Q4 2022 Pure Storage Inc Earnings Call
I wish them, well and continue to meet our customers' demands.
Earlier, I had mentioned that pure solutions are able to provide customers higher performance and reliability with significantly less space power and cooling than competitive all flash products in many cases utilizing up to 80% less power and space.
Lower energy use by our products will significantly reduce the environmental footprint of our customers data centers.
Third party reviewed competitive comparisons will be one part of our full environmental social and governance or ESG report, which we will publish later this month.
In our operations and.
Downstream use of our products.
As well as our current state and future plans on talent recruitment and retention and diversity equity and inclusion and.
And finally.
Our governance and business practices.
I would like to comment on three additional topics of broad current interest first.
First the so called great resignation.
Than inflation.
And then our response to the Russian invasion of Ukraine.
As is widely reported employee attrition as elevated across all industries and especially in technology.
However, the flip side of this coin is that there has never been a time in my memory. When so much great talent was available all at one time.
And we saw a strong traction in hiring during Q4.
Our continuing success large market opportunity and high employee satisfaction scores have made pure a talent magnet.
Inflation is also real and there is no countervailing benefits.
I believe this will be with us for some time and we have assessed impacts to employee compensation and other operating expenses, which we have considered in our guidance. We are carefully monitoring the situation in Ukraine, and I am dismayed by the wanton disregard for both national sovereignty and human lives currently on display.
Our Hearts go out to the people of Ukraine, and all of those affected by the conflict.
We have ceased.
It's all shipments in support services in Russia, and Belarus, which represents a small amount of business for the foreseeable future.
We are providing support as appropriate to our employees and their families.
In closing I would like to thank our customers partners and especially our employees for their trust and support of pure this past year.
Through all of the challenges over the last several years pure has thrived we have innovated we've grown we've battled competitors large and small and we've taken market share.
Most importantly, we are delighted ever more customers by delivering solutions beyond their expectations.
Simple formula will continue to fuel our growth for years to come.
Over to you Kevin.
Thank you Charlie and good afternoon, we saw outstanding execution and performance across our entire company achieving record revenue operating income and cash flows demand.
Continue to be very strong across our portfolio of solutions services and geographies, especially in the U S and Canada.
Although supply chain challenges continue to persist.
We executed for our customers delivering our solutions and minimizing delays.
Growth of our subscription business is robust as we continue to create value based outcomes for our customers.
Subscription annual recurring revenue or <unk> grew 31% to nearly $850 million.
Also our subscription net dollar retention or <unk> at the end of the year exceeded 120% compared to our long term target of 115% as a result of expansion growth from existing customers.
Remaining performance obligations, our RP O, which includes our committed and noncancelable future revenue was over $1 4 billion growing at 29%, we acquired 470, new customers, reflecting increasing strength, new customer acquisitions were balanced across geographies.
Market segments, and our solutions portfolio, our total customer count now exceeds 10000 customers, which also includes over 50% of the U S Fortune 500 companies.
Now turning to financial results for the quarter.
Total revenue for the quarter grew 41% to approximately 709 million <unk>.
Revenue in the United States grew 51% and international revenue grew 20% year over year subscription services revenue grew approximately 42% for the full fiscal year total revenue grew 29% generic $2 2 billion.
Our fiscal year includes 53 weeks contributing both additional revenue and costs, excluding the revenue contribution arising from the additional week total revenue for the quarter grew approximately 37% and 28% for the year.
Total non-GAAP gross margins were nearly 69% this quarter.
non-GAAP product gross margins of 67% were slightly impacted by higher supply chain related costs. We were very pleased with how we actively managed our supply chain challenges and partnership with our suppliers.
Our integrated software and hardware designs continue to be very valuable as we manage these challenges.
As we continue to sell the value of our solutions, we expect product gross margins to be in the high <unk> consistent with our long range expectations.
non-GAAP subscription and services gross margins were solid at 73% this quarter.
We achieved record non-GAAP operating profits of nearly $119 million and non-GAAP operating margins of 16, 8%. This quarter, while also continuing to make investments to drive growth.
Increased operating costs included higher compensation due to our strong performance increased hiring in an additional week of operating expenses of approximately $17 million.
non-GAAP operating profits for the year also trading profits contributing.
Approximately two to three points of benefit to our fiscal 2022 to operating margin.
