Q3 2023 Pure Storage Inc Earnings Call
Earnings Conference call today's conference is being recorded.
All lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end. If you would like to ask a question. Please press star one on your telephone keypad at this time I would like to turn the call over to Paul <unk>, Vice President of Investor Relations. Please go ahead.
Thank you good afternoon, everyone and welcome to <unk> third quarter fiscal 2023 earnings conference call on the call. We have Charlie Giancarlo Chief Executive Officer, Kevin Chrysler, Chief Financial Officer, and Rob Lee Chief Technology Officer, following Charlie's in Kevin's prepared remarks, we will take questions.
Our press release was issued after close of market and is posted on our website, where this call is being simultaneously webcast slides, which accompany this webcast can be downloaded at investor Dot pure storage dot com.
This call today, we will make forward looking statements, which are subject to various risks and uncertainties. These include statements regarding our financial outlook in operations, our strategy technology and its advantages are current and new product offerings and competitive industry and economic trends.
Forward looking statements that we make are based on facts and assumptions as of today and we undertake no obligation to update them. Our actual results may differ materially from the results forecasted and reported results should not be considered as an indication of future performance a discussion of some of the risks and uncertainties relating to our business is contained in our filings with the SEC and we refer you.
To these public filings during this call all financial metrics and associated growth rates are non-GAAP measures other than revenues remaining performance obligations or our Po and cash and investments reconciliations to 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.
It 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 or fourth quarter of fiscal 'twenty. Three quiet period begins at the close of business Friday January 20th 2023 with that I'll turn it over to Charlie.
Thanks, Paul.
Hello, everyone and welcome to the call we hope that our fellow Americans had a wonderful Thanksgiving holiday and that our non U S. Listeners had a restful few days, while everyone in the U S was offline.
We are once again pleased with our quarterly results showing a year over year revenue growth of 20% and subscription <unk> growth of 30%, surpassing $1 billion for the first time.
Our portfolio of subscription products had a strong quarter with evergreen one achieving record results, our new products, including Flash racy flash array XL and flash blade S. Also saw excellent growth this past quarter.
Flash blade is our newest product is off to a great start in its first full quarter of sales.
The number of <unk> systems sold were above our plan and Petabytes sold were well above our plan.
We're also seeing customers taking advantage of the increased performance and scale choosing to purchase larger systems than the prior generation.
Pure continues to lead the industry and product innovation, having released a record number of new products and services. This year, including flash array XL flashed played us pure fusion Port works data services and Evergreen Flex we are proud to share that this innovation has once again been recognized with gardeners.
<unk> rankings in their magic quadrant fewer.
<unk> was named the leader for the ninth consecutive year for primary storage and a leader for distributed file systems and object storage significantly increasing flash blades ranking year over year.
Pure has a unique value proposition of advanced technology, low total cost of ownership industry, leading energy savings combined with powerful performance is the reason that leading edge technology and hyperscale cloud companies increasingly choose to rely on pure.
This past quarter as planned we were pleased to ship the second phase of <unk> Buildout of their research supercluster or RSV.
As a reminder, our shipments for meta RSC consist of both flash blade and flash array.
Meta relies on pure flash blade to provide lightning fast data delivery to their Nvidia Gpus and flash array C to.
<unk> performance oriented and cost effective bulk data storage at 110th the space power and cooling of a disk alternative.
NAND cost per bit continues to approach that of magnetic disks.
Because it appears unique intellectual property pure <unk> based systems are now competitive with hybrid disk based systems on a price per bit level years ahead of the commodity crossover point.
We expect that the currently anticipated improvements in <unk> NAND economics, this coming year will enable pure to deliver our fuel C based products at prices competitive with most near line disk arrays on a total cost of ownership basis.
We believe strongly that the days of the hard disc in the data center are over.
Customers that do not take advantage of <unk> products to replace the systems are choosing the more expensive and energy intensive option.
New enterprise customers. This quarter include a large global telco.
Large global payment processor, and a major energy provider <unk>.
