Q3 2021 Pure Storage Inc Earnings Call
[music].
Good day, ladies and gentleman and thank you for free standing by and welcome to the pure storage third quarter and school here.
2021 earnings calls.
Release Conference call at this time, all participants are in a listen only mode at the conclusion and.
Our prepared remarks, there will be a question and answer session.
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I would now like to introduce your host for today's conference call business.
Yes. Please go ahead.
Thank you and good afternoon, and welcome to the pure storage third quarter fiscal 2021 earnings call. My name is Nicole New T.S. Investor Relations at pure storage. Joining me today are CEO, Charlie and Carlo our CFO, Kevin Chrysler and our VP of strategy, Matt take smaller before.
Before we begin and I like to remind you that during this call management will make forward looking statements, which are all subject to various risks and uncertainties.
These include statements regarding the COVID-19 pandemic and related disruptions.
Our growth and sales prospects, including our Q for outlook.
Competitive industry and technology trends.
Our strategy and its advantages.
Our current and future product offerings, including support work and business and operations.
Any forward looking statements that we make are based on facts and assumptions as of today and we undertake no obligation to update them.
Actual results may differ materially from the results forecasted and reported results should not be considered as an indication and future performance.
A discussion of some of the risks and uncertainties related to the business is contained in our filings for the FCC and we for you to these public filings.
During this call we will discuss non-GAAP measures and talking about the company's performance and reconciliation for the most directly comparable GAAP measures are provided in our earnings press release and slides.
This call is being broadcast live on the pure storage Investor Relations website and is being recorded for playback purposes.
An archive of the webcast will be available on the IR web site and is the property of pure storage with that I'll turn the call over to our CEO Charlie Jim Carlo.
Good afternoon, and good evening, everyone. Thank you for joining us on todays earnings call.
As we look to be and of 2020 with relief and look forward with high hopes for a brighter 2021 my thoughts for with all of you on this call I hope that you your family's colleagues and friends, all staying healthy and faring well, but.
The challenges and the changes we've experienced this year have been extraordinary and seem to ever ending and.
And they have certainly reset all of our expectations and assumptions.
<unk> has been V change agent of this decade and.
And we have all words, many lessons and stamina and resilience.
Like you on I'm excited about the many reports on the fantastic progress with vaccines and therapies created by the world scientists doctors and engineers.
However, we all know that there will continue to be challenges due to the virus and its economic impact for months to come for all of our communities and stakeholders.
For all the challenges that cold and created this past year pure has been there for customers delivering capacity performance and services that enabled our customers to cope and thrive during the crisis.
I feel confident that regardless of the rate of progress in the battle against Kogut pure and most of our customers have turned the corner on their plans and ability to operate in this new normal.
I am pleased with this quarter's performance and the progress pure has made.
Growth in our global Enterprise business continues to provide me with confidence that we will exit this downturn with an accelerated opportunity.
Our strategy and our vision to deliver the modern data experience strongly resonates with our customers.
And our first 10 years pure completely change customers expectations of what they should see from storage arrays and storage vendors.
Second decade, we're changing the expectations for hybrid cloud data and storage management.
We're growing from a two product company to offering a full multi cloud data services plot for increasing more relevance to both those who build infrastructure that is <unk>.
And those that build applications, namely developers and Devops.
I'm very pleased to welcome support works team now part of the pure family.
Port works brings to pure Occupancies data services platform for cloud native applications running across container based hybrid cloud environments.
We support works and our existing pure service Orchestrator or PEO. So we've expanded our industry, leading data services capabilities to both traditional and cloud native applications and containers. We've made good progress with the integration and the Port works team continues to perform well easily.
Lead beating their pre acquisition sales plan.
Our strategy would support works is to continue their software defined storage container and kubernetes control roadmap.
And layer in pure capabilities with via Sims and bare metal workloads, all managed through our unique SAS based pure one management system.
Customers are looking for more complete solutions to their digital transformation.
They are not specifically looking to migrate to subscriptions. They are not specifically moving to SaaS and hyperscalers because it's the cloud.
Customers are moving to services and suppliers that provide the outcomes they desire rather than just the means for customers to create those outcomes themselves.
Pure solutions continue to evolve to enable customers to automate their data storage and management and to deliver data management as code to their developers.
And importantly, like our pure do software.
Works is just is comfortably deployed in cloud as on premises supporting a new set of customers, who are board and the cloud and May never consider on Prem infrastructure.
This quarter, we saw strong momentum in both existing and new port works customers, including Euro Bank expedient and Datascan.
And I'm pleased to share that we were just named a leader by Giga on for Kubernetes data protection.
Leading customers are choosing containers port works and FPSO to build and were on their most strategic new initiatives.
