Earnings Call: Q3 2018

Nov 28, 2017

Good afternoon. My name is Mike and I will be your conference operator today. At this time, I would like to welcome everyone to the Pure Storage Q3 fiscal 2018 Earnings answer session. I will now turn the call over to Matt Danziger, VP of Investor Relations. You may begin your conference. Thank you and good Welcome to the Pure Storage Q3 fiscal 2018 earnings conference call. Joining me today are our CEO, Charlie Giancarlo, our CFO, Tim Ritters, our President, David Hatfield, and our VP of Products, Matt can smaller. Before we begin, I would like to remind you that during this call, management will make forward looking statements, which are subject to various risks and uncertainties. These include statements regarding competitive industry and technology trends. Our strategy, position and opportunity. Our current and future products, business and operations, including our operating model, growth prospects, revenue, and margin guidance for future periods. Any forward looking statements that we make are based on assumptions as of today, and we undertake no obligation to update them. Our actual results may differ materially from the results predicted and reported results should not be considered an indication of future performance. A discussion of risks and uncertainties relating to our business is contained in our filings with the SEC, and we refer you to these public filings. Also during this call, we will discuss non GAAP measures in talking about the company's performance. Reconciliation to the most directly comparable GAAP measures are provided in our earnings press release and slides. This call is being broadcast live on Pure Storage's Investor Relations website and is being recorded for playback purposes. An archive of the web cast will be available on the IR website for approximately 45 days and is the property of Pure Storage. With that, I'll turn the call over to our CEO, Charlie John Thank you, Matt. Good afternoon, everyone, and thanks for joining today's earnings call. We'll begin with a summary of our operating results and my option evations after my first full quarter of PURE. I will then turn the call over to Hat for some customer highlights and finish with Tim, who will provide a detailed review of our financials. Q3 was a strong quarter for PURE. Revenue was from a year ago, beating the high end of our guidance. Non GAAP gross margin GAAP operating margin was a negative 0.7 percent, also above the high end of our guidance. We finished the quarter with a positive free cash flow and grew our cash $1,000,000,000 in annual revenue and our first profitable quarter. It has been 3 months since I joined PURE, and as you would expect, I've spent a lot of time diving into the business, meeting with customers and partners in addition to spending time with the and our strategic imperatives. Information, big data workloads, data analytics, machine learning simple, scalable solutions. Aging architectures of legacy vendors are struggling to meet the needs of next generation data rich environments. Even in today's vendors can't shed decades of needless complexity and still require the need to migrate data with every new generation of equipment Pure's evergreen storage model eclipses the competition in speed, Symplucitan costs, bridging the transition from today's environment to the next generation Quite simply, customers with traditional workloads that have migrated to PURE has stated to me repeatedly that PURE is the best product they had ever purchased. They are asking for us to provide them more. They view Pure as one of their most strategic vendors and want to see us replace more of their existing infrastructure with our technology. Will focus on 3 cementing our lead as the core data infrastructure for next generation applications like artificial intelligence, machine learning and analytics, and 3, expanding our footprint in opportunity on its own and together, they represent a huge market opportunity for Pure. Our product portfolio is strong. FlashArray has had a great quarter and continues to deliver record results in part due to the introduction of FlashArray X, and the new than FlashArray did in its 1st full year. And while it is now somewhat off its early 2x pace, it remains on a very strong growth trajectory. We are excited about the customer momentum for FlashBlade, which Hat will talk about later. In the future and that is positioned for growth at scale. As we look to the future, we have set 3 operating priorities. First, customer focus. It's our North Star. Every group at Pure, each decision and every action we take will focus on customers first. We will continue to and future customers second, operational excellence. To compete at the highest levels, we will strive to deliver against the best possible benchmarks and results in every ware. We will not only innovate with our technology portfolio, but also in every part of our business model. Every organization in PURE enthusiastic about driving new innovations in how they perform their work to deliver better overall value to all stakeholders. By focusing