Slower than planned hiring significantly reduced travel and the reduction of physical marketing events were the largest drivers.
Now, let's turn over to the balance sheet and cash flows we ended the quarter with over $1 4 billion in cash and approximately 4200 employees.
Our strong overall.
Financial performance was also reflected in our cash flow from operations of 100.
$138 million this quarter.
Capital expenditures were approximately $21 million.
For the year, we more than doubled our cash flow from operations to more than $400 million and generated more than $300 million of free cash flows.
With our strong balance sheet and cash flow generation, we paid off our outstanding credit revolver balance of $250 million after the close of our fourth quarter.
We can purchases, we repurchased approximately two 4 million shares during the quarter and approximately $8 5 million shares during the fiscal year, our $200 million share repurchase program has been completed and we have also announced a new share repurchase program of $250 million.
Now turning to guidance, which is based on a 52 week fiscal year.
Our performance in fiscal 2020 to set new records for revenue operating profit and cash flows are strong revenue growth. This year benefited from a substantial sale of flash or a seed of meta.
Includes an extra week in the fiscal year and reflects an easier compare to fiscal 2021, which was impacted by COVID-19 related headwinds, we see broad based demand strength continuing this year for our solutions and subscription offerings and expect our pure as a service offering to grow at a much faster rate than our overall <unk>.
Company growth rate.
As we consider these factors we expect revenue in fiscal 2023 will be approximately $2 6 billion growing 19% to 20%.
Revenue in Q1 will be approximately $520 million growing 26%.
Operating profit substantially expanded this year as a result of strong operating discipline and operating leverage.
As we have previously highlighted operating profits also benefited from slower than anticipated hiring less travel and fewer physical marketing events due to the COVID-19 environment.
While we do not expect the majority of these COVID-19 related benefits to recur next year as business operations become more normalized we anticipate operating margins to expand modestly through continued operating discipline and leverage.
Contemplating higher inflation next year.
Okay operating margins of approximately 11 points.
5%.
And non-GAAP operating profits of 300.
For the year.
Yes.
non-GAAP operating profit in Q1 is expected to be $16 million.
In closing.
I am very pleased with our execution and performance our consistent commitment to innovation and creating best in class experiences for our customers are really the driving forces of our successes we have seen.
And I want to thank our entire peer team and our channel partners for their outstanding execution. This year.
With that I will turn it over to the operator, so we can get to your questions.
Thank you ladies and gentlemen, if you have a question. Please press star one on your Touchstone telephone and the interest of time, we ask that you. Please limit yourself to one question and one follow up question. Most of my questions have been answered. Please jump back in the question and answer queue.
Just a moment to compile the Q&A roster.
And your first.
Your first question comes from the line of Amit <unk> from Evercore. Your line is now open.
Okay.
Congratulations on a great set of numbers here.
Yes.
My question really though.
Firstly announced Matt as a customer in.
This white paper thats sort of outline that storage needs around the super AI plus or that they have.
About sort of the breadth of this engagement and I think you all know the revenue contribution from back in October , but maybe you could talk broadly.
Let them choose pure storage versus building their own and then what does it mean from a revenue perspective.
Plus we get one extra bite that Deb talked about in their lifecycle.
Hi, Amit Charlie Giancarlo here. Thank you.
For opening up for questioning so net I think is a great example of the power of our portfolio.
We had started working with metal, formerly Facebook actually some years ago using the flash blade.
Platform on some of their AI initiatives, but as they look to scale out.
AI initiative, what they really needed behind it.
Was a data lake.
Something that could hold data at the right performance, although not necessarily to directly feed.
The the Gpus.
But that would provide high performance, but frankly at a.
Price that would compete with disk.
And in addition, they had other constraints in their environment.
<unk> power and cooling being.
Being an important element frac.
Frankly, you can not only did they look at their own technology internally, but they looked at it outside.
Outside vendors as well and at the end of the day, we were our flash array product, which forms that data lake behind the behind the AI cluster.
It was the only product that could satisfy all of.
The requirements on it but it really shows the power of a portfolio that is I think driving our growth across the enterprise.
And around around the world.
And we do believe that it is what's going to allow us to continue to expand our overall footprint.
Let me turn it over a little bit too to Rob Lee here to perhaps give you a little bit more behind the supercluster and then Kevin on the on the revenue.
