As we head into .NEXT London tomorrow, I’ve found myself taking a step back to reflect on how far we have come as a company since we were founded nine years ago. In less than 10 years, we have done nearly $4 billion in lifetime sales, transformed from a hardware to a software business model while being publicly traded, surpassed $1b in annual software and support revenue run rate, and surpassed the 10,000 customer mark while keeping our Net Promoter Score above 90. In this quarter alone, we closed 63 deals worth more than $1m and 3 deals worth more than $5m. And we now have 15 customers who have a lifetime spend of more than $15m and more than 700 customers with a lifetime spend of more than $1m. In fact, when we look at our customer base, we have seen 83% YoY growth in customers with a lifetime spend of $3-5m and 111% YoY growth in customers with a lifetime spend of more than $5m. To put our achievements into context, we reached $1b in annual revenue faster than any other software company founded in the past 20 years – Salesforce, Palo Alto Networks, and Workday included.
From everything I mentioned above, you might think that we’re a very optimistic company. On the contrary, we are an intrinsically paranoid company that happens to be optimistic. In my favorite book, Only the Paranoid Survive, Andy Grove talks about this paradox in Chapters 7 and 8. Let Chaos Reign, and Rein in Chaos. Building is inherently chaotic, and you saw a bit of this in the last 12 months of our new product development and inorganic acquisitions. These announcements created confusion in the minds of many who aren’t simultaneously balancing building and scaling in their day-to-day. Questions such as “What is the core of your business,” “where do I begin, with which products,” and “are the new applications even remotely related to the core products I use, or will they leverage the existing core” emerged. In this blog, I would like to rein in some of that messaging chaos.
The core of Nutanix’s business is infrastructure — we call it the Nutanix Core. It’s comprised of our software-defined storage stack, AOS, an infrastructure control plane, Prism, and increasingly — but optional for the initial leg of a customer’s journey — our hypervisor, AHV. People say infrastructure is a commodity as it becomes “good enough,” and all the value will move higher up. They’re so mistaken. They don’t know how hard infrastructure is to execute and make a reliable business out of. There is a reason why hardware incumbents struggled to monetize OpenStack in response to Amazon. Ask Oracle, and they’ll tell you about the pains of building an IaaS stack. Look at how Azure Stack has been a non-starter for Microsoft, as Azure continues to bleed on multiple infrastructure stacks for their various workloads. Google itself has been trying to make their homegrown core become useful for enterprises, and they’ve been trying since 2012. Observe how VMware is hedging its bets between three infrastructure worlds — their traditional 3-tier comfort zone, their software-defined struggle zone, and the new AWS cannibal zone. Only Amazon AWS has a true grasp of infrastructure, and even they will have to think hard about how to make it truly enterprise workload ready and also miniaturize themselves, i.e., ship code to tens of thousands of sites, to disperse clouds.
In fact, our dominance in the core is why VMware avoids doing PoC’s in accounts when we are in a head-to-head fight. A case in point was a new customer this quarter, a major international airport that is one of the busiest in the world. Remember how in the last decade, Microsoft Hyper-V wasn’t good enough — despite being bundled with Windows — for many erstwhile VMware customers who had profound enterprise-grade needs? With this customer, VMware’s good-enough wasn’t good enough to create a dynamic, cloud-grade platform for the majority of their core airport applications.
Machines are unforgiving, and unlike humans, cannot work around weakness to make “good enough” work. “Good enough” infrastructure is an oxymoron, period.
This is why we have been so successful at adding Nutanix Core customers. These customers deploy AOS and Prism platform and AHV virtualization to modernize and deliver a cloud-like experience within the walls of their own datacenter. Nutanix Core customers represent the foundation of our business in the near-term, and are what will enable us to deliver on our goal of at least $3b in software and support billings by 2021. In Q1, AHV adoption increased to 38% on a rolling 4-quarter basis. AHV was a decision factor for one of America’s leading operators of general acute care hospitals, our second largest deal of the quarter, which was worth more than $5m. This healthcare provider will expand deployment of our platform to support its field facilities, all using AHV virtualization.
