support for Google Cloud, which is now in public preview.

• These advancements are part of the company's strategy to enhance its platform's AI capabilities and expand its hybrid multi-cloud offerings.

• Strategic Partnerships and Diversification:

• Nutanix announced a new partnership with Pure Storage to support their flash array, with early access already underway.
• The company's cloud platform now supports both HCI and external storage, enabling it to preserve customer investments in existing hardware.
• These partnerships and platform enhancements are aimed at diversifying Nutanix's offerings to cater to a broader range of customer needs and expand its market reach.

Sentiment Analysis:

• Management: “exceeded all of our guided metrics.” Q4 revenue $653M up 19% YOY; FY25 revenue $2.54B up 18% YOY; FY25 non-GAAP OM 21.1% and FCF $750M (30% margin). FY26 guide calls for ~15% revenue growth, higher operating margins, and $790–$830M FCF. Cautions include macro/Fed uncertainty, slightly lower contract duration, and NRR variability.

Q&A:

• Question from Jason Adler (William Blair): Can you discuss the FI win size and whether more deals like this are in the pipeline?
  Response: FI is a significant multi-year marquee win; similar large opportunities exist but their timing is inherently unpredictable.

• Question from Jason Adler (William Blair): NRR was down sequentially—what drove it?
  Response: NRR was pressured by ARR timing effects (deferrals/credits), larger initial deal sizes dampening expansion rates, and law-of-large-numbers; expect quarter-to-quarter variability.

• Question from Meta Marshall (Morgan Stanley): How should we view Dell PowerFlex vs. Pure customers and early traction?
  Response: PowerFlex targets very large G2K/top-tier customers; Pure has a broader base; both expected to be small in FY26 but grow over time.

• Question from Meta Marshall (Morgan Stanley): Update on U.S. Federal demand within guidance?
  Response: Q4 Fed was good, but personnel changes/reviews are lengthening cycles and adding variability; this conservatism is embedded in Q1 and FY26 guidance.

• Question from Matt Martino (Goldman Sachs): Where is enterprise AI maturity and potential inflection for Nutanix?
  Response: Still early innings with initial production uses (e.g., fraud/support); expect increasing adoption and potential inflection over the next couple of years.

• Question from Matt Martino (Goldman Sachs): How are you derisking multi‑year deal activation and associated revenue timing?
  Response: Larger deals may stagger license provisioning and cash; scheduled activations and assumptions are incorporated into FY26 guidance.

• Question from Jim Fish (Piper Sandler): Key puts/takes in FY26 guide regarding new ACV vs. renewals and ARR/NRR?
  Response: Renewals cohort grows but at a slower pace, impacting revenue; ARR grows via land/expand and pricing; NRR can fluctuate; no ARR guide provided.

• Question from Jim Fish (Piper Sandler): Are large transactions skewing more to 7- or 8-figure deals?
  Response: Pipeline includes both; strategy is to continue increasing large deals without quantifying the mix.

• Question from Simran (RBC Capital Markets): What demand trends are you seeing, and how are they reflected in guidance?
  Response: Solid demand persists, but macro and U.S. Fed uncertainties are factored into the outlook.

• Question from Simran (RBC Capital Markets): How much VMware displacement opportunity remains and FY26 expectations?
  Response: Vast majority remains; we’re around the second inning; migrations continue with a multi‑year runway, especially for larger enterprises.

• Question from Mike Chikos (Needham): Expectations and sales motion for early PowerFlex wins—who led?
  Response: Wins arrived earlier than expected via early-access customers; Nutanix led account engagement with collaborative Dell support.

• Question from Mike Chikos (Needham): How will the expected decline in average contract duration impact revenue?
  Response: A slight YOY duration decline in FY26 reduces upfront license revenue; renewals mix also tends to compress duration.

• Question from Samik Shiji (JPMorgan): Update on Google Cloud preview traction and Pure timing?
  Response: GCP support is in public preview with early trials; Pure external storage integration is on track for GA by year-end.

• Question from Samik Shiji (JPMorgan): Bridge from operating income to FY26 FCF guide?
  Response: Shorter durations and some deferred cash collections temper FCF despite higher operating income; these effects are embedded in the guide.

• Question from Ruplu (Bank of America): FY26 operating margin improvement looks modest—what are the drivers and is guidance conservative?
  Response: FY26 OM reflects annualizing FY25 hires, ~$25M delayed hiring catch-up, and a $10–$15M headwind as nonrecurring partner payments taper; guidance follows normal philosophy.

• Question from Ruplu (Bank of America): ARR drivers—pricing vs. expansion vs. new logos; competitive pricing stance?
  Response: Confident in land motion; expansion may vary; renewals see inflation-like increases; pricing is dynamic with volume-based discounts and portfolio attach to raise ASPs.

• Question from Victor Chiu (Raymond James): What does Nutanix provide in the Pure partnership and which competitors are targeted?
  Response: Nutanix supplies hypervisor, networking, ops, and security; Pure supplies storage; the joint solution targets VMware replacements while preserving Pure arrays.

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

• Question from Brandon Nesspel (KBCM): Why is OpEx up and implied contribution margin down in guidance?
  Response: OpEx rises from annualizing late FY25 hires, merit increases, and targeted R&D/S&M investments; no major changes to channel or compensation structures.