on innovation and customer delight, we empower our customers to turn data into intelligence and advantage. PURE has exceeded my initial expectations, and I could not be more excited and thrilled about all the opportunity in front of us. I have been with companies that have experience growth at scale. And in pure, I see the same critical elements for continued growth. And with that, I'd like to hand it over to Hat to highlight some successes of the last quarter. Teams is incredibly strong as we continue to deliver our unique data platform built for the cloud era. The combination of our differentiated technology, superior customer experience and evergreen business model are winning in a competitive landscape where the legacy company's historical approach is being challenged at every level. This quarter, we added over 300 new customers, bringing our total to more than 4000, up 54% from the same time last year. And contributions from cloud customers continue to represent more than 25% of our business. Our repurchase rates holding nicely with over 70 continues at scale. In addition to is us in the top 1% of enterprise technology and 2x to 3x higher than our competitors. Our partner ecosystem continues to build momentum. The contributions from leading national partners continues to be a focus and key investments with Global Systems integrators as a result in energy and focus on being the preferred solution for our partners is right, and it will continue to be an integral driver of our go to market velocity. Our sales teams morale is high and our most recent new hires, which represent our largest cohort classes, continue to produce highest initial productivity on record. Internationally, we were very pleased with our momentum across all three theatres, which contributed 31 percent of revenue this quarter, up from 26% last quarter. As Charlie mentioned, we continue to be hyper focused on the 3 growth markets: cloud, next generation workloads and the largest enterprises as they cloudify their on premise IT. I'd like to dive down into one of these areas each quarter. This quarter, focusing on our progress in driving the adoption of next generation data, trees. With analysts forecasting a 70 8 percent 5 year compound annual growth rate for storage and AI, along with our differentiated capabilities, We continue to see great progress and in Q3 extended to global co sponsored events worldwide. We also entered into a formal agreement with PNY Technologies, the European Distributor of Nvidia enterprise products. As the essential instrument for AI research, the NVIDIA DGXone is at the heart of many of the world's most demanding deep learning analytics environments. FlashBlade is uniquely suited for organizations investing in these emerging workload ultimately shortening the time to innovation and enabling faster time to development. Net NET Pure is storage, what NVIDIA is to compute for AI. Additionally, FlashBlade won the best innovation Artificial Intelligence award at a recent AI Summit Conference. As I mentioned, autonomous driving companies. And in Q3, we've added a number of new SaaS accounts within the areas of revenue management, web analytics and hospitality distribution This is an incredibly exciting time at Pure. We're on the eve of delivering our 1st 1,000,000,000 in annual revenue and the data platform strategy is working. We are enjoying fantastic customer and partner momentum and we have the combination of both Charlie and Deets. We truly are only just getting started with the right technology, business model and customer experience at the right time to help transform organizations globally. With that, I will turn to Tim provide details on the new growth and achieved positive free cash flow. Before I dive into the specifics, I'll make my usual note that the gross margin, operating margin, OpEx and free cash comparables as well as our full Q3 results and presentation are available on our website at investor. Purestorage.com. Total revenue 41% year on year to $277,700,000, more than 2 points above the midpoint of our guidance. Product revenue grew feed purchases and solid new customer base growth helped drive our product revenue in the quarter. Total customers reached more than 4000, up more than 50% from the same period a year ago. Momentum and FlashArray was particularly strong and we continue to gain traction with FlashBlade. Support revenue in tax. Looking at Q3 from a geographic perspective, 69% of our revenue came from the 0.4% compared margins and have been operating in our long term target range of between 63% 68% for the last eight quarters. Product gross margins of 66.3 percent decreased 1.2 points quarter on quarter as expected. As a reminder, last quarter we outlined a handful of one time benefits that positively impacted product gross margins including lower cost norms and well within our long term operating range. Support gross margins of 67% improved quarter on quarter by 1.1 points, reflecting our expanding customer base and our continued efforts at driving operational efficiencies. Turning operating margin, we continue to make excellent