Existing customers like <unk>, a leading provider of modern insurance technology continue to expand their relationship with pure relying on the combination of technology performance total cost of ownership and an evergreen customer experience to fuel their data dependent business objectives.
This past quarter significant numbers of enterprise companies, specifically chose pure for our exceptionally low power space and cooling performance. This has been especially evident in Europe , where not only energy prices, but energy security is a major concern.
As mentioned, we saw strong growth in both new and existing evergreen customers. This quarter evergreens flexible approach to both consumption and pricing is helping customers of every size deal with the uncertainties that businesses and organizations face in the current environment.
Many new customers also sided energy savings as a new important benefit.
Also this quarter, we saw several large telco customers purchase our portfolio to support projects ranging from five G deployment to modernizing infrastructure. For example, one of the largest telecommunications providers in Asia increased their pure portfolio, including their flash array C.
Footprint furthering their commitment to environmental sustainability, while accelerating their transformation and services offerings to their customers.
Looking ahead to world economic conditions, we continue to see instances of longer sales cycles, and the enterprise segment and expect that enterprises will continue to exercise caution in spending over the next year.
We believe that this focus on spending uniquely favors pure storage in the quarters ahead.
The combination of pure is evergreen offerings best in class power space in cooling and operating simplicity results and significantly lower operating costs for enterprise customers.
Given challenging economic and energy situations around the world.
More enterprises are focused on total cost of ownership and area where pure excels.
As we look forward, we are keeping our eyes on a number of macro economic factors in particular inflation slower economic growth and lingering supply chain disruptions.
Considering the current economic uncertainty, we plan to thoughtfully invest in our expansion, while continuing to deliver strong operating results.
Despite the challenges and uncertainties of the current business environment, we remain confident in our ability to take share and outpace the market, while delivering products solutions and services to customers that exceed their expectations.
I'd like to hand, the mic over now to our CFO , Kevin Chrysler for a review of our numbers.
Thank you Charlie through solid execution, we delivered strong financial results in Q3, growing revenue, 20% and increasing our operating profits by over 50%, while navigating the effects of the macroeconomic environment.
Substantial revenue from sales to meta also contributed to our financial results this quarter.
Our customers, which now exceed 11000 and represents 58% of the fortune 500 leverage our portfolio of innovative data storage and management products and subscription services to drive optimal business outcomes and performance.
Revenue performance growth and demand of our flash array C and flash blade as solutions, both leveraging <unk> flash was very strong this quarter our leadership in flash management enabled by our software and declining cost of flash is accelerating our progress in replacing traditional disk.
<unk> and substantially reducing data center energy consumption.
We also continued to be pleased with meaningful contributions from new new business as we acquired approximately 390, new customers this quarter, including across the telecom industry.
Subscription annual recurring revenue or subscription.
Exceeded $1 billion this quarter growing 30% year over year record sales of evergreen one in Q3 represent a key driver of our subscription <unk> growth.
Remaining performance obligations or RPM grew 26% to $1 $6 billion.
Similar to the remarks, we made in previous quarters, our RPM growth is impacted by product shipments for an outstanding commitment with one of our global system integrators.
Excluding these product shipments RPM grew 31% year over year.
Our head count has increased to nearly 4900 employees.
And our investments in talent continue to be disciplined and focused around our key business objectives.
Total revenue for the quarter grew 20% to $676 million.
For Q3 U S revenue was $493 million, an increase of 21% year over year with international revenue, which continues to be impacted by foreign exchange headwinds growing 19% year over year to $183 million product revenue grew 15%.
And subscription services revenue increased 30%.
Subscription services comprised 36% of total revenue for the quarter.
Contributions from both product and subscription services gross margins continued to be strong as total gross margins were 79% in Q3.
Sales of our larger configuration systems, and new Flash blade S contributed to slightly higher product gross margins of 71% subscription and services gross margins were 72, 3%.
Our strong Q3 operating profit of $107 million and operating margin of 15, 9% were driven by a combination of factors, including strong gross margins.
We ended the quarter with approximately one $5 billion in cash and investments.
Cash flow from operations was $155 million in Q3, resulting from the combination of strong sales collections and operating profit.
