Nutanix wowed Wall Street with its first quarter of fiscal 2020 earnings, posting $314.8 million in revenue and sending its stock skyrocketing more than 21% in after-hours trading on Monday.

While Nutanix's Q1 revenue represented less than 1% growth year over year, it reflects the company’s ongoing transition to a software subscription-based business model, and a reduction in hardware revenue from the year earlier.

Nutanix's Q1 subscription billings grew 41% year over year to $276 million, representing 73% of total billings, and subscription revenue increased 72% year-over-year to $218 million, representing 69% of total revenue. This puts the company on track to meet — or beat — its goal of more than 75% of billings coming from subscription by the end of the fiscal year.

“This transition was a bold transition,” said Nutanix CEO Dheeraj Pandey in an interview with SDxCentral. “We think we have a competitive advantage to have subscription everywhere because you can’t be a hybrid cloud company without having subscription everywhere.”

That statement was directed at VMware, Nutanix’s biggest competitor, which sells its software via licenses as well as cloud-based services. “VMware is postponing the inevitable,” Pandey said. “With having two or three different silos of spend, you can’t call yourself a hybrid cloud company.”

This next phase of hybrid cloud looks a lot like the transition from converged infrastructure to hyperconverged infrastructure (HCI), he added. “There was this temporary coalition of Cisco, EMC, VMware, or Cisco, NetApp, and VMware” selling converged infrastructure. “And these things were selling like hotcakes until they stopped selling.”

Meanwhile HCI started to take off as companies quickly saw the benefits of combining scalable, software-defined storage, compute, and networking into a platform that runs on commodity servers instead of expensive converged infrastructure hardware. Nutanix quickly emerged as a leading vendor in this hot data center sector.

Fast forward to today, as enterprises move toward hybrid and multicloud, they want to hyperconverge all of these environments, Pandey said. This requires a control plane, and both VMware and Nutanix say they’ve got the best technology for this.

“I think we’re seeing a very similar movie sort of playing out as we speak in this world of multicloud, hybrid cloud,” Pandey said. “We’re saying, let’s get this right, and by that I mean the same kind of patience that we had for hyperconvergence, we’ve got to have the same kind of patience and architecture and attitude for hyperconvergence of clouds, where it’s pure software running on commodity servers of hyperscalers and with commodity networks of hyperscalers and with this kind of consumer-grade design that we have been known for.”

During a Q1 earnings call with investors on Monday, Pandey touted his company’s move to a subscription model. That gives it true hybrid-cloud credibility, and it’s a key differentiator between Nutanix’s software and VMware’s, he said.

“This holistic approach of a hybrid cloud stack is often a critical reason why we win deals,” Pandey said, according to a Seeking Alpha transcript. By hybrid cloud stack, Pandey means Nutanix’s core HCI software as well as its newer products that span SDN and microsegmentation, automation, containers, data base and multicloud management, and others.

“That multi-product portfolio is probably the next big battleground for both companies,” Pandey said on the conference call, referring to Nutanix and VMware. “So we believe that there is obviously going to be competition. It’s a very large market, and large markets are red oceans. Red oceans have whales and red oceans are bloody. So we got to be the faster shark that knows how to really navigate change.”