progress on our march to profitability and achieving a long term operating margin target of between 15% 20%. Our operating loss $14,400,000 or negative 9.8 percent of revenue in the year ago quarter. This represents a 9 point year on year improvement and more than a 2 point outperformance from the midpoint of our Q3 guidance. Our net loss for the quarter was negative $1,900,000 or negative $0.01 per share. This compares to the year ago period net loss of $20,000,000 or negative $0.10 per share. The weighted average shares used for the per share calculations were $213,300,000 $195,800,000 respectively. Total headcount at the end of Q3 was up over 2000, up from over 1900 at the end of Q2. And up from over 16.50 a year prior, largely reflecting ongoing hiring in both our sales and R and D organizations. Moving on to the balance sheet and cash flow. Which is a $28,000,000 addition in the company's history. Cash flow was positive 18% of revenue plans. Excluding this amount, free cash flow would have been positive $16,500,000 or 6 percent of revenue compared to negative $30,400,000 or negative 15 percent of revenue in the year ago quarter. Now we'll turn to our guidance. For the fourth quarter, we expect revenues of between $327,000,000 $335,000,000. This represents 45% year on year revenue growth at the midpoint and is based on momentum in the overall business combined with our seasonally strongest quarter of the year. We expect Q4 non on operating within the sweet spot q44 non GAAP operating margins of between positive 3% and positive 7%, which represents our 1st profitable quarter as a public company, another significant milestone in Pierre's journey. As we mentioned last quarter, as we drive to profitability, I want to remind you that our weighted average shares used for EPS will increase once we turn profitable as we move to a fully diluted calculation. Please refer to our earnings presentation for further details on our fully diluted share count. For the full a midpoint of 1.01 and 66.6 percent. In summary, Q3 was another strong quarter for Pure, with strong revenue growth and positive free cash generation. We are well in Your first question is from Aaron Rakers from Wells Fargo. Yes, thanks for taking the questions and congratulations on the quarter. Actually, I have 2 quick questions, if I can. So first of all, I'd like to understand a little bit better the FlashBlade commentary. You talked about trending a little bit below the 2 times the FlashArray ramp. Just help us understand where you stand relative to that $80,000,000 revenue patient for the full year. And then also, Charles, I'm interested. As you kind of look forward and you kind of get your arms around, the portfolio that's continued to expand. Contribution relative to continually driving operating margin leverage to the model as we start to look into the next fiscal year. You bet. Thanks very much for the question. We are very pleased still with the FlashBlade growth and it continues to be much faster than FlashArray in its first full year. Relative to the $80,000,000, and this will probably be the last time I talk about that, we're in the ballpark. So, I just want to make clear that in terms of my style, I prefer not to break out individual products on a quarterly basis. So we're going to push that aside from now on. Having been in a multi product company, you know that from quarter to quarter, we optimize on the total top line, not on individual products per quarter and you see things go up and down or grow faster or slower than others. But I will say that we are, if anything, even more optimistic and more pleased with Flash blade than when we first introduced it. We continue to see new opportunities for it. We're getting great feedback from customers and, we couldn't be more optimistic about the product. Oh, I'm sorry. And then on the model leverage, the way we think about it, we've talked about this from time to time, is and Tim outlined at our, meeting last year, our users conference, what our long term model is. We see that we're going continue to invest in sales revenue. Now to the extent that we grow faster, it'll obviously be a bit higher. To the extent we grow slower, we're going to take, we'll take that down. So long term, you're going to see an overall reduction in sales and marketing. You're going to see an increase in the bottom line, but that'll be moderate somewhat by how fast we're able to grow the company overall. Erica Merrill Lynch. If we step back and look at the pace of growth in all flash revenues across the vendor, I mean, just handouts or are you guys sure and then that up. Can you address why you think NetApp is growing so much faster on a large revenue base? Is it just the footprint? And then selling it to install base? Or has it got something to do with pricing? Would love to get some thoughts around that? And I have a follow-up. Look, I think that NetApp obviously had a great quarter and my hats off to the George and the entire team over there. But I'll remind you that on an overall basis, on a total company basis, we're growing much, much faster. And if you have