Capital expenditures trended higher this quarter at nearly $40 million due to deliveries of test equipment, which had previously been on Backorder.
In Q3, we returned approximately $24 $5 million in capital to repurchase approximately 900000 shares of stock.
This represents a lower level of repurchase activity than recent quarters. As a result of the fixed trading plan parameters that were in place throughout the quarter, we would expect that share repurchase volume will increase next quarter.
We have approximately $100 million remaining from our $215 million share repurchase program.
Now turning to guidance, we estimate revenue for Q4 to be approximately $810 million up 14% year over year.
For comparison purposes, a couple of reminders, our Q4 of last year included an additional week of revenue of approximately $20 million as a result of FY 'twenty, two including 53 weeks.
Also from our previous remarks, approximately $60 million of product revenue recognized in the first quarter of FY 'twenty three had been forecasted to close in the second half of the year adjust.
Adjusting for this impact of seasonality our expected revenue growth in the second half of FY 'twenty three would have been nearly 21% year over year.
For FY 'twenty three we are reiterating our annual revenue guidance of approximately $2 $75 billion.
An increase of 26% versus FY 'twenty two.
Our operating profits remain solid which is reflected in our Q4 operating profit outlook of $130 million or.
<unk> margin of approximately 16%.
As a result of our performance in Q3 and outlook for Q4, we are increasing our operating profit outlook for the full year to $430 million operating margins are expected to be approximately 15, 6%, reflecting a significant expansion.
And from 10, 8% last year.
Revenue growth and strong product and subscription services gross margins have contributed to our strong operating profit and operating margin outlook for this year.
During the first half of the year, our operating profits also benefited from less travel higher attrition and slower than anticipated hiring we do not expect that our operating profits will continue to benefit from these tailwind next year.
While it remains too early to provide guidance for FY 'twenty for our current preliminary view is for operating margins to remain robust around 14% to 15%.
In closing <unk>.
Through our unwavering commitment to innovation and customer service, we continue to be in a unique position of creating valuable outcomes for our customers.
Including dramatically, reducing energy consumption and waste.
With the strength of our portfolio of products and the power of our evergreen offerings the opportunities in front of us remain compelling.
With that I will turn it back to Paul for Q&A.
Thanks, Kevin before we begin the Q&A I'll. Please ask you to limit yourselves to one question consisting of one part so we can get to as many people as possible operator, let's get started.
Thank you we will now begin the Q&A session. Thank.
If you would like to ask a question. Please press star followed by one on your telephone keypad.
Any reason you would like to remove that question. Please press star followed by two again to ask a question Thats Star one as a reminder, if you were using a speaker phone. Please remember to pick up your handset before asking your question. We will pause here briefly ask questions are registered.
Our first question comes from the line of Amit <unk> with Evercore. Your line is now open.
Perfect. Thank you and congrats on the principal.
Yes.
Solid.
And the guidance provided.
Yes.
In comparison to the commentary I think.
Like Dell at Netapp recently.
Love to just understand what do you think is driving this contract.
I don't think you spoke of a positive backlog for example that could be helping you will be greatly this year. What do you think it may be the diverging performance that field.
I feel sorry.
And then what do you think the durability of the WWE and as we go forward. Thank you.
Thank you Amit.
Hope you I hope you're well thank you for the question well.
I think it is.
Based on a variety of different things, but fundamentally upon our core strategy. So the core strategy first of all should drive an all flash data data environment in the datacenter.
And to be able to provide a product that's very modern in terms of its software capabilities and management abilities, we have consistently grown market share.
Since the day that we were founded.
That is based on the fact that we of all of the vendors have developed a software stack that focused on the benefits of using our pure semiconductor versus just refilling.
This oriented architectures with ssds and that's allowed us to provide a product that is simpler to operate uses less power space power and cooling requires far less labor.
It is far more reliable.
And more performance than competitive products that are out there and to this day, our competitors still compete with SSD alternatives.
Secondly, it's based on a much broader portfolio we believe.
Going from.
Our routes or our initial product which was.
