Hyperconverged infrastructure company Nutanix Inc.’s stock is rising today on fiscal fourth-quarter results that topped expectations on both revenue and profit, not to mention a promising outlook for the next quarter.

The company reported a loss before certain costs such as stock compensation of 26 cents per share on revenue of $390.7 million, up 19% from a year ago. That was better than expected, with analysts looking for a much bigger 42 cent per share loss on revenue of just $363 million.

Nutanix Chief Executive Rajiv Ramaswami said the company delivered a strong finish to what was an “excellent fiscal year” thanks to its consistent execution and solid progress across its financial and strategic objectives.

“We have entered our fiscal 2022 with good momentum and a solid plan for growth, executing on the model we laid out at Investor Day and delivering on our vision of making clouds invisible,” he added.

Nutanix sells a software-defined hyperconverged infrastructure or HCI stack that integrates compute, storage and networking components into a single appliance or cloud service. The company has been trying to transition to a subscription-based business model that provides a more consistent revenue stream than product sales do.

That transition is proceeding well, with Nutanix reporting annualized recurring revenue of $878.7 million in the quarter, up 83% from a year ago.

“Nutanix had a great quarter, with metrics exactly where we want to see them,” Steve McDowell, an analyst with Moor Insights & Strategy, told SiliconANGLE. “It grew its business nearly 20% year-over-year, with increases in every category that matters.”

The analyst pointed out that 91% of Nutanix’s total billings came from subscription-based business, proving that its transition from a hardware company to a software subscription-driven business has paid off.

Nutanix had struggled for a time last year as many businesses took a wait and see approach to where the COVID-19 pandemic would go. But once the realization came that remote work was here to stay, companies began taking action, spending money on infrastructure to support those workloads.

“Spending started to go back up as they migrate to the cloud and enable hybrid workforce,” Ramaswami told SiliconANGLE in an interview. “For example, one of the things companies are doing is enabling virtual desktops and that’s an area we’ve been very strong in. It’s 20% to 25% of our business.”

Nutanix said its annual contract value billings rose 26%, to $176.3 million, above Wall Street’s estimate of $171.9 million. ACV is an important metric used by Nutanix that shows how much the typical ongoing customer contract is worth by averaging and normalizing its value over one year.

Ramaswami explained why ACV billings are one of the company’s most-watched metrics, saying that for a subscription business, the focus should not be on signing long-duration contracts with customers.

“You want to maximize for the amount they spend in a year,” he said. “If they’re happy they’re going to continue buying. The renewals are automatic if they’re happy with the product. That’s why we focus on ACV. I sell you a one-year deal and if you’re happy you’re going to keep buying. If you have ACV and focus on customer retention, you’re going to have long-term success.”

A big part of the reason for Nutanix’s success is that it has broadened its roots from HCI into an array of storage and networking technologies. Almost half of its new customer deals in the quarter came from those new platforms, McDowell said, showing how it has built a lot of trust with its existing customer base.

Another key factor for the company is its partnerships with the likes of Hewlett Packard Enterprise Co., which has brought Nutanix into its GreenLake-as-a-service offering, and more recently Red Hat Inc. Ramaswami indicated the latter collaboration will likely begin to payoff within the next one or two quarters.

“The important thing is that our hypervisor is now fully certified with Red Hat,” he said. “That eases the adoption of Red Hat in our customer base. Part two is that for customers who want to run a modern cloud-native stack, the two coming together provides a solution. We’re just getting started.”

Looking to the first quarter, Nutanix said it sees annual contract value billings in a range of $172 million to $177 million, which is ahead of the analyst consensus of $169.3 million.

With reporting from Paul Gillin

Photo: SiliconANGLE