a large installed base as they do, simply replacing your existing environment with Flash is going to produce Flash revenues that look much greater. But on an overall growth base were much higher and I expect that to continue. And I think it's a single, storage market at this point in I think you should be looking at companies from a total revenue perspective. Are you seeing anything from pricing dynamic that has surprised you in the market in this past quarter? No. I would say that, we've not seen any significant changes in overall pricing. The market, of course, every single deal is tough from a competition standpoint, but no significant movement in pricing quarter. If I could ask one last one, you mentioned that sales in R&D hires have been quite significant through the course of this past year. Your sales hires are being focused either in vertical markets or whichever way you'd like to characterize that regionally? Hey, Wamsi, this is, this is Hat. Thanks for the question. We're evenly distributing across the globe. We were thrilled with our performance in international, all three theatres produced nicely and we see the productivity and coming in online very nicely there. And we're also continuing to see that our latest cohorts classes are producing the highest productivity levels on record. And so as as we continue to see those kinds of forward looking metrics, we're going to continue to invest in sales and marketing. The next question is from Katy Huberty with Morgan Stanley. Charlie, first question for you, when you think about the 3 growth factors that you laid out, do those require you to expand the product portfolio in the future, perhaps even to adjacent markets to storage? Or does the current product portfolio allow you to go into achieve all those goals and maybe answer in the context of R and D growth that's materially lower in the Jesper to quarter I think the answer is really both Katie. First of all, the existing product line that we have allows us to continue to expand in those markets But technology advances constantly. And so the more that we have a lot to do in each of the product lines that will allow us to expand even faster in those markets We do believe that our differentiated business model is characterized by a higher rate of R and D spend than many of our competitors in this market and it's all focused on the future. So, and I'll let Tim answer the question on the R and D spend because we don't really see on a long term basis, we really see that as something that we're going to continue to invest in. And this is just an anomaly in the quarter? Yes, yes, quarter on quarter, Katy, on the R and D basis, obviously, the leverage, the quarter on quarter revenues growing at 25 percent. You can just get natural leverage. And we have some programs over the summer that sort of tend to spike the R and D number a little bit there as well. So, we're going to continue to invest as the headline. I wouldn't read anything into the sort of decel Q on Q. Okay. Thanks. And then, Tim, just a follow-up for you. How would you characterize the availability and pricing of SSDs in the quarter and what's your outlook in January? And then to the extent that pricing starts to come down over the next year, how much do you think that helps your gross margin? Yes. So Katy, on the first part of your question, we continue to be very comfortable about our supply for the rest of the year and out into next year as well. As you know, we've been watching this dynamic for quite some time and have managed very, very well through it and continue to expect to do so going into calendar 2018. In terms of cost dynamics, What I would say is rather than think about what that means to gross margin, we always talk about this sort of mid to high-sixty sweet spot that we like to play in. We've been doing it now for eight quarters. And that's the way I look at it. So we may pass some of that on to customers to go capture more markets and we may put some of it in our own pocket as well. But as long as we stay within that range, that's what's important to us from a management's principle perspective. Good. And if I may, just one quick more, Tim, if you think about normal seasonality in April, that could bring your April quarter revenue down below what you just reported. Do you think you can remain profitable in that scenario of normal seasonality? Or how should we think about the sustainability of profitability after the January quarter? Year, but I would take a look at the year that we're just in. Obviously, Q1 is going to be the lowest from a profitability perspective and Q4 is going to be the highest from a profitability perspective. So, you're thinking about modeling, that's the way I would look at it. The other thing, you asked about seasonality. We think about seasonality both on the bottom line and the top line. And I know this was a topic last, last sort of year as well, but as we start stabilizing our overall growth rates and we talked in the Analyst Day about having 30% CAGRs. What you really want to take a look at is our full year revenue growth rate approximating a