Nutanix CEO Letter to Stockholders


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This September, we completed two years as a public company and nine years since we were founded in 2009. It has not even been a decade and we have already done more than $3.5 billion in lifetime sales, transformed to a software business model while being publicly traded, surpassed $1 billion in annual software and support revenue run rate, and achieved the 10,000 customer mark while still keeping our Net Promoter Score above 90. And during this time, we’ve consistently maintained our leadership position in Gartner, Forrester, and IDC rankings for hyperconverged infrastructure (HCI).

For a company that until two years ago — during its IPO roadshow — was prematurely assumed by Wall Street as being swept away in the wake of public cloud, we’ve definitely held our own with Main Street. Our market thesis — of what cloud computing would look like between private (owned) and public (rented) models — is now the dominant thinking within the enterprise. The new era of hyper-convergence is upon us. Blurring the lines between owned and rented models is the most difficult computer science problem of this decade. Not many companies are ready to exploit the opportunity, their megaphones notwithstanding.

True Private Cloud is Hard; Requires Integrity

The core of HCI is software-defined infrastructure, in that all datacenter devices need to move to pure software running on commodity x86 servers. Standardized hardware, a common operating system, consumer-grade design, and deep automation are the distinct virtues that make a true cloud, public or private. An open source movement around commoditizing private cloud — displacing large incumbents in virtualization (compute), storage, networking, and management — has largely fizzled out in the last decade, because it lacked integrity of execution. While infrastructure is a large $100+ billion market, it is unforgiving for companies or movements that have lacked integrity.

Integrity: Do What You Say, Say What You Do

Our company mission, since the beginning of time, has been to make infrastructure invisible. Naysayers scoffed at us when we were trying to make storage invisible. Most everyone believed that we had a niche market for the SMB, only to realize that the large enterprise had suddenly woken up to this simple yet powerful idea of software-defined infrastructure for almost everything. Converged infrastructure (CI) — a coalition solution of large compute-storage-networking incumbents, masqueraded as private cloud — is now considered a much smaller market than HCI. In fact, it would not be rhetoric to say that CI is dead as a segment.

In 2014, when we set out to build our own hypervisor (AHV), pundits gave us no chance in a saturated market of compute virtualization dominated by one or two large companies. In the last 3 years, we’ve proved them wrong with the deep inroads that AHV has made with a large swathe of workloads in the enterprise. Industry watchers gave us no chance to shift from an appliance business model to a pure software business model as a public company. We committed to eradicating most of the zero-profit hardware from our books, and we ended the year ahead of the schedule we committed to Wall Street.

Our 2021 Goal: At Least $3 Billion in Software and Support Billings

Customers love Nutanix because it is an underdog that has strong character. There is a reason why our repeat business with existing customers is stronger than ever, as is our sales productivity. Given the strength in both supply (sales and robust products) and demand (repeat business), we laid down a realistic goal of achieving $3 billion in billings by FY21 (Jul ’21). We are confident that we can do that without buying our way through M&A into a revenue base. Core HCI is a large enough high-CAGR market for a leader like Nutanix to get there organically. All we have to do is to go after new geographies, support more workloads, and certify new server platforms to get our existing HCI customers even more productive. Our recent acquisition of Frame, and our organic development of new data services make us increasingly confident that we can do at least $3 billion in the next 3 years.

Good vs. Great Companies: Growth, Delivery, and Leverage

In less than a decade, we’ve become one of the 45 software companies in the entire history of IT to achieve a billion dollars in annual revenue. And yet, we are a good company, not a great company. Our path to greatness will depend on defining (a) sustainable growth, (b) frictionless delivery, and (c) leverage of core products to build new products.