There are also choosing to use object storage for these same advanced systems and we are benefiting from this demand and the continued strong momentum for Flashblade.
Flashblade continues to be chosen by customers to consolidate and modernize their unstructured data across a number of uses including technical computing analytics and rapid recovery.
Momentum with customers like first National Banker's Bank, the Louisiana office of Technology services and sign on any health system.
Demonstrates that Flashblade continues to be the leading choice to enable rapid recovery to defeat ransomware.
We're also seeing strong interest and initial customer adoption for our recently released flash recover solution to modernize the entire data protection stack.
This quarter cadence a global leader in electronic design and computational software selected pure is fast file and object service through our pure as a service offering to accelerate their transition to a modern IP environment and to automate their data services flow.
Flashblade to performance and ability to consolidate and many workloads combined with our consumption based model and service level guarantees enables cadence to increase developer productivity and accelerate their time to market.
Customers like cadence are looking to deliver outcomes to their developers.
Pure is subscription services, which include our evergreen and pure as a service offerings had strong growth again this quarter.
Selecting pure as a service and Q3 organizations, such as any bank and Australia, and the University of Texas Health Science Center recognize the flexibility and choice that these offerings provide.
Our unified subscription and pure as a service, which includes cloud block store enables customers to subscribe to storage both in their data center and in the cloud paying for only what they consume making migration to the public cloud possible at any time without worrying about stranded assets.
The operational benefits of subscribing to a service managed by pure makes their lives substantially easier.
Today marks another milestone and industry first for our pure as a service offering with the announcement of the pure service catalog.
The new service catalog provides cloud like transparency by publishing pricing for on premises and hybrid cloud storage delivered as a service so customers can easily choose the right storage service level for each workload.
Combined with pure ones AI, driven workload planner customers can place workloads on the rights storage service tier based on intelligence derived from thousands of customers scenarios.
Flasharray see well into its second generation continues to grow at an accelerated pace.
This month Flasharray see received the best of show award at the Flash memory summit for most innovative flash memory technology.
The performance and financial efficiencies delivered by Flasharray see enable customers to both consolidate workloads and to reduce costs below that of hybrid disk arrays.
The full flasharray portfolio enables customers to address a wide range of price performance levels for both block and file workloads all delivered by our single purity code base.
The services available under our unified subscription on premise in the cloud are powered by the same purity software, providing customers flexibility and consistency and how and where they want to place their applications and consume their data services.
As we scale our company from a single product just for years ago to a broad based provider of data storage capabilities, we continue to scale our management team as well.
Earlier this month, we announced Dominic Delfino as our new Chief revenue officer reporting directly to me.
Dominic brings fresh perspective, and incredible expertise selling subscription and consumption based business models with software innovation at their core.
He has a deep understanding for our customers digital transformation strategies and is well versed in introducing new solutions into the market working closely with customers to deliver solutions that improve their business outcomes.
I am excited to welcome him as we position pure for its next stage for growth.
Navigating the ebb and flow of this cobot crisis has certainly been and exercise and flexibility and resilience for all organizations and actually all individuals worldwide.
As we have stated in prior earnings calls after a rush to solve for new urgent and immediate needs and Q1 cash.
For these reset in Q2, two we plan on their digital strategies, given the new environment.
This past Q3, we saw customers begin to reengage with clear plans to drive digital transformation.
As part of these new initiatives customers have largely done away with business as usual and are looking to simplify their operations yet provide their developers with efficient and self service infrastructure.
Pure is offerings provide the efficiency reliability and automation these customers are craving.
And with environmental impact concerns rising and importance pure and makes it easy for organizations to improve their sustainability initiatives with the savings and power cooling and electronic waste, we deliver across our portfolio.
Pure has made fantastic progress over the last several years to position us well for the future.
We have dramatically expanded our product portfolio, we have enabled our capabilities to be run and consumed as a service we've.
We've created a true hybrid cloud environment for enterprise workloads.
And now we deliver storage solutions for cloud native application development and deployment.
Even with the uncertainties, which remain in the economy from the pandemic, we are confident and our vision our strategy and the ability of our team to grow and scale with.
With that I'll turn it over to you Kevin.
Thank you Charlie and good afternoon, we are pleased with our Q3 financial performance and execution as we continue to navigate headwinds caused by COVID-19.
Our Q3 results demonstrate the value product and subscription solutions provide to our customers share.
Strong sales and recurring revenue growth continues for both our evergreen and unified pure as a service subscription offerings.
Q3, total revenue was 410.6 million.
Down 4.2% year over year slightly exceeding our expectations at the beginning of the quarter.
Product revenue was $274.5 million down 15.1% year over year and.