Block oriented to now having file and object based systems, and then and then thirdly. It now starting to pursue a replacement for secondary tier disc alternatives. So this allows us a lot of.
Of the market.
How's us to expand into a lot of market Adjacencies.
And allows a lot of elasticity in our market as flash prices decline.
So we're very excited about this.
Finally, what I'll mention is once we penetrate and account our ability to expand in that account is very large because of the improved experience that our customers have when I tell our when I repeat to our team that our net promoter score as the most important number in the company.
It's the experience of our customers that allow us really broad expansion capabilities in an account once we penetrate.
So I think you add those things together it allows us to continue to operate.
<unk> a share.
<unk> in this market in this $50 billion market and as you well know, we're still coming up upon 3 billion.
In terms of our.
Total.
Total revenue so lots of growth opportunities in the future.
You Amit next question please.
Thank you. Our next question comes from the line of meta Marshall with Morgan Stanley . Your line is now open.
Great. Thanks.
It maybe a question for me.
Clearly you are highlighting that some of the the memory pricing getting cheaper is helping with the queue I'll see it does conversion. So just wanted to kind of get a sense of what kind of traction you're seeing with either very large enterprises are hyper scaler with that motion and whether youre seeing kind of some shortening.
<unk> sales cycles, as we kind of get closer to some of these conversion points. Thanks.
Yes. Thank you let me address the.
The Hyperscale are first obviously, we I spoke about.
In my.
Initial remarks.
The fact that we were able to deliver.
Flash array C for their bulk data.
Requirements at a price point that competed with their own software running on.
What would have been their disk arrays really speaks to the power of the.
Of being able to use Q LLC.
And flash to compete with with disk and now that environment also benefited from the lower power and lower space requirements and I think thats part of what will allow flash to compete against disk in this environment increasingly in this environment as flash prices start to flow.
NAND cost start to come down.
We're seeing the same in large enterprises, although I would say that that's in an earlier phase right now, but we've flash array C has been a an incredible grower for us and that does compete largely with the hybrid this market and we think we'll be able to go after the non hybrid that is the whats.
Called the near line market.
We go into this new year.
We believe that.
Thirdly.
Power.
While we've been speaking about the lower power requirements and cooling requirements for many years.
This is the first year and starting in Europe , but also Asia.
Where we're seeing companies say, specifically because of the power savings that they are buying pure pure products or getting them initially.
To start with pure products. So we think it's going to become an even bigger issue is as we go forward. So we are starting to see that now in large enterprise.
<unk> next question please.
Our next question comes from the line of Juan.
<unk> Mohan with Bank of America.
Your line is now open.
Yes. Thank you so much.
Charlie I was wondering if you could share some color on the outlook on it spending into 2023, particularly for the storage market and.
Some of your <unk>.
Competitors are talking about that being down on a year on year basis, you mentioned your confidence in your ability to take share and outgrow that market. So curious if you could give us some high level thoughts of what those trends look like of storage is going to grow or decline and how much you're going to outgrow that market.
And what's embedded in that and sort of that operating margin of 14% to 15%. Thank you.
Yeah, let me start with sort of our view on on GDP in General and then go into what we think will happen in the it side with storage. So for GDP in general obviously, there are a lot of different analysts out there.
<unk> about.
The current economic environment and how that.
Theyre prognostication for next year.
And the way, we're looking at it as a roughly flat U S economy next year, and perhaps a slightly recessionary international economy, obviously.
Being a lot country by country.
And as we go into that we're seeing it spending.
Holding steady maybe a slightly up relative to the overall GDP growth.
But.
In addition to that what we.
What we are looking at is.
Storage remaining relatively healthy relative to the rest of the I T.
The economy. So we actually believe that storage might be up moderately next year that being said you are correct.
In terms of our own results. We believe we will be continue to take market share and we believe that we are similar to this quarter versus our competitors.
Believe that we'll be able to stay in the double digit.
Gross growth area, perhaps a bit more moderate than our overall growth this year, but we believe still solidly.
Into the double double digits.
Thank you <unk> next question please.