Yeah, Amit just to add on to what Charlie said again I. Just highlight this is a great example of UK benefiting from the entire portfolio as Charlie mentioned, we started working with <unk>, formerly Facebook over five years ago first supporting I would say there are research environment directly supporting data scientists doing AD hoc kind of AI model training.
Against the flash blade and as that environment grew and continues to grow.
They built around at a larger production AI supercluster environment, which has come out and describe and now in that environment.
But they look to pure to provide with flash receives a really what we would describe as more of a general data storage bulk data storage capability something that provides a huge capacity certainly high performance and then meeting the balance of needs that Charlie called out in terms of very efficient power cooling and footprint.
Associated with it and so I think a couple of things of note here. One is a great validation of our technology and advantages, but b I think it's a great sign that look the transition from disk to flash is absolutely happening we see in the enterprise, we're now starting to see it in the Hyperscale environments.
And we believe to a degree this is not only happening, but it's inevitable.
And I'll, just close I met with some share some thoughts in terms of the revenue contribution, but without getting into specifics obviously.
Certainly from a revenue outlook, we've built some revenue in for meta and I would say it's in line with our overall company growth rates for next year.
Perfect.
Really helpful and if I just follow up quickly on <unk>.
Commodity I think has been a big discussion, especially what's happening on pricing.
And to talk about what you see from a non pricing perspective, and then what are you embedding really in the fiscal year guide.
A modified risk.
Yes, we're expecting that the.
The.
The constraints, let's say in the <unk>.
NAND production over the next couple of quarters is going to put upward pressure on NAND pricing, we do expect that to flow through and eventually come back down and pricing later later in the year.
Not expecting huge swings to be to be direct but.
So slight upward pressure in the early part of the year and then downward pressure later in the year, that's our expectation of course.
Events have a way of changing expectations pretty quickly. These days, so but thats, what we are currently going with.
Thank you. Your next question comes from the line of meta Marshall from Morgan Stanley . Your line is now open.
Great. Thanks.
One is the key.
Clearly you guys stated you are seeing traction across a lot of different customer types.
Any detail.
No kind of a downtick there.
Just where all of the upside.
It came from and then.
Noted that you were saying maybe that all of the COVID-19 savings or Covid tailwind come back.
Okay.
On the Opex side, but just what youre expecting in terms of how much of that 200 300 basis points would come back in fiscal 'twenty three.
First of all.
Future.
On your question.
As mentioned, we really saw from a product line perspective broad based strength and particular strength in.
The U S I'd have to call out I'd have to say, both commercial and enterprise where strong commercial.
We've been commenting on these two markets consistently quarter by quarter commercial has been.
The slower to come back during this latter COVID-19 .
The Covid period, but we really are starting to see some real strength in commercial building, especially over this last quarter, but our ability to to be penetrated.
Trading deeper and deeper into enterprise, both new customers, but but in particular penetrating more deeply in existing customers has been very strong.
And it was really broad based in the Americas, good strength the power of the <unk>.
Well, it's been very strong, yes, I'd agree with that Charlie I think the U S. Meda just had an outstanding quarter.
Quarter for us.
In addition to what Charlie was saying I think what we're seeing in the U S is really leveraging our expanded product portfolio and technology and solutions.
With flash play, we're really seeing some good traction on that front so.
Shout out to our sellers in channel in terms of the performance there.
Your next question was in terms of contribution with the Covid.
Tailwind I think it's probably fair to say around two points meter.
Terms of how we're thinking about that.
Perfect, Thanks, and congrats on Macquarie.
<unk>.
Thank you. Your next question comes from the line of James.
Jason Ader from William Blair. Your line is now open.
Yes, Thank you hey, guys.
Yes.
I thought it was a typo when I saw the number for the quarter the revenue.
Some monster feed.
I guess relative to the guidance.
Can you guys help us just understand.
How much of the upside came from meta and how much came from other sources.
Jason no confidence.
Yeah.
LIFO really.
Very strong quarter.
Yes.
It really has to do with starting the company is starting to hit on all cylinders as we identified strong portfolio now.
Brand, we have very strong now across the board in terms of major markets.
With them now widely respected.
And simple fact that we can cover more of the use cases that they have with.
Without a doubt the industry, leading products and I think we're just hitting on more and more cylinders.
In terms of Kevin you want to cover that the guide.