lot of the quarters as well, right? Because now you're getting to a stabilization, you're really shouldn't see big differences between the individual quarters and the full year if that makes sense. The next question is from Mark Moskowitz with Barclays. One's already asset dropped off for a second, but did you guys talk about how we should think about the profitability cadence on a full year basis as we think about calendar '18. You obviously are accepting some really good things here in terms of leverage now, but can you be profitable for a full year calendar 18. I guess that question is more for Tim. And then my other question is for Charlie. Clearly, the enthusiasm is very possible here on the call today across C suite here. Just want to get a sense on terms of the cloud. You've kind of signaled previously AWS and Azure integration opportunities are there. Didn't hear too much about that today. Can you give us a little more in terms of when investors could see some of that enthusiasm actually be monetized over the 12 to 18 months in the cloud? So Mark, I'll take the first question on profitability and then turn it over to Charlie on the second question. On profitability, we naturally aren't going to guide for the full year next year. But we do see, seasonality in the profit number. You see that throughout this year. You've seen that throughout years past. So I would think about it very much the same way as we get into next year. And our just to profitability. So, where right now, what kind of in the, for the full year, kind of negative single digits, low single digit you can kind of infer from that that we're moving in the right direction. Mark, and this is Hatle. I'll take the winning in the cloud. I mean, I think the key statement here that the explosive growth data are fundamental premises that they're going to operate in a multi cloud world, with sensors and AI and machine learning and all the data created by machines forecast to be 40 or 50 Zettabytes in the future and total internet storage capacity over few years to be a fraction of that called 2.5 or 3 zettabytes. Customers need to operate and the edge they're going to need to operate on prem and they're going to need to operate in the public and their partners. And so we built our platform to enable the cloud. So SaaS together with IAS and PaaS and native cloud business continue to contribute 25%. We have some of the largest cloud scale environments as customers. They're big companies. They have a lot of different use cases. And you'll see us continue to work with conversations going on and we're optimistic for integrating with them in the future. The next question is from Steve Milunovich with UBS. Thank you. Charlie, as you've been able to dig into the company a bit more, where do you see room for improvement and things that you've learned at large companies that you can bring to Pure to help at scale? Yes. Thanks for the question. We mentioned some of them in call, right, which is a movement upmarket. I think part of that is not me per se, but simply the natural progression of the company. As it grows more and more larger customers and larger parts of their environment. And that just requires some modification of the selling motion, distribution motion, marketing motion, and so forth. So So that's part of it. I think given that we're now a multi product company, the way you manage in a multi product company chain to some extent. And then simply just the fact that we're now over two thousand people, the way that one needs to communicate and coordinate across the company, those are things that we're making some modification to. But none of these things are either rocket science or, newly coined. These are things that company that goes through this level of scale, goes through. So I see it as something that, that's very straightforward. And the team was, was hungry for it and have jumped right on it. Thanks. Then I wanted to ask you, you have a familiarity with Arista. And there seem to be some similarities between PURE and Arista, but I'm sure there's also some important differences. Maybe you could talk about your observation of the 2 companies. Absolutely. The similarities is that we are deep, both companies are created with deep technologists at its core. That really understand the technology, really understand the markets and are really, if you will, fighting for the advancement of computing and of performance of technology. I would say in terms of the differences that, Pure is a much more of an enterprise oriented company at the moment, whereas Arista is more cloud oriented, with each one of us trying to build up more momentum in the other segment. So, you know, we're maybe starting at opposite points on the, on the compass and, but headed towards the center. The next question is from Jason Nader with William Blair. Guess, thank you. I had a question first for Hat on the federal vertical. Is that an area that you guys investing in? Do you feel like you can be a winner there? And then for, Charlie, what's happening with your win rates against Del EMC see the Bosch array business doing