Our next question comes from the line of.
Sidney Ho with Deutsche Bank Sydney. Your line is now open.
Thanks for taking my question.
I wanted to ask about the.
Physicality beyond this quarter I am not asking specific for financial guidance for 'twenty calendar 'twenty three yet, but previously you talked about having good visibility into the pipeline in the second half of the year and that there are some delays, but not no permanent pause.
I also think you mentioned gives us that we'd be on one quarter. So how would you characterize the pipeline in the first half of next year at this point and maybe comment on the demand trends between the enterprise versus commercial customers.
Sure generally our ability to.
<unk>.
You have visibility in the pipeline extends about two quarters.
So our current quarter plus one current quarter plus two so youre asking and that would extend to through Q1 of next year not our Q1 that as of next year.
And.
Generally we don't necessarily have visibility three quarters out just to be just to be really clear so I can't really speak about.
The first half from a visibility perspective, what I would say is visibility into Q into our Q4, the remainder of this year.
And visibility into Q1 of next year remains quite good.
So.
That will form if you will that will go into forming our view of next fiscal year. We're in the middle of planning right now so difficult to give you any further insight into that but we.
I said that our visibility into Q plus <unk> two remains fairly good.
Thank you Sydney next question please.
Our next question comes from the line of David vote with UBS. David Your line is now open.
Great. Thanks, Charlie Thanks, Kevin maybe just a follow up to Kevin's comments about.
Preliminary margins next year internally as comments about growth being well into the double digits next year I know you mentioned, Kevin that theres going to be some items that are not going to repeat this year excuse me in fiscal 'twenty three versus this year.
But just quickly kind of doing back of the envelope math. It would suggest that you are sort of incremental margins next year are going to be under pretty material pressure.
If your margins are going to come in at 14% to 15% can you kind of walk us through what's really the incremental spend categories of spend that you are looking at next year, given where you are and sort of where the long term operating model should shake out over the medium term.
Yeah, No I appreciate that David Yes, I mean look we're quite pleased with the overall margin expansion that we've seen this year and it really key drivers of that being our strong revenue growth and product gross margins and subscription services gross margins.
And I've talked about the fact that we did have some tailwind and we're thinking that it's approximately 11515 points to our operating profits this year and really it's kind of in three areas.
We've talked about as.
As we were exiting last year early in first half we had higher attrition levels.
And that really continued through Q1 and Q2. So obviously there is a benefit of pickup there.
And then there was slower than planned hiring during the first half as well and that we've made really good progress as you've seen.
On our hiring.
Talent, particularly in Q2, and this quarter and obviously thats kind of play into next year in terms of how we're thinking about it.
But then in addition to that we are planning for an increase in travel costs slightly.
For example, we're.
We're doing our first in person sales kickoff in the new year, we haven't had that in two years three years or three years. So obviously, where we're considering that as we're looking at.
As we're looking at our operating margin and profits for next year.
Thank you David Thanks next question please.
Our next question comes from the line of Matt.
Cassini with Susquehanna Matthew Your line is now open.
Yes, Sir.
Just a quick follow up for Tony and the team have done a good job of expanding margin very diligently keeping the opex reasonable then realizing margin expansion I just wanted to get an update on the strategy as you look into the next one to two years.
Especially into next calendar year, perhaps enterprise budgets are more constrained how is the strategy to evolve are you going to spend more to capture more dollars of revenue or the strategy is to remain.
Focus on.
Having more leverage in the P&L and I'm not asking for guidance.
Just be helpful. If you could give us an update of the strategy changes into a rather challenging macro environment.
Yeah.
Absolutely.
Very fair question Mehdi. So we are consistently focused on revenue growth that being said, we never like to go back on.
On margin and largely because it's about operational discipline.
Being a high performing company with good internal.
Practices.
We should be able to grow at an optimal rate while at the same time.
Being diligent in terms of delivering good operating margin now that being that being said as we go into next year we have.
We've increased a lot on our head count already and we'll be seeing the full impact of that.
Next year, we want to continue investing in our quota bearing heads. So we'll continue making that investment.