And subscription services revenue totaled 136.1 million growing 29.5% year over year.
Subscription services revenue during Q3 represents approximately 33% of total revenue.
Up from approximately 25% of total revenue during Q3 of the prior year subs.
Subscription services revenue includes evergreen subscriptions and our unified pure as a service subscription which includes cloud block store.
We were pleased with the strong sales growth and demand for our subscription services Flashblade and Flasharray see offerings during the quarter on.
Our investments and innovation continue to drive results as both our Flashblade platform and our second generation Flasharray see offerings achieved their highest level of sales during the quarter custom.
Customers, including large enterprise customers continue to invest in our Flashblade platform for their high performance file and object needs, including data protection.
Our remaining performance obligations or RPL, which includes our committed and non cancelable future revenue grew approximately 25% year over year slightly exceeding 1 billion at the end of the quarter.
Total deferred revenue, which is included in our IPO was 763 million growing 19% year over year.
Bookings or sales during Q3, excluding cancel orders, which generally flat declining less than 1% year over year.
Total revenue and the United States during Q3 was $302.1 million declining 4% year over year and total international revenue was $108.5 million declining approximately 3% year over year.
Across our full solution portfolio, we continue to acquire new customers. Despite the challenging environment created by COVID-19.
We acquired over 316, new customers this quarter compared to 379 customers during Q3 of the prior year.
Non-GAAP gross margins for product and subscription services during the quarter was 69.1 per cent compared to 71.7 per cent during the same quarter and the prior year.
Non-GAAP product gross margin declined approximately three points year over year, and one half of a point sequentially.
Non-GAAP product gross margins in the prior year benefited from both cost reductions caused by the unprecedented price reductions of NAND as well as mix shift, where we sold larger flasharray systems.
Non-GAAP subscription services gross margin increased approximately one half of a point year over year and declined one point sequentially.
Non-GAAP operating profit during the quarter was approximately $3.4 million compared to $29.1 million during Q3 of the prior year.
Operating expenses during the quarter have remained relatively flat year over year, as we continue to invest and innovation and scale.
Non-GAAP net income during Q3 was 1.8 million and non-GAAP net income per share was one penny.
Non-GAAP net income and Q3 of the prior year was 34.2 million and non-GAAP net income per share was 13 cents weighted.
Weighted average shares used for the non-GAAP net earnings per share calculation was 284.8 million shares in Q3, and 272.2 million shares and the prior year.
We are pleased to have completed the close of our acquisition of Port works during the quarter.
Our purchase support works was funded through a combination of our revolving line of credit and cash.
Total cash and investments at the end of Q3 is approximately $1.2 billion.
During Q3, we returned $21.4 million to shareholders through share repurchases of 1.36 million shares a day.
Approximately $23.6 million of our share repurchase authorization remains.
Total headcount at the end of the quarter was approximately 3860 employees.
Now moving to our Q for outlook, we remain confident in our strategy and execution as we navigate the impacts caused by COVID-19.
On the ability of business conditions has improved but and certainty of the near term impacts the global resurgence of Cove. It may have on our business continues to exist.
While we navigate the impacts of Cove, and we will continue to share internal expectations of our business performance, but not provide formal guidance.
We are pleased to see strong sequential broad based growth of our total product pipeline opportunity. However, we have not achieved the same levels as Q4 of the prior year.
Our current internal view is that total revenues for the full fiscal year will be 1.66 billion.
Representing approximately 1% of growth and total revenues for Q4 will be approximately 480 million a decline of 2% year over year.
We expect operating expenses during Q4, two increased slightly year over year, including a full quarter of investment for Port works with our current view of revenue. We believe operating profit for the full year will be approximately $35 million and approximately 26 million in Q4 on.
Overall, we are pleased with our Q3 financial performance and execution and resilience of our employees partners and customers the performance simplicity and flexibility of our solutions are creating valuable outcomes for our customers, which has further accentuated during the COVID-19 environment.
Our rich portfolio of solutions, including the addition of Port works positions us for strong revenue growth, including growth of our recurring revenues.
With that we'll now open the call for questions.
Thank you, ladies and gentlemen, and do you have a question. Please press star one on your Touchtone telephone.
Interest and time, we ask that you. Please limit yourselves to one question and one follow up question on.
For your questions have been answered please John back and question and answer queue.
On just a moment to compare the Q.
Any roster.
And your first question comes from on line items.
Jason.
And as well.
And.
Yes, hi.
I wanted to know for you guys. If you have any sense of pent up demand going into 2021, and and then any update on NAND pricing and how thats has on might be impacting on the street price.
Yes. Thank you Jason good to hear your voice.