very well and some of our checks seem to suggest that, you're seeing more displacements of big EMC accounts. Can you comment on that? Hey, Jason, it's Ted. Thanks for the question. Yes, we are investing in public sector overall, the key markets that Charlie mentioned that we are hyper focused on are cloud businesses, next generation use cases, and the large enterprise. And in the large enterprise, it includes federal agencies as well as large state and local organizations and health care. So you'll see us talk more about those wins in the future. Right. And in terms of our win rates, I'd say that our win rates are stable, but we are just competing for more deals. The next question is from Alex Kurtz with KeyBanc Capital Markets. Hey guys, this is Steve Enders on Alex. Thanks for taking my question. I was wondering if you could talk about trends you're seeing in account rep yields in 3Q and heading into Q. And I know you guys aren't speaking to fiscal 2019 yet, but are there any new class of hires that we could expect that may affect yields beginning next year? Hey, Steve, this is Hal. I'll hit the first part and maybe Tim will jump on afterwards. We're seeing great productivity, continued motion from a sales perspective, the latest cohort classes that we've brought in continue to be outperforming our most productive cohorts So we see great sales capacity there. I think the key contributor there from my point of view is the data strategy, data platform strategy working, and our channel ecosystem is contributing nicely. So I think those 2 motions, that portfolio selling motion together with our continued focus on the channel is driving and creating higher sales yields. And I think that will continue to the future. Yes, Steven, on an investment philosophy perspective, next year. Obviously, not guiding, but historically, the first half of the year has been when we've invested most notably in the sales and marketing organization. It's the best time to get the quality sales people that we're looking for and get them trained for the seasonally stronger second half. We've been doing that now for 3 or 4 years, and I don't anticipate any changes in terms how we go to market next at your Analyst Day, 2,000,000,000 run rate goal in 2021. I was wondering if anything has changed Does it affect that outlook? Not at all. That continues to absolutely beat the longer term target after passed through this $1,000,000,000 Martinuzzi with Lake Street. Your international growth has really stand out. I'm wondering if that has more to do with just growing off a smaller base? Or is there a different, a difference in the competitive landscape Yes. No, Eric, I think this is what we're seeing is just the capacity coming online, making investments in international markets takes time. So I think a combination of brand awareness, sales capacity coming online and the channel maturing. We see continued execution across all of our theatres, And so we see nice growth in Americas as well. So I don't I think on an overall contribution basis, we anticipate that we're going to continue to see a larger and larger contribution from our non North American markets. Okay. And then just a housekeeping out for Tim. The, I, if you made it crystal clear in the press release, I missed it, but the, the diluted weighted share count. I think the last time you talked about it was around 237,000,000 shares, but we've seen a pretty substantial increase in the stock price. So I was wondering if, is there a better number for that as we cross into adjusted EPS profits? Yes. So, Eric, what I'd say is that this last quarter, it hadn't been profitable, we would have had a 243,000,000 share account for purposes of EPS purposes. That will creep up a little bit as we grant more options and awards. There's a table in the deck that shows across various stock prices, what that adjustment will be. So I think if you're in that $2.40 to $2.50 range, you're probably safe in how you think about it from a modeling perspective. The next question is from Jason Nolan with Baird. Okay. Thank you. A follow-up on international. Were there any big deals worth calling out or did GD TR play a role there in that strength? Yes, we did have a significant win in the large global Financial Services organization that I referenced in our prepared remarks. But nothing that was material, that would really swing it. We see nice penetration in the enterprise, great, in the public sector and our continued cloud effort have been paying off in all of those markets. So I think more of the same, we believe it's sustainable. Okay. And then a follow-up, a software only and I don't know if this would apply, but would is it possible in the future to see pure IP on a white box or in the cloud or is that not really something that would make sense? I'm going to hand that over to Kix. Look, anything's possible. Obviously, our solutions are powered by software and software to keep part of the value add. Today we focused on deep integration between the software and the hardware for both ease of use and overall simplicity and also the best performance But as we