Well, yes, and I'll just say.
Tack on a little bit more onto that right. So it was really interesting for us right because the linearity. We saw was actually really strong all the way throughout the quarter and.
<unk>, which was really impressive for us.
Dan.
The U S and Canada.
Frankly out delivered for us and it was across the board as Charlie said enterprise share on commercial strong public sector is strong.
The other thing that was interesting is we did stress test a lot in terms of hey, where are we seeing.
Due to supply chain and frankly, we didn't see anything abnormal to that front. So yeah really strong for us.
A 10% customer for the year.
Okay.
No I believe they were not.
Okay.
Currently not.
Then one quick follow up.
On the.
I may have missed this if you talk about this so I apologize but.
One of your competitors talked about.
Constraints on low level components, not on now but on low level components in their arrays.
<unk> created some challenges in terms of.
Shipments and overall and their guidance.
I think they talked about it happening in kind of mid December .
Just curious as to whether you guys were in.
Absolutely that's a big challenge across the industry.
We've obviously, we think up with other companies other other.
Manufacturers and those low level parts have been a consistent problem throughout the industry.
Yes.
Every almost every.
There is new.
A new challenge.
The challenge is the supply chain team.
Yes no.
Just to give you.
Sort of a broader view of the supply chain.
We had indicated last quarter.
In Q4, and it probably has.
Sing along along the bottom I would say.
Sure.
You never know another day when there is a new challenge that comes up.
Up.
I think we've managed it well but.
We're still waiting to see signs that we're on.
On the upswing.
Duane, it's almost becoming a new normal for us because obviously this was the same very similar challenges we were working through last quarter that we were very successful in partnership with our suppliers.
Is the value of our integrated hardware and software solutions that we over and over again keep talking about and it just keeps getting validated as we're working through these challenges that.
Charlie outlined.
Thank you. Your next question comes from.
Comes from the line of Rod Hall from Goldman Sachs. Your line is now open.
Yes, thanks, guys.
The first question.
With regards to Opex, opex sales and marketing to sales costs about 8%.
You guys are about 30, and Thats fair because you distribute to a bunch of enterprises in Hyperscale is pretty new to you, but thats the sort of sales and marketing ratio that accompany that district.
Attributes.
More to Hyperscale is capable of and I just wonder do you think over time, if hyperscale mix increases.
The marginal.
Opex related to that since either such a such a small number of customers Charlie could.
It could start to approach that lower number I'm just wondering how you think about that hyperscale mixing into that sales and marketing costs and then I've got a follow up right.
Absolutely that is the right example, right.
If you look at <unk> numbers, they operate on somewhat lower gross margin and a higher operating margin due to lower sales and marketing.
And that's the that's the business model for selling into Hyperscale.
As as.
As we go down that path.
Model for us will be mixed that is to say that there'll be an enterprise business model that will have.
Higher gross margin, but but higher sales and marketing expense.
In our cloud business model likely to have lower gross margin, but but lower sales and marketing expense. Those are the trade offs that are made.
My view, well and listen to add onto that at higher gross margin as well right.
Right, Yes, thats, what I thought thanks, that's helpful and then my follow up.
Okay.
How far down I mean, we just.
From our our hyper scalar so.
Surety of that revenue, we saw in Q3, and we should remember that generally that is the way with <unk>.
Large whether hyperscale or as a service providers it can be quite lumpy.
On an it for an individual.
Player in.
That makes sense.
Think about that revenue then you talked about the growth of it being kind of in line with the company growth.
I didn't know what you meant by that are you, saying.
Sort of pro rate the revenue you got in the second half like multiplied by two and grow that as a company right are you, saying look at the absolute total of revenue in the year I wasn't keeping up with all right. So when you take the outlook for next year and our growth rate.
Applying that on top of it as a general good framework to start out with the question is on top of what.
What we what we did this year when we did this year, okay, just the absolute number not prorated arena.
Exactly right.
Great. Thanks, guys I appreciate it.
Thank you and our next question comes from Brian <unk> from Jpmorgan. Your line is now open.
Great. Thank you for taking my question and congrats on an absolutely great quarter. It seems like it in the prepared remarks, it sounded like pork works will play a bigger role in.
In the future first is that right and then what are you seeing or hearing from customers with respect to the need for persistent storage and containers.
The maturity of container based inbound.