We want to continue obviously in developing good core product, but we're going to be very diligent and focused and we also want to be just thoughtful about potential pitfalls and the economy. As we go forward. So we want to stay agile as well in terms of.
Our ability to be flexible in.
The way, we spend money or how much money, we spend given that the economy is uncertain. So we are going to prioritize revenue growth, but at the same time, we want to make sure we can deliver.
Good results on the bottom line.
Thank you Mehdi next question please.
Our next question comes from the line of <unk>.
Chuck sheet with Northland capital markets.
Your line is now open.
Yes. Thank you.
You guys provided.
Very generic color regarding the contribution from Meadows research Supercluster can you give a little bit more detail around that.
More importantly, trying to get a sense as far as what does the revenue growth excluding <unk>.
Youre right well, let me give it a start and then Kevin will give you a filling some of the details. So first of all we did ship the vast majority of the second phase of our meta.
Program. This past quarter, we were very pleased to be able to do so the relationship remains very strong.
And we look forward to continuing to build.
Good good strength and good business, we've met as we go forward So Kevin I know there's a.
A lot behind.
Yes. It was this quarter. So perhaps you can provide so that yes, so I'll touch on the financial comparison, Neyhart hope Youre doing well when you think about the economics of our phase III shipments to meta.
Comparing that to our phase one shipments back in Q3 of last year.
Getting into specifics, we did make some modifications to the deal structure, our phase II, which actually resulted in less revenue and improved product gross margins. Because obviously you see the strength of our product gross margins this quarter, especially compared to Q3 of last year, if we'd use this.
Same deal structure for phase two.
We used in phase one revenue growth frankly would've been aligned with the remarks I made earlier in the year.
Also our product gross margin profile would have been similar to what we saw in Q3 of FY 'twenty. Two so hopefully that's helpful for you in a hole in terms of how we're thinking about it. Thank you <unk> next question. Please.
Our next question comes from the line of sight.
Women Leopold with Raymond James Simon Your line is now open.
Hi, yes, thanks for taking the question I wanted to see how you're thinking about product gross margin.
<unk>.
The idea that memory prices appear to have come down and look like they'll be down.
<unk> meaningfully over the next several quarters and I. Appreciate the fact that there are other inputs, but I imagine that's a pretty significant contributor to your bill of materials. So I'm just wondering if you're expecting maybe some price deflation or responses from others in the in your competitive.
Space cutting prices what are you assuming in terms of the inputs for product gross margin. Thank you.
Yes Simon.
Great but complex question.
As you know we have a lot of experience in this now.
Especially.
And frankly, probably for me, especially not coming in and not originally being in this market. So I've had now five years of experience of how this operates and of course as you well know costs and prices are operate on different.
On different Timeframes, and they're not all 100% connected to one another.
We compete with companies that utilize ssds and therefore don't are not exposed specifically so the raw.
Cost of raw flash, whereas we are our point of view on this is that as always we tend to have advanced.
Opportunity with lower costs.
Compared to our competitors, which doesn't mean that they won't discount in the market. So I suppose that we believed that we were.
We'll see pricing.
Come down some time in the future maybe not right away, we will see prices start to come down overall, a good thing for us It allows us to go after more.
More of the disc market one of the things that's very different this time around is that these this round of NAND reductions is going to make flash.
Especially with our products on the <unk> side with flash array CNS much more competitive wood with pure disk based products and to be direct we're going to use any cost reductions we see to go after that market. So.
But.
It's always hard to predict gross margins with any level of.
Exactitude, but you should expect us to stay within the range that we identified.
And use cost savings that we have there.
<unk> focus on the disk side I'm, sorry, if I could jump in I think it's a really important here to just again emphasize the sustained and structural advantages that pure has and being able to use the raw NAND flash versus really being limited to enterprise ssds, such as most of our larger competitors are.
Especially in terms of navigating some of the near term cost.
Volatility.
And these advantages really go back to our direct flush of technology, which is the result of over a decade of software and hardware IP.
And it gives us a sustained.
Structural advantages over the competitive set in terms of being.