continue to look at delivery models, we'll keep everything on the table to consider over time. The next question is from Simon Leopold with Raymond James. I wanted to see if we could take a little bit of a look into, fiscal 'nineteen calendar, 2018. In terms of a couple aspects, First of all, just want to see if you could review your thoughts on seasonality given that your April quarter usually has a pretty pronounced sequential decline just want to make sure we're all on the same page in terms of how to think about seasonality. And then in terms of the full year, I just want to see if you could revisit the common you gave us a nice grid perspective of FlashBlade and all flash growth, leading to somewhere in the 30% range growth. I just want to see if we could revisit how you're thinking about the growth outlook for the full year. Yes, Simon, I'll take your full year question first and then we'll get into the seasonality within the quarters. On the full year, you sort of articulated perfectly. If you think back to our Analyst Day, we talked about a variety of different scenarios that get us above that 30% CAGR over the course of the handful years. And I think that nothing's changed in terms of how we think about the business and the targets that we're sort of executing on. So I think you're thinking about that, just like we are here at the company. As it relates to the quarters, I made a remark earlier in this Q and A, is that that we're in that stable sort of growth phase of the company, really looking at each quarter on a year on year basis and compare it to the full year numbers, those growth rates should all else being equal really be very similar, right? You shouldn't see big, big, deltas between a Q1 growth rate and a Q3 growth rate or a Q1 growth rate and a full year growth rate. It should really be stable. When we think about that, should we be looking at the January quarter that you've guided to, which is midpoint around 45% year over year growth that's well above 30. I I assume you're not suggesting we should think about 45 as the new normal. I know it's naturally Simon. We're lapping another year. We're going to post a $1,000,000,000 and every time you lap a year, those comps obviously get tougher. So I think you're thinking about it right. Great. Then just one last kind of big picture. If you could help us understand how to think about the addressed market, when you think about machine learning, artificial intelligence, what's opening up. We're struggling to try to think about, a TAM, expectation. I know it's still early, but any metrics you could help us frame this? Thank you. This is Kix. I'll take that one. So I think the first thing say is that we believe a big chunk of that market is all net new. And so, you know, I think everyone like yourselves are struggling to understand how big it can be. The thing that I think we've been excited about over the last few quarters is to see it grow from a few very focused industries like self cars and things of that nature to really seeing ourselves starting to have AI conversations in almost every industry. We highlighted the Man AHL example on this call because we thought it was a great breakthrough of these types of technologies into more classic financials. And, you know, we're having these conversations across a wide range of industries. We think this is something that most CIOs will look at as something to put some of their innovation dollars towards. And it's going to be a huge growth driver. And so, you know, there's been a few studies out that the number we highlighted on the call was a 78% CAGR. But I think we're also hoping to see more of the analyst community jump in and seize the opportunity. The next question is from Tim Long with BMO Capital Markets. Yes, 2 quick if I could. First, could you talk a little bit about deal sizes? Are they growing? It sounds like the win rate is similar with a little bit more activities of bids that you're in because you should talk about the deal sizes that you're seeing. And then secondly, just talk a little bit about as the revenues may shift around between the verticals, particularly if you get more into that cloud customer base, how should we think about gross and operating margin or profitability potential for some of those different verticals? Hey, Tim. This is Hat. So, no material difference really on the average deal sizes. We're competing for more at bats and our win rates holding or improving against every competitor that we have out there. So it's more about getting additional at VAS. We will anticipate seeing larger opportunities in side of FlashBlade over time, but as that becomes a more meaningful contributor, that could influence things. But right now, we're seeing great stability in the win rates and the deal sizes and seeing more of that. And those are the things that we're focused on. Yes. I'll talk a little bit about this, Charlie. I'll talk about the question relative to cloud. I think the way to think about first of all, we have a mix of cloud customers today, right. So, and you have our financials today. So, you see already what a