We absolutely expect Port works and our continuing development of Port works in Portland State of services.
Just to be foundational for us for the future.
In next generation, what they call cloud native development based on Kubernetes and containers, it's a very different environment than traditional <unk>.
Storage traditional data environment.
And therefore required a new way.
New set of new software to be able to support that and we have the industry leading products in port works, we're getting very extraordinarily good traction with port works across a wide range and growing range of customers now that being said I would.
Not call containers kubernetes mature by any means we're still that is the industry and customers are still very early in their development of.
Container based applications, but it is a when.
When I say that is because most of their new developments are in are on containers using kubernetes, but they've had a very few of them have gone into production.
And it will take obviously over time.
<unk> for those production workloads to reach full scale, but you always want to be on the on the on the leading edge of these very fundamental and foundational changes Rob you want to add.
Yes, absolutely.
Just to add to that pendulum.
You asked the question about the growth in realization around staple versus stayed with containers I think it's a great example of the maturity curve that Charlie is talking about and I think as the technology around containers are matures.
The adoption increases the enterprise, we're seeing a couple of things one is a realization that state matters.
And being able to store data get it back and have all the enterprise resilience around it really does matter.
As well as the enterprise data.
Management workflows that go around it whether that's a backup disaster recovery.
Security or migration needs and Thats, where we really see customers across the board recognizing the port works is really the only solution out there that's able to solve the entire set of data challenges and needs around the container environment, whether that's the container storage infrastructure the data management workflow NB.
Data service and application tool capability.
Moody's.
With integrated and curated database deployments.
So net net.
Definitely earlier in the maturity curve.
We're seeing great adoption.
And great growth out of <unk>, and we think that's going to be an increasingly important part of our strategy going forward.
Got it thank you.
Kevin just to follow up on the IPO.
So fantastic number 28% at $1 4 billion dollar scale is pretty impressive are you seeing any kind of an elongation of contract duration that might be positive positively impacting that growth rate or would you say, it's more apples to apples in terms of contract duration year over year.
Hey, Thanks for the question and I think it's pretty consistent from a duration standpoint.
And then again I do point to the analyst phase II, our subscription because I really do think thats.
Really good measure of the health of our subscription businesses, and obviously, India, which we published is greater than 120.
Exiting the year.
Got it.
Okay. Thank you.
Yes.
Thank you. Your next question comes from the line of Iron Uighurs from Wells Fargo. Your line is now open.
Yeah. Thanks, Thanks for taking the questions and I'll ask two as well.
One so.
The first question I have is that.
In terms of the amount of that timeframe.
It's more than just matter.
You have engagements with other cloud hyperscale customers on their own AI project.
Do you expect that customer base to expand as you look forward.
Well.
Putting work and effort into it so I certainly expect it to two.
To expand as we move forward.
Exact timing of these things.
This is Ed.
As I'm sure you're familiar I mean, these are like engineering designs, it's like engineer it's like.
Selling into a new rack design for each the Hyperscale, which itself takes several years for the hyperscale or so.
It's a little bit difficult to predict exact timing, but we do have conversations ongoing its certainly my expectation.
But I can't say that it's near term.
But 12 months is a long time I hope to have an update there is definitely a strategic importance to the company overall, Rob do you want to add.
I'm sorry go ahead.
No I think Charles.
I think you hit it Charlie.
And then as a follow up I know, it's probably too early to kind of update Andy.
A couple of comments that you provided back in September but.
Just thinking about the growth that you had outlined that mid teens CAGR of revenue for fiscal 'twenty to 'twenty five.
Maybe you can help us did that assume that you were going to see some of these hyperscale cloud opportunities come to fruition.
Or was that not necessarily baked into that expectation at that point.
I think it basically it didn't assume like a huge.
Some type of.
Ill.
Hockey stick.
Growth from the Hyperscale environment, it assumed a moderate moderate.
At the time, we are.
Obviously, you had already talked about our hyper scaler, which was meta obviously.
So we assumed we would get some from that but I can't say, we assumed a lot of it yes, I think Thats fair child, Charlie and in addition to that we are assuming obviously acceleration with our subscription businesses overall as well, which is part of our long range expectations and model.
Thank you. Your next question comes from the line of Simon Leopold from Raymond James Your line is now open.
Thank you very much for taking the question.