We're very pleased with what we saw in terms of the pickup and momentum in Q3.
The improvement and visibility and in the.
The the fact that our our customer's plans and seem to solidify during the quarter all the way through the end of the quarter is a very good reason for optimism for optimism as we go forward.
I don't know that I'd call and pent up demand as much as I would call. It you know the new they're planning for.
Their plan for digital transformation, if anything our accelerated.
And that's good news for the collection and storage and data as well as managing managing that data and being able to do too.
To take more out of it to improve their business and I think that is going to be that is going to continue even after the good news is long forgotten and so and with all of the optimism around vaccines I think we believe that come spring or early summer, we'll start to see new buyer and patterns and.
And new acceleration merge.
All right, whether that's pent up demand or whether that's based on accelerated digital transformation trends I'll I'll leave that up to you.
Thank you.
Your next question comes from Alex Kurtz and.
Keybanc capital markets.
Yes. Thanks can you guys hear me, Okay, absolutely Alex.
Great Hope everyone's safe and healthy and we will have a good Thanksgiving week here and leads to Charlie.
Broaden and new head of sales, obviously from a very strong background, and then software and subscription and it's clear that with pure and service doing well.
There is a move towards a.
On a bigger focus on this type of.
And selling motion and licensing to your customers I guess, if you could just frame up how.
You would talk to your sales organization and to cut some big customers next fiscal year like what's the message from pure about how you want to be selling and product.
How you wanted to how you want to be licensed and ultimately for Kevin like what does it mean.
For for revenue growth, because obviously deferred would start to pick up so.
Big top level question.
Do the best you can't on and you bet and watch on fully practiced fix I address my entire sales force on this so just a couple of weeks ago at our global leadership summit. So.
We started the world is changing and the world is changing from its if you ask why are they going to Hsas why are they going to the cloud it's not because it's in the cloud.
It's because they're choosing to their choosing services and vendors that provide them with outcomes.
Better outcomes, rather than just the means for a customer to do up to develop the outcome for themselves.
SAS if you will if you go to a SaaS service.
It actually provides a direct interface to their internal customers with a solution rather than just providing for example software for the customer to implement themselves and so as we go forward and we are increasingly tailoring our solutions to provide those outcomes for cost.
And that's what our customers want is data management, not a device that for them to be able to create data management out of and.
And you see that in our pure as a service offering that we announced today, which is our pure services catalog, where a customer now can go on line.
Find all sorts of tools to measure and figure out what type of service categories and tiers they need for their workloads and then completely subscribe to it on line and whether it's on on Prem or in the cloud pure takes the responsibility for delivering that to the customer is a set of service level guarantees.
So increasingly our approach is to provide customers what they need both on prem and in the cloud but to do so through a service offering now that does generally mean migrating to more of a subscription style of sales although the customers can get this even if they go with a cash.
Capex purchase, but yes, you we've been signaling for quite a while that where there are expectations that subscriptions would be picking up.
As a percentage of our sales that has largely come out to be true as you can tell from our announcements this quarter about the improvement in overall.
Subscription sales.
And we expect that to continue to be true, but you know.
We will manage that where the.
The.
Forecasting that we're providing to the street takes that into account and so we feel comfortable with the with that and of course. We think this is a better solution for our customers and so increasingly our sales team wants to go where the customers are going and and they feel good about the changes we're making now.
I'll, just add a little bit to that Charlie look you know a third of our revenue is really coming from subscription services to begin with so we've got a great start to this transition and given that our evergreen subscription model is running at scale and the idea that we're going to have ramp of our appear as a service and unified subscription.
Well have less of an impact in my mind on on total revenue, though there will be some impact and the other benefit that we'll see it is obviously port works being part of our subscription revenue and not be incremental.
Two on growth curve as it relates to our subscription services.
Thank you.
And next question comes from and bankers.
Wells Fargo.
Yes, thanks for taking the question.
I want to kind of build on that last comment around subscription I think one of the metrics. So that's always a little bit interesting. It's just the the RPL balance expansion and.
And that delta relative to deferred revenue I think it was up about 47.5% year over year on.
Can you just remind us how much of that is on the true subscription.
Business and was there any port works contribution in that number that this quarter.
Great question and this is Kevin.
In terms of the differential when you look at it sequentially and the growth we're seeing sequentially between deferred revenue and our IPO that is really our pure as a service offering that's contributing to that build.
And then for works would not have a significant contribution though there would be some contribution to our PEO for for Port works.
And then just is that just as a quick follow up and maybe I'm.
You've got one of your competitors also reporting Tonight and you. Just curious you know power source has been in the market for a quarter or better now just kind of update us on what you're seeing on the competitive landscape is that as you say the digital transformation for is the kind of accelerate.
