‘What we discovered is that certain evaluation software from one of our third-party providers … which is intended for evaluation purposes, was instead used for validation, interoperability testing and proof of concepts over a multi-year period. Because of that we weren’t able to disclose expense information on the call and we have announced that we expect to be unable to file our 10-Q in a timely manner,’ says Nutanix CFO Rukmini Sivaraman.
Nutanix told investors it has been improperly using licensed software for “a multi-year period” and it is now trying to determine how much it may owe one of its vendors, but as a result it could not accurately report expenses for the quarter.
San Jose, Calif.-based Nutanix hired a lawyer from outside the company to investigate what it may owe the undisclosed software vendor after company management learned the software had been misused, Nutanix CFO Rukmini Sivaraman said.
“What we discovered is that certain evaluation software from one of our third-party providers , someone who provides us software, which is intended for evaluation purposes, was instead used for validation, interoperability testing and proof of concepts over a multi-year period,” the company’s CFO told investors during earnings earlier this week.
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“Because of that we weren’t able to disclose expense information on the call and we have announced that we expect to be unable to file our 10-Q in a timely manner, given that we want to make sure this is resolved first,” she said.
When reached by CRN for comment Nutanix said it does not expect the issue to have a significant impact on the fundamentals of its business or overall prospects but declined to go into further detail.
The company was asked by analysts how much it had spent with the vendor in the past so they might gauge how big the bill could be, however CEO Rajiv Ramaswami declined to provide numbers or dates.
“Eval software is meant for eval use,” Ramaswami said. “So you go and try it out for whatever you are using it for. So you try it out and at some point you purchase it. What we found was in some cases, we were using the eval software for doing interoperability testing or customer proof of concepts, validating. So that goes beyond the scope of what eval software was being used for. … What this means is therefore there might be some additional expense, in terms of usage of that.”
Ramaswami said the fundamentals of Nutanix’s business are unchanged by the issue.
“So this matter doesn’t impact our market opportunity or the demand for our solutions,” he said. “We’re working diligently to solve it as quickly as possible. And we are very focused on driving sustainable and profitable growth.”
One longtime Nutanix partner, who said they had no direct insight, doubted that “anything sinister is going on.” They speculated that Sivaraman, who joined Nutanix less than a year ago, could be the one who discovered it.
“This could be one of those situations that a new CFO is finding things from the past that need to be cleaned up,” the partner said. “I know nothing; it’s just my instincts telling me that if the new person found an issue, they would want to resolve it. You need to have clean financials. I don’t get the sense there’s anything sinister going on.”
Nutanix released partial numbers for the quarter that showed revenue grew 18 percent in the first quarter surging to $486.5 million up from $413.1 million a year ago. Annual recurring revenue was up 32 percent year over year to $1.38 billion in the quarter.
Ramaswami said the company delivered solid performance during the quarter ending Jan. 31, against an uncertain macroeconomic backdrop. He said the company’s growing subscriptions revenue underpinned its performance for the quarter. The company notified the SEC that it will miss the deadline to filed its 10-Q.
O’Ryan Johnson is a veteran news reporter. He covers the data center beat for CRN and hopes to hear from channel partners about how he can improve his coverage and write the stories they want to read. He can be reached at firstname.lastname@example.org..