I hate to sort of focus on the negative with all the things you metric non but I want to make sure I understand what occurred in your gross margin.
Specifically product gross margin in your January quarter in that.
I was under the impression that October was depressed because of the customer mix.
And yet at the same customer mix it with the meta shift down.
I wanted to maybe unpack this a little bit and then see if we can get an understanding of what effect.
What element are continuing.
The April quarter as well as the fiscal 'twenty three outlook on product gross margin. Thank you.
That's a great question, Simon and I will take it this is Kevin.
First of all quite pleased with the with the product gross margins, but do understand the question and we certainly did see some impact with higher cost.
At the component level that Charlie talked about as well as indirect costs, including logistics that were impacting us and we saw a little bit of the integrated hardware and software architecture.
Sure that I've alluded to.
And we expect our asps to really be.
The healthy, especially as our competitors, who really sell on a cost plus started increasing the pricing and we've seen we've seen that in the marketplace.
And so in my prepared remarks, I talked about the fact that we continue to expect product margins to be in the high <unk> and that's again consistent with our long term expectations.
Understanding the challenges we're working through on the supply chain.
For the question.
Thank you very much.
Thank you. Your next question comes from the line of.
<unk> Mohan from Bank of America. Your line is now open.
Yes. Thank you if I could just follow up on that prior question on product gross margins.
If we go back two quarters ago, what we're talking about 230 basis points of margin.
Margin compression.
And clearly the supply chain environment is quite challenged so as you think about this high <unk> gross margin going into next year is the underlying assumption that we're not going to see supply chain improvement or is there.
Got it in there.
A full year of Hyperscale revenue is that good that could play some depressing.
Our role in the gross margin mix at least.
Yes.
I think you're asking a complex question, let me let me give it a start first of all we do think that we had some.
It was not the hyper scaler related.
Yes.
Yeah.
When you have.
Rapidly changing prices as we saw in <unk>.
Cost rather.
As we saw in Q4, you can't always adjust for them right away through Asps, but we see very strong asps because.
Because of the value of our product, we expect that the the unless we have new challenges, which we are.
Which we're unaware in Q1 and Q2, we're expecting these temporary.
Gross margin.
Gross margin costs to two.
To effectively pass through.
And we've been guiding for high <unk> in our gross margins for many years.
And so that's not a change from the past, yes, maybe.
Maybe I can add just a little bit more to that in terms of your specific question so to be clear.
We did not build in degrading.
Product gross margins due to hyperscale transactions I don't want to be clear on that we do expect supply chain challenges to continue but to Charlie's point.
We sell on value always have the value of our software both.
Both purity and pier one the integrated architecture of the hardware and software.
And that's what we've been doing even before obviously the supply chain challenges and that's really the validation.
Steve that our product gross margins will.
Thanks <unk>.
Follow up.
Wow.
And when we think about this hyperscale revenue I think Charlie you mentioned that you first engaged with maybe five years ago, obviously, it took a while too.
Sort of get to a number and this past fiscal year. So.
Why.
I should know that the proof of concepts is sort of behind you a lot of the technological like heavy lifting is sort of behind you.
Why should we expect.
Our base and sort of it seems like a lot of the heavy lifting and proof of concept of sort of behind you what should we expect a much faster growth on that piece of the business.
Lips to God's ears, so of course, it's certainly.
Something that we we hope to see but.
Of course every.
Yeah.
Okay engagements in a new.
Frac design with with each customer I will point out that while it took.
Oh Gee is correct, we sold them flash Blayne, we have been selling them flash blade for AI youth usage.
Why we got the really.
<unk> <unk>.
<unk>.
Order with flash or AC had more.
Pure finally cracked.
Level of disk of mid range disk in such a way that it became compelling.
Which was a data lake type of use case that is only just beginning that level of price performance is just beginning so it is a new it's a new if you will concept.
And they're just getting used to it now.
Designed to it and so forth. So it's really a question of.
Of.
To realize the opportunity.
By one additional thing.
Yeah.
The benefit of.
Okay.
All of our flash or AC or of <unk>.
Against the traditional use cases, not limited to the price performance, we're able to deliver now just incredible performance.
Okay involved environmental in the.
In the case of power and cooling environmental in terms of space.
Yeah.
In terms of landfill footprint, if you will waste footprint at the end of the day much far less waste so.
Are going to be a larger important.