Yes, Im going on Underwhelmed, you hear air and we're just not seeing power store I mean, where you had the little we're seeing of it as not being terribly successful. So if anything when when it's introduced to a customer gives us an opportunity to go in.
Because it's always a disruptive upgrade to.
To the customer regardless of which of the products that they are attempting to sell or upgrade against so it's just not been a it's not been a big factor our win rates generally.
With Dell have been very consistent.
They're they're consistent quarter by quarter, I'd say, no not not terribly different this quarter, if anything a little bit better.
So.
But power storage has been largely apps and I will say that most of the time and even if they go on with powers for they quickly changed their bid to power Max and that.
The more typical competition for us.
Your next question comes from the line and John.
John on Laura and JP Morgan.
Oh, thank you.
Hey, John D. and Kevin.
His question.
Just on the pipeline I think you said.
Type line is up but is not as as much as last year, but help us understand the come on position on the pipeline that you're seeing last quarter. I think you kind of indicated that the maturity curve is towards the early stage has that changed at all and as we head into Q4.
Yes, great Great question and absolutely when we're looking at the pipeline composition and you are right.
In terms of the year over year compare what we are pleased with is the strength, we're seeing sequentially and our build from from Q3 to Q4, which gives us and confidence in terms of our internal view of.
Our Q for outlook and then when we actually Peel that back a little bit we are confident to see some evolution in terms of the aging and those pipeline opportunities as you mentioned when we are going into Q3, we saw that we are getting some nice build but those were earlier stage opportune.
Trinity's and and as we're looking at Q4, we see a much better balance.
Between early stage opportunities as well as advanced stage. So nice evolution in terms of what we're seeing a sequentially between our Q3 and Q4 pipeline.
Understood. Thank you for that and probably one for you.
Talking to some of your partners, we have kind of gathered.
And you said there has been a few mid eight figure and even larger has contracts.
Help us understand what's driving that is that trends and utility as companies try to preserve cash hopefully right now and this environment or do you think it's it's kind of a fundamental change and hardware buying behavior well.
Well I think it's the beginning of a fundamental change and well and again I wont say its hardware buying behavior. There. We're delivering this as a service so I really want to call attention to the fact that you know spin and and especially with past 2.0, but actually also when we first introduced has it was a lot more than just a financial.
Construct for customers to acquire hardware, we're delivering it as a service they have no commitment to long term holding.
And the hardware and it's a unified subscription with the same set of services in fact, the same software and the cloud.
And increasingly every aspect of their usage. If you will of the service will be service oriented and.
That is to say that you know it will be fully managed it will scale up and scale down without.
Without disruption and without the customer getting involved in that at all we take full responsibility for it. So I just want to identify that it's not about acquiring hardware. It really is about subscribing to a service that just happens to be on their premise as well as in the cloud and I do think that over time, you will see more and more of the.
Absolutely and just to jump and for a second I think Charlie is really hitting on one of the key differentiators of paths from our competition, where we're really pursuing this like a product opportunity. If you look at our competitors their offerings tend to come from their financial services groups, and then just kind of dressed up leases and a different name and we have a business unit that has engineers as a GM who is running this program.
And we're thinking about how we really change the entire customer experience around and as a service experience and so hopefully what you've seen with the launch for the service catalog today is a good example, where we're really rethinking what's the entire way a customer thinks about purchasing a service.
Looks at their existing workloads and uses a I drew and modeling tools to understand the right service and then just enjoys the same level of transparency that people have today and public cloud around open service pricing performance vessel is and then driving the process for getting procurement go and so really it's the beginning of a whole new interaction with customers and pure.
And your next question.
And.
Oxy and.
No and bring tap.
Yeah, Thanks, and the growth.
On on strong results and.
And strong strong guidance and so in my opinion.
And I want to go back to discussion on our PEO, especially on build our pure portion.
Which it was up $16 million to acute has more than the $5 million a year ago period. So clearly on a year over year basis, and had a bluetooth and nice acceleration, but still a step down and the 20 plus million and the past two quarters.
So the.
Is that a deceleration.
Performance for the past two quarters or is there some seasonality that you're seeing with the pure as a service to unify tiers and service offerings.
You know on day, how really I think this maybe more of the.
The fact that we did a large pure as a service deal this quarter and were able to bill for the entire amount of funds. So that entire portion is actually in deferred revenue.
So when we look at our pure as a service.
Trends quarter over quarter actually are very strong and we're quite pleased with those trends.
Net you're looking at between you and build portion versus deferred revenue, we do have and mix and there where we've got some has and deals that are being reflected in deferred revenue because we were fortunate to bill for those upfront.
