In March, hyperconverged infrastructure provider Nutanix announced that it was working through an internal audit on the misuse of evaluation software. At the time, company executives said the audit could impact fiscal results and was preventing them from filing a 10-Q for the vendor’s most recent fiscal quarter.

Nutanix now reports that it has concluded that internal investigation, revealing noncompliant usage of evaluation software over a multi-year period. The vendor estimates the financial impact at $11 million and started remediation efforts.

CEO Rajiv Ramaswami announced the conclusion of its Audit Committee investigation related to third-party software usage and the subsequent filing of its 10-Q document with the Securities and Exchange Commission (SEC) for its fiscal second quarter during the company’s earnings call for the third fiscal quarter of 2023.

Nutanix identified a material weakness in its internal control over financial reporting, which resulted in an understatement of operating expenses and accrued expenses and other current liabilities for prior periods beginning in August 2014.

The vendor has estimated the expenses at $11 million, recorded as cumulative expenses in the Q2 2023 report. The company anticipates an annual incremental impact on operating expenses of the third-party software usage to be in the low single-digit millions of dollars, according to CFO Rukmini Sivaraman.

Nutanix noted certain employees had concealed this noncompliant use of evaluation software from two software providers, which violated the company’s policies. “We have also held the responsible employees accountable. This matter had no material impact on our historical financials, and we believe it will have minimal impact going forward,” Ramaswami said.

Ramaswami told SDxCentral that this development has no impact on Nutanix partners or customers.

“One of the things we learned was that we clearly had what we call a material weakness in our internal financial controls because we didn't detect this early,” Ramaswami said.

The vendor is implementing measures to correct the identified material weakness and to strengthen its overall internal control over financial reporting. “So, we are now putting in place and some of it is already in place the remedial measures to make sure that we do the best we can to prevent something like this from happening again,” he added.

As the hyper-converged infrastructure (HCI) vendor dealt with the evaluation software use issues, Nutanix continued to explore new opportunities such as the impact of generative AI and other artificial intelligence (AI) development on the company and the broader HCI market.

“We are certainly seeing a growing number of AI applications and many of them, for example, at the edge,” Ramaswami said.

He cited examples of retailers using AI for fraud detection and car manufacturers leveraging machine vision and machine learning technologies for automated inspections, while more customers are looking to use generative AI as a back-end engine. “From a Nutanix lens, these are all new applications and new workloads that we would like to see run well on our platform.”

Nutanix is optimizing its platform internally to build a standard architecture to better run AI workloads using graphics processing units (GPUs).

Additionally, Ramaswami sees generative AI and AIOps as potential avenues for improving internal operations, cloud management offerings and customer service.

“At the end of the day, an HCI … is a platform for people to run their applications and manage the data. And so now, if you look at generative AI, that's a huge compute-intensive application that uses a lot of data,” He said. “That's a rich set of applications and workloads that could be running on an HCI platform. So that's our goal, right? That's why part one of our plan is to make Nutanix a great platform for running these types of AI workloads.”

Nutanix former CIO Wendy Pfeiffer, who served for more than six years, left the company in March and the replacement search is still on the way.

“We have a search going on for CIO. We have lots of good candidates and I hope to be able to hire one soon,” Ramaswami said.

He noted Pfeiffer used to report to Chief Operating Officer David Sangster, who “has got an acting structure in place in terms of CIO at this point.”