Once companies have experienced the simplicity our platform brings to their core infrastructure, they often quickly – and enthusiastically – want to “graduate” and standardize on Nutanix across their IT infrastructure, developing pure-play software-defined cloud platforms for their business-critical workloads. These companies are Nutanix Essentials customers, who build on our Core offering to deliver on security, automation, data management, and operational efficiencies. They do so with Calm for app-centric orchestration, Flow for application security, Files for storage consolidation, and Prism Pro for large-scale operations management. What might not be obvious is that Essentials runs on top of Core, i.e., Essentials drags Core with it in all deployments. Case in point on this leverage and crawl-before-you-walk philosophy is one of our US Federal customers, a department within the US Navy. They made their first purchase with us in 2016 for VDI. Over the following few quarters they expanded to server workloads in the datacenter and started replacement of legacy 3 tier in remote offices, all with AHV as the hypervisor. Later in their journey, they purchased licenses for Calm, and this quarter, they expanded their Nutanix deployment even further, leveraging our platform across even more remote offices with the addition of both Flow and Prism Pro.
Another example of this customer journey is a US government agency that provides fact-based, nonpartisan information to Congress. This customer first experienced Nutanix Core almost four years ago. Since then, they have materially expanded their use of our platform, utilizing AHV, managing their unstructured data needs with Files, running all their enterprise applications, virtualizing their Exchange environment, and finally in this quarter, expanding their VDI environment to 4000 users!
Finally, Nutanix Enterprise customers advance into hybrid and multicloud deployments with Karbon, Era, Buckets, Volumes and Xi Cloud Services, our new suite of SaaS-based services. This new suite includes Xi Leap for Disaster recovery as a service, Xi IoT for innovative edge cloud computing, Frame for cloud-native desktop-as-a-service, Beam for multicloud governance and cost control, and Epoch for multicloud application observability and monitoring. Most Xi Services use Nutanix Core and Essentials. Yet others make them better by being multicloud, thus making them compete better with other clouds. There is no Xi without Core and Essentials. All Core and Essentials products, currently running on-prem, will become part of the Xi catalog, and that is what every computing company on the face of this planet covets — a catalog that can run both on-prem and off-prem.
This leverage and the customer journey of crawl-walk-run is evident by how our end users adopt our solutions. In this last quarter, 19% of all our deals involved 1 or more of our Essentials or Enterprise solutions in addition to our Core offering, calculated on a rolling 4 quarter basis. We are confident those customers who realize the simplicity and reliability of our Core will continue to recognize the value of our extended platform and continue their journey with us, seamlessly.
We’ve talked a lot about Xi over the past few quarters and, as I mentioned earlier, I’m pleased to say that Xi Leap is now generally available, with future geographies rolling out over time. Going beyond that, Xi IoT, our edge computing solution formerly codenamed Sherlock, is also generally available, and we have made significant updates to our Frame desktop-as-a-service offering, adding role-based access control which gives our customers even more granularity in how they deploy desktops via the cloud. Our customers have already validated that there is demand for this set of services in the market. In the last couple of weeks, we closed a deal with a public school district serving over 5,000 students to use Xi Leap. We made DR invisible for them. They do not need a backup-and-recovery box on-prem! DR is a huge adjacency for us, and will also become a highly automated way for us to migrate workloads off-prem with 1-click.
In this quarter, we worked with the Google Cloud team to win a deal with an American worldwide consumer products company in the Global 50 – our first with this customer – to deliver Frame virtual desktops to their workforce. The customer has invested in Frame, alongside GSuite, a natural partnership for worker productivity in the cloud-first world.
Over the past year and even today, we have significantly added to the breadth of our platform, broadening our capabilities to address the challenges our customers tackle as they modernize their IT infrastructure and expand into multicloud operations. This product velocity stands as a critical advantage for Nutanix. Today, we introduced a simple way to understand our product offerings, based on how our end users adopt Nutanix. This is about a customer journey — a buyer’s journey, a seller’s journey, a learner’s journey — from infrastructure modernization with Nutanix Core to the deployment of a customer cloud platform for any workload with Nutanix Essentials all the way to IT-governed, cost-managed use of multiple cloud platforms within the same IT organization with Nutanix Enterprise. In our journey to 2021, three large workloads or markets will drag a big portion of Nutanix Core — unstructured data (files and objects), structured data (databases), and desktops.
This blog contains express and implied forward-looking statements, including, but not limited to, statements regarding our business plans and objectives, long-term financial model targets and our plans to achieve those targets, product features, services and technology that are under development or in process and capabilities of such product features, services and technology, plans and timing for, and the impact of, our transition to a software-defined and subscription-based 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 fiscal year ended July 31, 2018, filed with the SEC on September 24, 2018. Our SEC filings are available on the Investor Relations section of the company’s website at ir.nutanix.com and on the SEC’s website at www.sec.gov. These forward-looking statements speak only as of the date of this blog and, except as required by law, we assume no obligation to update forward-looking statements to reflect actual results or subsequent events or circumstances.
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