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Nutanix adds oodles of customers and red ink

In its first quarter as a public company, hyper-converged pioneer Nutanix recorded substantial revenue gains while continuing to suffer heavy losses. CEO Dheeraj Pandey said the increase in sales shows progress in Nutanix’s goal to establish itself as a trusted enterprise cloud vendor. The losses are the price it pays to earn that trust.

Nutanix reported revenue of $166.8 million for the quarter, up 125% over last year and ahead of financial analysts’ expectations. Its $129.65 in product revenue increased 84% from last year. Part of the uptick is due to maturing OEM deals with Dell EMC and Lenovo, who bundle Nutanix software on their servers. Nutanix forecast $175 million to $180 million for this quarter, which compares to $102.7 million for the same quarter last year.

Despite all those sales, Nutanix lost $162.2 million last quarter, compared to $38.5 million last year. Sales and marketing, research and development and overall operating expenses all shot up as Nutanix chases enterprise customers while competing with large IT vendors.

Nutanix raised $250 million in its September initial public offering and finished the quarter with $347 million, yet the company appears at least three years away from turning a profit.

“As a young public company, we’ll strive to balance our short-term goals with the long-term bets we must make for sustainable differentiation,” Pandey said on the earnings call Tuesday night.

That growth included nearly 400 new employees in the quarter, including 112 from PernixData and Calm.io acquisitions. Nutanix finished the quarter with more than 2,350 employees.

Pandey said the company made progress landing enterprise deals and its Acropolis Hypervisor (AHV) is gaining traction with customers. Overall, the vendor added more than 700 customers in the quarter to bring its total to more than 4,400. Pandey said 256 customers spent more than $1 million on Nutanix in the quarter, a 137% increase from last year.

Pandey spent much of the call outlining his company’s history and future strategy. That strategy consists of providing a cloud infrastructure as a complement or alternative to public clouds such as Amazon Web Services (AWS).

“Today we will cover a lot of ground on the way we think and dream about the future of enterprise computing,” Pandey said at the start of the call.

Here is his take on important issues:

Coopetition with Dell EMC

Pandey said the Dell-EMC merger – which also brought VMware to Dell – did not change the relationship between Nutanix and Dell. He said Nutanix is also working closely with EMC sales teams, despite EMC’s competitive VxRail hyper-converged system that uses VMware vSAN software. Pandey said some of Nutanix’s large deals last quarter came through Dell EMC.

“From the sidelines, it might appear that because of the VMware ownership, Dell EMC and Nutanix are in a zero-sum game,” he said. “As hustlers in the front line, we see a very different picture in which customer interest dictates alliances.

“What keeps Dell and Nutanix in an honest partnership with mutual respect is the fact that we can compete and cooperate on a deal-by-deal basis.”

On complementing/replacing AWS

Nutanix is counting on enterprises using its appliances as an alternative to the public cloud, but Pandey said there is room for Nutanix and AWS. “Contrary to some perceptions, we believe adoption of Amazon Web Services is ultimately a tailwind for us,” he said. “Owning and renting will find a balance, and the operating system that straddles the two will emerge as the new virtualization layer for enterprise infrastructure. I will repeat that again. The operating system that straddles the two will emerge as the new virtualization layer infrastructure.”

Convergence and hyper-convergence

Pandey said converged infrastructure came about when “large infrastructure incumbents came together to define bolt-on convergence heavily driven by joint marketing and professional services” and “today the market is ashamed with talking about converged infrastructure because it was a hack that flattered to deceive.” He said Nutanix’s pioneering work in hyper-convergence truly brought parts of the IT stack together.

Yet he said Nutanix is more than hyper-covnergence, which he called “a mere pit stop in the journey of an enterprise cloud system. While we remain a force to recon with in the hyper-converged infrastructure space, we are increasingly winning in the enterprise due to our full stack solution that includes native virtualization, management, cloud orchestration and, going forward, network security.” At another point in the call, he said, “The laggard observer focuses on our core data management capabilities to box us into a hyper-converged category.”

Large customer wins

Pandey said Toyota North America expanded its Nutanix product acquisition as part of a data center consolidation last quarter, and has spent a total of $6 million on Nutanix technology. Scotia Bank added Nutanix for a Splunk initiative and Singapore investment firm GIC spent more than $1 million in the quarter to help build an enterprise cloud. ICIC Bank Limited in India expanded its Nutanix footprint and added AHV. The U.S. Army Human Resources Command spent more than $1 million on Nutanix’s enterprise cloud stack and AHV for 54 sites, and the U.S. Navy installed Nutanix software on Cisco UCS hardware to run Splunk and Micrsofot SQL Server.

AHV traction

Pandey said 17% of Nutanix customers have adopted the Acropolis Hypervisor over the past year, and nearly half of its remote office customers deployed AHV last quarter. He said nearly one-third of U.S. federal government Nutanix nodes shipped in the quarter included AHV.

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