Being able to source, our raw commodity NAND versus the higher priced enterprise Ssds, which don't always travel in line with one another in terms of the short term number two.
To be able to make much more efficient use of that NAND.
Faster time to market and just realize and deliver to customers significant reliability and performance advantages and so you add it all up I think this set of advantages. It was a huge benefit in the early days, but as we look at today's technology set.
Q I will see the roadmaps beyond <unk> in terms of cost effective NAND.
Just absolutely requisite to be able to deliver that technology to customers and reliable performance and efficient manner. Thank.
Thank you Simon a meaty question next question. Please.
Our next question comes from the line of Matt Sheerin with Stifel. Matt. Your line is now open.
Yes. Thanks.
And good afternoon.
As we think about modeling for next year.
It looks like Youre going to come up against some tough.
With meta.
And so.
Are there expectations for contributions from that customer next year, and then as it related to that.
In terms of other hyperscale opportunities could you update us on what that pipeline looks like.
Absolutely so on meta.
As we've identified we ship phase two.
By Medicine blog.
As David indicated an exabyte to be shipped in total so there's still more to be completed in that project for the RSC.
Theres no further guidance, we can give you on the timing of that right now we just.
We just don't have that for certain so unfortunately, we're not able to provide additional insight into that in terms of other hyperscale or conversations continue where we're optimistic that we will see.
Realizable opportunities there, but again too early to be able to put any real.
Guidance on that.
Thank you Matt. Thank you next question please.
Our next question comes from the line that Chris <unk> with Cowen Chris Your line is now open.
Yeah, Hi, Kevin Thanks for taking my question.
So op margins of 16%.
Last quarter in your guidance of 14% to 15% for next year I'm. Just wondering what is the op margin last quarter would have been without met in the mix.
You mentioned that you cannot quantify Mexico revenue, what do you kind of highlighted that looking into 15% op margin for Mexico.
Guidance.
Kind of curious.
Think about.
That.
Net in the mix because my understanding.
Margin accretive since you're going to go through the channels any color there would be helpful.
Hey, Chris This is Kevin Yeah look when we think about meta from an operating margin perspective, I think you are.
It would be good to be thinking about that and in terms of the company profile on operating margin. So I don't think Thats detractor.
Or a positive for us where we saw the benefit was really on product gross margin and again that was a result of using a different deal structure, but I think from a company profile operating margin standpoint, I would I would put that in that category I do want to correct one.
<unk>.
Statements, However, which is that in fact, we do use it we do have a partner with meta.
Integration partner.
So there is economics involved in that.
Thank you Chris It looks like we have one more question in queue. So this will be the last question.
Yeah.
Our last question comes from the line of Eric <unk> with Lake Street, Eric Your line is now open.
You talked about having a little bit better success on the hiring side as we look at Q4.
Sure.
It kind of equally distributed across R&D and sales and marketing.
I would say that.
While we're continuing to hiring both in in particular on the R&D side.
We are expanding overseas largely to take advantage of but overall lower cost.
<unk> profile and.
And to make it more to be honest to be just much more balance as a company between our on shore and offshore.
Head count in R&D, we're really very much focused on the quota bearing head side in terms of our expansion.
In sales and marketing I believe that you're going to continue the growth we have to continue to develop too.
Improve our capacity on the sales side, so we will be continuing to invest there.
Thank you Eric before we conclude I think Charlie has a few partying comments yeah.
Thank you Paul.
Pure continues I think as you can see to outpace our industry in both innovation and customer satisfaction and now our advantages in total cost of ownership energy efficiency price performance are setting the pace in this new economy.
They're going to make and they are making up the preferred choice for leading organizations around the world.
We remain confident that we will continue to take share and outperform the market as we've done since the very first day of our founding I want to thank again, our dedicated employees our partners, our suppliers and our especially our customers for choosing to partner with pure for the world's best data storage and management solutions. Thank you.
This concludes today's <unk>.
<unk> third quarter fiscal year 2020 financial results call. Thank you for your participation you may now disconnect your lines.
Okay.
Yeah.