Yes to both enterprise and Hyperscale is going forward.
And one thing this is Rob if I could just add in I think specific to your question, which was hey, we've built this relationship.
Why isn't that been perhaps inflicting faster.
Go back to remind you that just.
Just like each hyperscale are firm and environment is different and each environment within.
And so each one of those going back.
To Charlie's comments each.
One of those necessitating an engineering driven.
Now certainly being.
Being apart partner for meta.
One partner.
So there.
Our environment and making them successful there helps to account, but just like.
We're having discussions with them.
It's early days there.
Much more of an engineering driven.
And design process and sale and so it's just going to take some time.
Thank you. Your next question comes from the line of Sidney Ho from them.
Nausea Bank. Your line is now open.
Sure.
Thanks for taking my questions and congrats on a great quarter.
Question is firm that the NAND side clearly your peers talk about constraints with J&J and upside that Youll only expectations do you think some customers are adopting our solutions because they couldnt get the hard drive based products.
So the question is what do you think.
The sustainability of the east.
And kind of related that.
Okay. Thank you as a service.
Is there anything from these constraints and even if you have it.
You are at do you have enough.
Alright.
Thanks, Sidney so on average I would say.
We don't see a significant amount of business.
There are a few anecdotal cases, where we did get business because of the supply constraints, but.
There are few and far in between I think this is very fundamental demand.
Just on the expansion of our portfolio and our and the number and the segments that we're able to go out.
Which is that we know.
I'll have a much broader product line that we had just a few years ago, we sell into more segments and our technology.
Is different it has sustainable differentiation difficult for competitors to be able to easy to claim but difficult to actually deliver.
I think for those reasons, we're on the early stages of sustainable.
Demand growth.
Okay.
And then my follow up question is I wanted to ask about this rule of 40.
Clearly fiscal 2000 and that was at <unk> I think it was up 44%.
I guess you could benefit from some of the reduced expenses from building how do you think about the world 40. This year revenue growth is about 20%.
Indirectly asking about free cash flow margin.
It's a great question and yes, we kind of outdid ourselves and this year did we in terms of the rule of 40 was outstanding and any metric we look at.
Including the rule of 40 framework, but look our FY 'twenty two performance in of itself really doesn't change our long term view.
That we've shared about sustainable improvement within the rule of 40 framework.
And look when we look at our FY 'twenty three outlook, it's tracking well with the long term expectations that we set in disgust on financial Analyst day with you guys a couple of months back.
Thank you. Your next question comes from the line of Nihon <unk> from Northland Capital markets. Your line is now open.
Yeah. Thank you Sterling results, especially in the context.
The accelerated to 41 point no help from better so spectacular.
A question actually is that guiding to 20% year over year growth in the April quarter.
And you talked about that the driver here is a renaissance of it spending within the Americas I should this continue into the April quarter and beyond.
Yes, I'll start and I'll, let Charlie kind of hit it on <unk>.
Macro standpoint.
When we chatted about this a fair amount right around where we're seeing strong demand.
Across our portfolio of CH, obviously honestly has been expanded but we're seeing good success across our entire portfolio.
Our subscription business is key.
Key markets key geography on pizza business.
And as for you guys in terms of the FY 'twenty.
When you compare obviously.
So we had the large opportunity with <unk> that was helping us out in FY 'twenty. Two you have an extra week of <unk>.
<unk>.
In 2002, and again without taking anything away from our outstanding performance in FY 'twenty two.
Grocery was simply an easier compare because obviously in fiscal 'twenty, one had some COVID-19 related headwinds that we're working through.
And then when I complement layer on the pure as a service growth cloud block store that we we expect that growth to significantly outpace our company revenue growth rates for next year and as a reminder, with pure as a service revenue is recognized over time. So it's obviously theres an impact there.
That's helpful for you.
Thank you. Your next question comes from the line of Tim Long from Barclays. Your line is now open.
Thank you.
Just one follow up on a question on the follow up just kill the Hyperscale one more time here I think from one of the answers just curious if when you think about some of the other large customers.
Since you were in Facebook for a while.
At least some somewhat of an advantage.
One of the answers implying that for the other large hyperscale is you don't have that same level.
Relationship coming in and therefore, it's a little more challenging and then.
Second question is if you could just talk a little bit about kind.
Deal size, and particularly cross selling across more broadly across the products I think you.