I see okay, great fantastic congratulations thanks.
Thanks sales.
Your next question comes from.
Uh huh.
Yes, good afternoon.
Charlie starting with you first if I may your internal outlook is healthy considering the headwinds across commercial.
All right are you seeing any rebound internationally, particularly in Europe that is giving you greater confidence for the January quarter or are you actually seeing a sustained improvement in on Prem.
And the U.S. and I've a follow up thank you. So so interesting Karl so I think on international really shows the effect to co bid on on business in general so.
As you know.
In Q2, we saw a real improvement in and international overall as they came out of the crisis.
Earlier than did the U.S. and we saw an uptick in Q3. In contrast, we saw Europe Europe in particular, but Asia about international and general start to go back into Lockdown.
Early late September early October and already we started and right right around the same time with little late a little bit of latency. We saw the effect on our business. So cobot really does have an effect on the local economies whichever country to happens to hit and it's why we're a little bit cautious for Q4, but we do believe at the same time that day.
Businesses now have become let's say more accustomed to operating income of it environments and therefore, there, but there are more robust in terms of pursuing their their IP and digital transformation plans. So we don't expect the kind of turned down that we saw in Q2, we you know even with our our cautious optimism.
And we feel debt.
We feel confident in and what how we're looking at Q for right now, but you know clearly I think once you are the same.
For the same effect that we saw on Europe. When they came out of the crisis in the spring gives us confidence for this spring and especially let's say around the spring to summer of this year and then with vaccines, we think that will be a longer term phenomenon. So we're very much looking forward to the future, but we do believe the next few months.
Our reasons to be a bit more cautious.
Yep understood appreciate that for Kevin.
It's quite apparent that your recent acquisition and expansion of as a service offerings today underscore your desire to increasingly shift your portfolio toward a recurring revenue model.
How does that impact on opex growth and 2021.
Next couple of quarters and.
When we think about that we'll switch we want to be characterized by and investment year and sales and marketing.
You know I guess.
We've we've modified our.
Sales approach, but how do we think about the.
The ability to.
Good leverage on the Opex side, because it's it's certainly I think and.
A great initiative, but if we could think about that from an opex on there would be helpful. Thank you.
Yes, Thanks Carl.
When I think about our operating margin leverage potential even with the transition to increasing pure as a service and our subscription offerings.
Both are very achievable.
And and we're planning on that as we as we look out to next year I think we're making some great efforts across the board to leverage our investments, especially this year.
As we kind of invested.
And head of the growth curve, if you will going into next year.
So I am looking to to actually improve operating margin and profitability, even when considering growth and our subscription offerings.
Your next question.
And.
<unk>.
Yes. Thanks for taking my question I want to have to follow and let me go to your presentation slides and specifically your slide number five and six of these the number of new customer addition has declined on a year over year basis, but what is interesting new revenue mix.
It should be and I just wanted to get some clarification is that just driven by the change you'd and and the customer hi, more driven by App developers and as Doug was driving and.
And more.
Debt.
Projects, especially impacting the subscription services is that the right. We are thinking about on a year over year basis.
Well I'll take that first Charlie and then and then feel free to add on I mean, when we think about our new customers on our new customers.
Either purchase our pure as a service offering which would contribute to our subscription services or they will purchase on.
Our integrated appliance that comes with our evergreen subscription and so that will play into it as well, but we're also getting a significant amount of momentum with customers who are continuing to invest in new evergreen subscriptions for my renewal standpoint, and that that momentum is really coming from our existing customers.
Yeah.
And so that hopefully would answer that question specific to the mix occurring well. Let me also answer you on.
In terms of mix of new customers overall, and as you point out a decline and year over year I first of all I have to say that given the cobot environment, we're pretty pleased with the number of new customers, we've been able to gain because.
On the covert environment, clearly incumbents tend to have a bit of an advantage as as new customers or just more color or as customers are more cautious about considering changes to their existing environment that being said if you were to break down the new customers or the net new logos, what you'd find out is is.
Good growth as a percentage and enterprise and of course, lower net new logos and commercial and simply again, because commercial is under pressure worldwide.
Much more so than enterprises.
In terms of numbers from the krona environment. So again, our expectation is that when the Corona EPS pant.
Pandemic abates hopefully by spring.
We should see a good pickup and this yeah, thanks, Charlie but the good momentum when we think about our recurring revenues will be driven probably more from our existing customer base as well on much more for the day.
Exists and customer base now.
Great and one quick follow up more per house.
That's great and I.
Looking at the product revenue.
And looking into next fiscal year, and the increased availability of the Q and seeing them is that going and how the positive impact on product margin or would you prefer passing that along to customers to increase market share.
