Company transitions from selling hardware and software to selling subscriptions
Nutanix, which has been a key driver in the fast-growing hyperconverged infrastructure space, is continuing its shift from being a seller of hardware and software to being a company focused on software licenses and subscriptions, a transition that relies in large part on working with a small group of channel partners.
The Lowdown: During Nutanix’s conference call this week to discuss its quarterly results, company officials noted that the shift to a subscription-based, recurring revenue business model has meant rebuilding the pipeline and impacted the quarterly year-to-year numbers in revenue and billings. For the entire fiscal year, revenue and billings were both up, and so was the net loss.
The Details: For the fiscal fourth quarter, Nutanix generated $299.9 million, a drop from $303.7 million during the same time last year. Billings also dropped, from $395.1 million in Q4 2018 to $371.7 million this past quarter. Both were the result of “the company’s ongoing transition to subscriptions,” officials said. However, for the full year, revenue grew from $1.16 billion to $1.24 billion, and billings jumped from $1.42 billion to $1.51 billion.
In addition, Nutanix added 990 new customers in the fourth quarter – including 31 from the Global 2000 – and now has 14,180 end customers.
At the same time, Nutanix officials said they were happy with how the channel is operating. CEO Dheeraj Pandey was asked by an analyst about the company’s relationship with what has traditionally been a hardware-centric channel space and whether the better strategy was to go with fewer partners that have deep expertise with Nutanix’s products or a larger number that may be selling products from competitors as well. The CEO said the strategy was to go deep with a smaller number of partners who bring a lot of added value to the deal.
The Impact: Nutanix is among a wide array of traditional hardware vendors that are shifting more of their efforts to software subscriptions and recurring revenue in an increasingly cloud-centric world. For many of these companies, the channel plays a large role in the transition because of partners’ advisor and consultant roles to organizations looking to migrate their business to the cloud and because of the value they can add to vendor products and services. For example, Cisco officials, who have been undertaking a similar transition over the past few years, have talked about the growing role of the channel in their business, with as much as 85% of Cisco’s revenue coming through the channel, up from about half several years ago.
Background: Nutanix was one of the pioneers in the hyperconverged infrastructure space, which offers compute, networking, storage, virtualization and management software in a tightly integrated appliance. The company early on was able to secure important partnerships with top-tier system OEMs like Hewlett-Packard Enterprise, Dell, Cisco, and Lenovo. In 2016, company officials said it wanted to move beyond the hyperconverged space to become a data center platform company, and now it focuses its efforts on hybrid cloud environments.
The Buzz: “I think less is more with any relationship, and we’ve done a good job with a few [partners] and we believe that at least in the U.S. we have a good handle on this,” Nutanix’s Pandey said. “Obviously, internationally, there’s a lot of fulfillment that the channel actually does beyond just lead generation. And at the end of the day, we’re lucky if we actually get a few of them to really go deep and that’s where the focus has really been. Sometimes, the customers bring their preference, like, ‘I would like to do business with this channel partner,’ and we basically work with the customer’s interest there. But mostly, we work with fewer partners and try to give them more business as the quid pro quo from them translates to us.”
“We are pleased by our Q4 results, and that the actions we have taken to strengthen lead generation and enhance sales execution are generating positive results. Our subscription transition continues to be ahead of schedule with subscriptions growing from 52% of total billings in the fourth quarter of fiscal 2018 to 71% in the fourth quarter of fiscal 2019,” Nutanix CFO Duston Williams said. “In addition, 26% of our deals included a product outside our core offering, as new and existing customers increasingly look to Nutanix to guide them on their journey to hybrid cloud.”