Talked about flash Ray.
<unk> doing really well and obviously <unk> has done well. So can you just give us some color around cross sell and how thats impacting repeat sales and and deal sizes. Thank you.
Thanks, Tim so.
Regarding the hyper scaler, we're not necessarily strangers sealer hyper scaler, but if we are in them, we tend to be in their it organizations and lessen their production organizations.
And it's a different as you may know those are different different relationships, we do get.
We have high marks in their it organizations, but still still different and as I said.
Yes.
Then like a traditional enterprise.
<unk> system a system sale so they they.
They take a.
While highly integrated with their teams and we are at earlier stages.
No doubt we were already engaged in a production environment in Facebook.
So that's certainly that's certainly part of it.
In terms of the boarder portfolio Whats really interesting here is just having the broader portfolio.
And so regarding.
Cordless and I don't mean to diminish.
The portfolio sale that does take.
But even without a portfolio sale. It is opening up new opportunities for sure now of our deals are portfolio sale that has more than one product going in at the same time.
In the.
In the transaction that takes place so that's growing nicely as well but.
It's really convince customers that.
We're a vendor that that frankly anytime that theyre looking to put in a new storage capability or replace an existing storage capability that they have to consider us.
Okay. Thank you.
Thank you.
Comes from the line of Krish Shankar from Cowen and company. Your line is now open.
Yes, hi, thanks for taking my question.
Salary and Kevin Thank you very much and congrats on the great results.
Two quick questions one is.
On the profitability what gives you the confidence.
On the profitability for the whole year I understand you spoke about.
Opex is going up because of inflation than what we thought the voting.
Inventory is also the all time low I'm, just kind of trying to figure out.
What is the level of confidence on profitability and then they had like a big picture question for Charlie Thank you.
Hey, welcome, Chris I know Youre new to.
The community as well and peer so so welcome to you and yes, let's spend a little bit of time on.
On profitability I think we've spent a fair amount of time walking through our thoughts on the gross margin side for product and we haven't spent much time on the subscription gross margin, which as you saw it was quite solid for us both for the quarter.
For the year, and we think that trajectory will continue and look I just when you look at the operating leverage and discipline that we achieved this year.
In addition to the Covid tailwind.
And primarily.
Within our go to market sales.
Sales and marketing, although all areas really benefited.
This year, but we're just going to continue that momentum simply right. So we're going to continue to invest in growth, which is an absolute priority for us.
But with that discipline and growing our global workforce. We think we can continue on our journey of increased profitability and feel quite comfortable with our <unk>.
<unk> operating margin expansion.
Thank you for that and thanks very much.
Pinewood.
And then just a quick.
Follow up with Sally you spoke about spending I'm, just kind of curious like you know.
There is some view that spending growth was strong.
Hi, Mike.
But maybe the second innovative negative so I'm kind of curious from your viewpoint.
Flush in Q4.
Anything along the lines of <unk>.
How youre thinking about.
Spending as a whole relative to Q4 and into FY 'twenty.
Yes, we had a very strong linearity throughout the quarter. So there was no specific budget flush either.
Either through.
December which would typically be when most companies have their fiscal year.
Or to the end of our fiscal year, which was end of January beginning of February So no I can't say budget flush was.
As much of a consideration at all it was really I'll go back and say that it was really based on the overall strength.
Var business and competitiveness of our of our portfolio.
Looking forward, obviously, we have better insight into the first half of the year than the second and as we look at.
And <unk>.
Economic one.
Other.
Other companies in the in the it space.
Seem to see a theme of believing that this first half or at least more confidence in the first half than in the second half. So I think thats, probably more more of what goes into the thinking.
Yes.
Thank you. This concludes the question and answer session. At this time I will turn the call over back to Charlie Giancarlo for closing remarks.
I want to thank you all for joining us today, and especially a meter and Chris.
With us for the first time.
Certainly here for Ed pure we're looking forward to not only this quarter, but to our sales kickoff, which starts next week and I'm going to welcome all our all of our sellers that is going to be virtual hopefully for the last time.
This time around but.
We are broadcasting to you for the first time legally mask with.
From our from our Mountain view headquarters and we're hoping that's a sign of things to come. Thank you all very much again for joining us and look forward to talking to you next quarter.
This concludes today's conference call you may now disconnect.
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