Yes, let me take a try that I think its little bit early for us to be able to.
Opine.
You know with great confidence on that but I suppose my belief is that we're utilizing QFC first and primarily to penetrate into new markets in the disc space and therefore disk economics.
Are the ones that we're competing with in that environment and as such I would expect margins to be consistent with our overall company margins rather than to be used as strictly as an and as an enhancement I think over the long term it may improve product overall.
Overall product margin, but in the short term I expect that it will we will be utilizing it to penetrate into that market.
I'd also say that your your question somewhat imply that our acuity product was being limited by availability of NAND and that's not the case, where you're in a second generation about product PNG and now we've now shipped.
Largest you'll see flush module and industry or for the terabyte module and so we're in a really great place from a supply point of view to display that product and we believe it's really differentiated in the market.
Your next question comes from Simon.
Raymond James.
Thanks for taking the question first thing I wanted to ask a little bit more about the announcement you've made today about publishing they.
The service catalog.
I guess I'm trying to think about the potential consequences one scenario might suggest this could trigger price wars responses from your competitors.
On the other he and I could imagine maybe this lead to less discounting.
By you given that you are putting price value prayed for your your customers. Just wondering how you think about the various scenarios or outcomes from this action you've taken.
Well I'll take it for said that look and I guess the first thing here is we're doing this because its something customers demand and increasingly customers want to self qualify research solutions on their own.
Do so and understand relative pricing and.
And contact the sales rep for a channel partner when they are much further along in the buy and process and so this is from a pure point of view is all about really upping, our digital go to market chops and being sure that level to sell how customers want to buy much more on this cloud model.
And the case of the service catalog, what we published and there are MSRP prices and so you know a customer can get a discount obviously by a come into pure and working for our channel programs and thats not publish for Theres still some room for negotiation in there, but what the service catalog does do is it allows them to very openly see what the different services or see what the performance levels are.
So they can make a good choice around okay is it worth.
Two x. and produce and spend to get.
A certain amount of increase and performance and indeed, if you look at the new service tiers that we've introduced we now off for a 10 ex range and pricing.
For a 20 ex range and performance and so theres quite a range of services and customers have the right service level for every workload and the environment.
And that's very helpful and just maybe as a follow up I think earlier and then the Q and eight you talked about customers adjusting to this new normal so even as we aren't fully backed and don't have a vaccine widely available yet your customers are adjusting for how they do business with that.
And Mike.
Do you think that your next quarter basically as we turn into next year, you might define normal seasonality that we might have a more beauty sequential decline as that your customers are sort of catching up.
The business that they didn't do during the pandemic worst period. Thank you.
Yes, well, it's an interesting question.
Look we're not we're not epidemiologists here.
But I think it is fair to say that our expectation would be that that.
Yeah, Workover and will be with us through the early spring and then hopefully start to abate at that point in time.
And I would expect to see then your return to growth economically across the world. That's what we're planning on right around that time, and then get back to you know so that might suggest greater seasonality next year a.
Simply because of the beginning of the year might be a little bit more muted and then be ended the year, but it for but from that point going forward I would expect to start to get back to our normal seasonality you.
What I what I was pleased to see is a couple of things I was pleased to see overperformance in Q3.
Followed by what we're seeing currently is sequential strength going from Q3 to Q4.
And I think those are positive attributes I think the cobot resurgence back.
Back to your point Simon in terms of for.
Okay, and knowing how to sell and this new new environment customers being more comfortable purchasing I think will help mitigate this resurgence we're seeing globally.
And then we just need to see how Q4 performance evolves throughout the quarter, but look what we're really confident and our growth drivers that especially with what we saw in Q3 in terms of our subscription services Flashblade performance and Flasharray C.. So it's coming together for.
For us Covance, certainly creates uncertainty and and to Charlie's point, we do expect that to continue in Q1.
And we're going in the right direction.
Your next question comes from Tim.
All right.
Thank you yes.
Yes, just two if I could as well.
I wanted to follow up on on Flash array C.
Just curious what you can what you kind of learn from Gen. One to gen two of that product.
Maybe just when rates deal sizes, new applications would and what are you seeing as that that product evolves.
Evolves and and second Charlie if you could just give us it sounded like enterprise was pretty strong could you just give us a little color around small medium businesses and and what do you think it's going to take share better rebound from that customer group. Thank you.
Well, let me let me give it a shot you know in terms of the and let me start with the second one first which is that.
Commercial as we I think as other companies have identified as well as the mid market and small medium have as a as a group.
Been harder hit by the coated crisis. Then then then large enterprise and perhaps because they were not quite as ready to operate entirely on line.
