Investors who might have wondered whether Nutanix Inc.’s solid earnings report in its previous quarter was a one-hit wonder are breathing easier this evening.

The maker of hyperconverged systems and software today said it handily beat revenue and earnings estimates in its fiscal fourth quarter on a surge in large deals. Investors bid shares up more than 5 percent in after-hours trading, building on a nearly 50 percent jump in Nutanix’s stock value since May.

Revenues of $226.1 million were up 62 percent over a year ago and well above the average analyst estimate of $218 million. Net loss of 33 cents per share was six cents better than a year ago and well below the average analyst estimate of a loss of 38 cents.

Nutanix took the unusual step of telling analysts not to expect earnings surprises in the foreseeable future. Rather, the company will invest any profits over and above Wall Street estimates back into the business and encourage investors to look at growth and free cash flow as indicators of health.

“It’s hard to get growth started once it’s slowed down,” said Chief Executive Dheeraj Pandey in an interview with SiliconANGLE following the earnings call. “Growth investors believe that free cash flow is a better indicator of the health of the business than profitability.”

Nutanix is beginning to reap the benefits of a recently revamped sales strategy that focuses on a small number of large accounts at the expense of blanketing the market. More than 400 customers have spent more than $1 million with the company and 11 have spent over $10 million.

“All of these $10 million-plus customers have a large number of nodes, which means they’re running all sorts of workloads on our platform,” Pandey said. “They started very small and have become very large. The formula of ‘land and expand’ works beautifully for us.”

Ups and downs

Nutanix shares have been on a roller coaster since its high-profile initial public offering 11 months ago (pictured). After climbing more than 175 percent in the first few days following the IPO, they fell back and have never come close to their $44.46 peak. Shares closed at $22 Wednesday, but have moved steadily upward since tanking after the company issued a weaker-than-expected forecast in March.

One of the reasons investors have hesitated is because competitive pressure is mounting. With its acquisition of EMC Corp., Dell Technologies Inc. has set its sights on becoming a major hyperconverged infrastructure player, a fact it underscored this week with the release of new systems based on its VxRail and VxRack platforms. Dell also happens to be a major platform partner for Nutanix.

Although Nutanix executives said they don’t expect the Dell business to grow, the relationship remains stable and profitable. “I think it will continue to be good business, although we’re not expecting Dell to create demand for us,” Pandey said.

Cisco Systems Inc.’s acquisition of Springpath Inc., earlier this month points to a more aggressive push by the networking giant into Nutanix’s market. Hewlett Packard Enterprise Co. is also a presence with a flexible architecture it calls “composable infrastructure.”

Nutanix CEO Dheeraj Pandey (Photo: theCUBE)

Pandey dismissed Cisco as “focused on a form factor we were talking about five years ago,” and called composable infrastructure a set of “hardware tricks.” Systems vendors “are trying to sell servers at better margins. That’s not what cloud is all about,” he said. Nutanix’s own hardware line is “a great means to an end but no more than that.

“We learned that we have to respect hardware, what it means to recover from failure, to understand performance and manageability,” he said. “That doesn’t mean we end up shipping that hardware.”

Beyond $1 billion

With sales forecasts of between $240 million and $250 million for the first quarter of 2018, Nutanix is on track to breach the $1 billion revenue mark. The course to $2 billion will be carved by hybrid cloud adoption in large enterprises, Pandey told SiliconANGLE. Underlying that will be integrated hardware/software appliances that are quick to set up and easy to expand.

Traditional multitier infrastructure is “archaic,” the CEO said. “Look at prospects for digital SLR cameras. Pretty bleak,” he said. “Storage arrays are the same thing.”

Nutanix instead models its business on the iPhone, a converged appliance with cloud connectivity build in. “That’s where enterprise computing is headed,” Pandey said.

Competition won’t come from another hypervisor player but rather from “a consumption model change that no one sees coming,” he said, citing containers and public cloud as candidates. But customers won’t move their entire on-premises infrastructure to the public cloud anytime soon, he said, and that will create plenty of opportunity for the foreseeable future.

In the meantime, Nutanix’s strategy is to embrace its disruptors — a strategy that analysts think has a good chance of success, but not without costs.

Photo: Nutanix