b'concerning driver benefits like in-app tipping, 24/7Investors filed a putative class action lawsuit against support, and career coaches. Nutanix, its CEO, and its CFO. Plaintiffs filed a Plaintiff moved for class certification on September 25,consolidated amended complaint on September 9, 2020, which is fully briefed and heard on March 11, 2021.2019 alleging violations of Sections 10-b and 20(a) of Defendants answered on October 2, 2020.the 1934 Act and Rule 10b-5 promulgated thereunder. Defendants moved to dismiss, and the court granted the motion on March 9, 2020, with leave to amend, on Scheller, et al. v. Nutanix, Inc., et al., Casethe grounds that Plaintiffs failed to adequately allege No. 19-cv-01651, 2020 WL 5500422the falsity of Nutanixs statements or that it acted with (N.D. Cal. Sept. 11, 2020)the requisite scienter. Reduced Sales Revenue AndOn April 17, 2020, plaintiffs filed a second amended Marketing Expenditures complaint, alleging that Nutanix made multiple purportedly false statements by (1) misrepresenting its Nutanix, Inc. is a cloud-platform provider known forinvestment in sales and marketing, and in particular its development of hyper-converged infrastructureoverstating its lead generation and sales hiring; (2) software (HCI) that combines data-center computingconcealing its deteriorating relationship with Dell; (3) into a single machine. Nutanix customers historicallymaking false statements about strong product quality; purchased HCI for use with hardware platforms eitherand (4) failing to disclose a purported pull-in scheme preinstalled on Nutanix hardware or preinstalledwhereby, according to confidential witnesses, Nutanix on third-party hardware sold by original equipmentmasked a declining sales pipeline by pulling-in sales manufacturers (OEMs) that partnered with Nutanix,from future quarters. Defendants moved to dismiss including Dell Inc. (Dell), International Businessthe second amended complaint on the grounds Machines Corporation, and Lenovo Group, Ltd. Inthat plaintiffs failed to cure their deficient scienter 2016, Dell, Nutanixs largest OEM, acquired VMware,allegations and failed to plead an actionable false or Nutanixs main competitor, resulting in a decline in salesmisleading statement. The court granted the motion orders Nutanix received through Dell and increasingas to some of plaintiffs claims, but denied the motion competitive pressure on Nutanix. in part, allowing the case to proceed as to defendants In response to competitive pressure, Nutanix pivoted tostatements about new customer growth and the a new business model in the first quarter of 2018. First,companys sales productivity. it transitioned from reselling hardware coupled withFirst, while the court acknowledged that plaintiffs software licenses to a software-only model. Second,adequately alleged that the Nutanix was not investing it shifted away from a hardware-life bounded licensein lead generation, it held that plaintiffs challenged sales structure and toward a subscription-based modelstatements were not false because they related to providing consumers with cloud-based products.sales and marketingnot lead generationwhich Nutanix reported the transition was a success. Indeed,Nutanix did spend more money on. Second, the the company repeatedly touted new customers, suchcourt rejected plaintiffs contention that statements as during a March 2018 investor call when Nutanixsregarding customer growth and sales productivity CEO stated that the company added a record numberwere misleading because Nutanix pulled in sales from of new customers and made a huge contribution toexisting customers that were supposed to close in overall mid market customer acquisition. Similarly,future quarters, reasoning that plaintiffs recognized in the company also stated that it had grown its salesthe second amended complaint that Nutanix regularly and marketing personnel, such as in a May 2018 presspulled in such accounts each quarter, including before release in which it stated that [w]e had strong successthe class period, undercutting plaintiffs claim that the in our hiring in the quarter that positions us to deliver onpractice by itself rendered the companys statements our future growth plans.about new customers and its sales pipeline misleading.On February 28, 2019, the company announced itsHowever, the court concluded that plaintiffs adequately second quarter 2019 financial results and lower thanpled that defendants statements that Nutanix add[ed] expected guidance for the third quarter of 2019.a record number of new customers and made a huge The company attributed its guidance to inadequatecontribution to overall mid-market customer acquisition marketing spending for pipeline generation and slowerwere materially misleading because they alleged than expected sales hiring. Thereafter, the price ofthrough various confidential witness statements that the Nutanix stock declined 32.7% from a closing price ofcompany was simultaneously facing a decrease in the $50.09 per share on February 28, 2019 to a close ofsales pipeline and sale leads. Finally, the court held that $33.70 per share on March 1, 2019. Nutanixs claims regarding its success in hiring could have misled a reasonable investor in light of plaintiffs 39'