  • On sustainable growth: We’ve talked about the Rule of 40 being our true compass to grow fast, but not at all costs. Without dipping into our balance sheet, we’ve committed to become one of only 15 software companies in the history of IT to achieve $3 billion in annual business. If a downturn were to hit us, and our growth were to slow down, we are confident that we will produce meaningful free cash flow, based on the strength of our existing sales force and customers.
  • On frictionless delivery: We first delivered our core product as an appliance, then through our OEMs as pure software, and now as pure software-as-a-subscription on-premises. Like we committed to becoming a pure software company in fiscal 2018, we are committed in fiscal 2019 to delivering a large percentage of our on-premises business as subscription and recurring revenue.
  • On leverage: We’re confident that our core HCI product should take us to our stated goal of 2021. That clarity notwithstanding, we will serve our shareholders more meaningfully over the longer term, by keeping our eye on technology tuck-in’s and organic products that leverage the core and provide a public cloud-like experience on-prem. Some of these have the potential to be billion dollar businesses on their own in the next 4-5 years. Our go-to-market is, therefore, progressively built around Nutanix Core, Nutanix Essentials, and Nutanix Enterprise, depending on the maturity of the customer and the depth of our relationship with them. Every engagement starts with the Core, then evolves to Essentials, and eventually graduates to the Enterprise.

Only the Paranoid Survive: Xi, Cloud is Software

Throughout the course of our company’s history, we’ve been a paranoid bunch. In 2014, when VMware almost tried to shut us up, we decided to take control of our own destiny by building our own virtualization software. That one decision opened new doors for us into adjacent areas of software-defined networking and security. As markets get more comfortable with fractional consumption, it is imperative for us to deliver our operating system digitally, “streamed” over the Internet. Many software companies have successfully gone down the SaaS path, focusing not just on content, but also on digital delivery. That delivery vehicle for us is called Xi, and its first service will be around disaster recovery (a secondary site) for our customer’s primary on-prem infrastructure.

Public markets are rightfully paranoid about the future of small-to-mid cap companies that compete with large incumbents. Through this letter, I want to assure our shareholders that the cloud is in its very early journey, just like the vertically integrated PC industry was in the late 80s. The technology industry has inevitably shattered big things into smaller things that also have shorter lifespans. From Mainframes to Unix servers to Intel x86 servers to virtual machines to containers, and from desktops to laptops to smartphones, we’ve constantly miniaturized technology. The public cloud players are building the new Mainframe, i.e., gigantic data centers with large capex investments and multi-year refresh cycles. Data sovereignty (“Laws of the Land”) and data gravity (“Laws of Physics”) will force clouds to be smaller and dispersed.

Xi, like Android and Windows, will be asset-lite, about software, and built with suppliers of smaller data centers. In this decade, we are betting very differently on the architecture of cloud than the hyper-scalers. This suits us well because of our private cloud lineage and software distribution. It also suits us because we believe in all things distributed. It doesn’t hurt that history is on our side.

Finally, I want you to know that velocity is our only friend, and we’ve balanced it well with customer experience. We’re a rare company that has navigated the shifting sands of IT better — and faster — than most other IT players. We simply happen to have a unique trait of bringing it all together with design.

Velocity makes us survive. It also makes us thrive.

Thank you,

Dheeraj Pandey
Chief Executive Officer and Chairman

Forward-Looking Statement

This document contains express and implied forward-looking statements, including, but not limited to, statements relating to recent acquisitions, our total addressable market, our performance under the “Rule of 40” framework, our transition to a software-defined business model, and anticipated future financial results. These forward-looking statements are not historical facts and instead are based on our current expectations, estimates, opinions, and beliefs. Consequently, you should not rely on these forward-looking statements. The accuracy of such forward-looking statements depends upon future events and involves risks, uncertainties, and other factors beyond our control that may cause these statements to be inaccurate and cause our actual results, performance or achievements to differ materially and adversely from those anticipated or implied by such statements, including, among others, the risks detailed in our annual report on Form 10-K for the year ended July 31, 2018, filed with the SEC. Our SEC filings are available on the Investor Relations section of the company’s website at and on the SEC’s website at These forward-looking statements speak only as of the date of this document and, except as required by law, we assume no obligation to update forwardlooking statements to reflect actual results or subsequent events or circumstances.

© 2018 Nutanix, Inc. All rights reserved. Nutanix, the Nutanix logo and any Nutanix products, features and services mentioned herein are registered trademarks or trademarks of Nutanix, Inc. in the United States and other countries. All other brand names mentioned herein are for identification purposes only and may be the trademarks of their respective holder(s).