Yes as were many of the large enterprises that had already and invested in it. So I think it's just a generally stronger economy overall will will help that as you could see there it's not it's not completely disappeared the net new logos indicates by us.
Indicates that there is still there is still a healthy commercial market, but it's far muted from.
From pre Cove and days overall.
And I'm, sorry remind me the first part of the question on.
Cash racy I'll pass it to kicks and a second but I think the main thing is that with Flasharray see with its primary target being the secondary tier market and disk economics the additional.
Pricing flexibility that it gave us to go for after the disc market. When we are able to introduce true QFC has made a big has made a big difference and allowed the very fast early momentum and allow that to continue.
Yeah, and I guess selling of that is that just hasn't been that type of product that's been very hard to sell in terms of going and finding very focused use cases it.
It turns out customers run this base arrays for a wide range of use cases, and so really the easiest way to go to market, whether there's just to go to a customer who's already bought in and understood. The benefits of flash for the high end of their application space and ask them, where they still running this growth and work with them to say look if we can actually sell you and all flasharray that brings the simplicity and performance of flash.
And it's actually 30% less expensive that this growth why do we need this cycle.
Your next question comes from Eric Martinuzzi.
Mike.
Street.
Yeah, one of the pick apart the pipeline a little bit by vertical I would assume the strength that you've seen at least sequentially and then from the.
And then well resilient verticals financial services healthcare government any green shoots and some of the other more coded expose.
Verticals, you know your transportation hospitality entertainment.
And that sort of thing.
Hi, Eric I would not call out any of the more affected verticals right now is as if from our point of view showing green shoots I would say that we were less exposed to those industries to begin with.
But no we've not and I can't say that we've seen so the significant changes and the.
And how they're faring.
Leased from buying signals to us.
Over the last couple of quarters.
Yes, and what I would add on that is just the enterprise strength was it was across many of our verticals and that was broad based and it was global right. So that was kind of a new green shoot for us in terms of what we are looking and we have had resilience across the board on enterprise, but the broad based growth.
Growth, we saw on enterprise was actually a pleasing for us.
Okay and that was echoed in the pipeline as well correct.
Thank you.
Your next question comes from.
Yeah and Morgan Stanley.
Thank you good afternoon, Kevin what's the revenue contribution from Port works, that's embedded in your fourth quarter in turn on model and then Charlie can you provide a bit more color on Paul's decision to step down as CFO are there and are there any other changes or higher is that you're planning to make on the back on his departure. Thanks.
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On the at the Port works for Katy you Super excited with this strategic acquisition and.
Revenue is actually pretty small in terms of contribution as we look out into Q4.
We'll probably see that start to build and RPL and deferred revenue before that starts making its way in any significant.
And if it can and meaningful way to revenue accounted for only want to thank thank you Katie I want to thank Paul for his contributions for the company over the past year or so that he has been here and he's really brought a lot of structure to our operations at the company and contributed a lot and also was part of recruiting day.
Now moving to the company.
In conversations with Paul as we were recruiting Dominic Paul started to feel and I had to agree that Dominic for is going to going to bring a lot of capabilities into the into the chief revenue officer role that Paul had been handling and Paul felt that look at debt.
Given given dominant coming on board and given the exception of Jason Rose as Chief marketing officer, and so forth that we really had.
Now a strong operating cadence and that Paul's role as Chief operating officer was not really a re as required at the company and that he had a number of opportunities that he could go pursue and so maybe it was better to make that change and and so we agreed with that Paul is going to continue with us through the end of the.
Quarter to ensure a smooth acquisition with Dominic.
And then and then move on and I do want to thank Paul for what he has contributed and while I have this moment I want to thank KD as well for his leadership for the sales force over the line over the last three years on a global basis cash.
Kt has gotten US you guys day.
Over his pure.
Period of time, leading the sales force we've doubled on almost every aspect of our company revenue the size of the company the size of the sales force et cetera and.
And he's done a great job.
On the bringing Dom onboard really signals. The fact that we're changing as a company having.
Having now moved from a single product to a two product to now.
Full portfolio both in the cloud.
And on Prem and increasingly moving to subscription and Dominic brings the right type of background for this next step in our journey and so we're very pleased pleased with that overall.
Thank you for that color.
Yes.
And this concludes the question and answer session at this time and like to turn the call average he Charlie.
John.
Yes.
Thank you.
In closing I'd like to thank all of our employees our customers our partners and for all of you on the call for your hard work and dedication to our mission, it's been a wild year and is not over yet on that.
Looking forward to working with all of you to build a much better 2021. Thank you for joining us today and stay safe and please have a very happy Thanksgiving to all of you I know I know, we all need the the rest. Please take time with family and we look forward to engaging with you in the future take care.
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