Shares of Nutanix Inc. shares rallied in after-hours trading today after the data center software and services company posted better-than-expected first-quarter financial results and provided strong guidance for the three months ahead.

The company reported a loss before certain costs such as stock compensation of 44 cents per share on revenue of $312.8 million. Wall Street had been expecting a bigger loss of 57 cents per share on revenue of $299.34 million.

Nutanix also reported subscription billings of $294 million and subscription revenue of $278 million. Subscriptions provide a potentially steadier revenue stream than product sales.

Nutanix said too that its annualized contract value billings, or ACV billings, came to $137.8 million, up 10% from the same period one year ago. ACV billings is a key metric on which Nutanix has recently placed much more emphasis. It’s defined as the “total annualized value of a contract, excluding amounts related to professional services and hardware.”

Nutanix’s forecast for the second quarter calls for ACV billings of $145 million to $148 million, a range that’s well ahead of Wall Street’s forecast of $134.4 million.

Investors were content, as the company’s stock rose more than 7% in after-hours trading.

“We are pleased with our financial performance in the first quarter, which marked a strong start to fiscal 2021 including increased adoption of new products as well as continued growth in our core hyperconverged infrastructure software,” Nutanix co-founder and Chief Executive Dheeraj Pandey (pictured) said in a statement.

Nutanix Chief Financial Officer Duston Williams said the company’s ACV-first strategy, along with its solid go-to-market execution, helped drive outperformance across all key financial metrics.

“Looking ahead, we remain focused on thoughtfully managing operating expenses as we continue to execute on our business model transformation and are confident in Nutanix’s ability to drive long-term growth for the benefit of all stakeholders,” Williams said.

There were some important developments on the product front for Nutanix in the quarter. The company, which began its life as a supplier of virtual desktop infrastructure, has in recent years become more focused on extending its software-defined hyperconverged infrastructure stack that integrates compute, storage and networking components. In September, it announced a key partnership with Microsoft Corp. to develop its HCI systems on Microsoft Azure, following a similar deal with Amazon Web Services Inc. in August.

“After launching our solutions on AWS in August, we announced a major partnership with Microsoft to develop our portfolio on Azure, placing the Nutanix HCI at a significant competitive advantage to help our customers build out their hybrid and multicloud environments,” Pandey said.

Moor Insights & Strategy analyst Steve McDowell told SiliconANGLE the strong quarter shows that Nutanix’s transition to a subscription-based business model is finally paying off.

“It has executed almost flawlessly on its subscription-driven strategy, its product mix is right, and its investments in AWS and Microsoft Azure are starting to pay off,” McDowell said. “Its portfolio is where it needs the be. Nearly all of the metrics we watch are trending the right way.”

McDowell said that in his view, Nutanix has also benefited to some extent from COVID-19. He stressed that organizations that have adopted HCI and software-defined technologies seem to be managing the challenges of the pandemic better than most, mainly because because those systems enable rapid reconfiguration and remote management.

“Nutanix’s software-defined approach, coupled with a subscription model, makes a lot of sense as we look at continued economic uncertainty over the next 12 to 18 months,” he said. “It gives enterprises operational flexibility and budgetary control.”

Analyst Holger Mueller of Constellation Research Inc. added that Nutanix has done well with cutting costs in its sales and marketing expenses.

“That’s a key source of operational improvement,” Mueller said. “Now, Nutanix needs to stay the course, show growth and keep building innovative products on more platforms, starting with its new partnership with Microsoft Azure.”

Pandey announced three months ago that he is planning to retire from his post once a successor has been found, but Nutanix didn’t provide an update on its search.

Photo: SiliconANGLE