blend of this looks like. However, I think as, if and as cloud gets larger, one might see, So, we would expect stable operating margins and not to affect the operating margin line. Obviously, the amount of expense or the amount of costs on COGS versus the amount spent on SG And A will be different. But I would expect it not to affect operating margin. Your next question is from Eric Suppiger with GMP Securities. Yes, thanks for taking the question First off, Charlie, you said you're very pleased with FlashBlade in spite of some slowing in that rate, what is it that gives you the confidence that, that the FlashBlade is not going to slow further? And then second, you had talked about ability to leverage your sales and marketing better going forward. Where do you ability to really drive, some operating leverage on the sales and marketing front? I have been through a significant number of new product introductions in the past. And this one is as fast as any that that I've ever seen. And as we continue to identify, it's faster than FlashArray in its 1st year and that was a very fast growing product. So in any 1 quarter, you're going to see variation of new products, especially in a field environment, that sells multiple products. So it doesn't concern me at all. What I do here is from a customer. The customers that, that, of this product, and now there are quite a substantial number of them are very pleased with it. Plan on buying more are looking to see what new opportunities they can bring it into inside their own environment. And we're getting better at spotting the best and if you will, the most efficient areas in which to sell the product. So there's just a lot of good reasons to be optimistic about the product. And on the sales and marketing front? Right. Sorry about that. I can only remember one question at a time. Apparently, No, on sales and marketing front, as we it's really scale economics. A, B is moving into larger accounts and C is a more efficient, channel environment that becomes more independent in selling into Also, I'll say that brand recognition is improving as well, and that makes it somewhat easier, to not only penetrate new accounts, but, frankly, to to expand inside of existing environments. So I think all those things are quite natural in a growing company like ours, to help us to really improve overall efficiency on the sales and marketing line. Your next question is from Nehal Chokshi with Maxim Group. Thanks and a very good quarter. Especially when you take into account that DSOs declined 10 days year over year. And it looks like 5 days below took typical levels. So I think that does imply a much more linear selling quarter. So my question is, presuming all those things are true, it fair to say that had the linearity been like prior years, revenue and bookings would have been correspondingly higher. Nail, this is Tim. We haven't historically offered any commentary on intra quarter linearity in the calls. I would just refer back to the fact that we reaccelerated growth here again, 41% growing at scale and on our way to a $1,000,000,000. Those are the measures we talk out publicly and obviously put in a really good quarter. The next question is from Edward Parker with BTIG. Just a quick one on FlashBlade. A piece of feedback, but I think some of suffered from your partners, at least in the enterprise channel, it sounds like the product maybe lacks the maturity in terms of features and other capabilities that enterprises require for their unstructured data requirements. So I guess the question is, is that fair? And what do you think you need to add in terms of capability to the product for it to become more of a mainstream buy for enterprises and when might you expect that to happen? Hi, Edward. This is Hat. So there's 2 distinct markets for FlashBlade as we're getting more stick time with it versus the next gen AI machine learning and real time analytics segment, that is a great fit and completely differentiated from anything else in the market. In that world. I think the second area is the replacement of legacy IT, and this is going after the NAS and the stores that are out there. And this is actually taking the fights in that app where we really haven't focused in their file based world. And that, it is a 1st generation product and so you're going to have years of features that we're going to build out to be able to hit more and more of that addressable market. But we're having a great success both of those categories today. And maybe I'll hand it to Kix for any other commentary on it. Yes, no, I'd just add, I think the strategy is working. When we said it a couple of years ago, we made a choice say, do we go after the legacy existing market, which we knew was a feature game, or do we try to really build something that, that no one had seen before to go after the next use cases. And we've decided to go out the next end use cases. We're winning there. And we'll, of course, have the features over time to build a broad to the whole market. The next question is from Steven Fox with Cross Research. Yes, thanks. Just a couple of quick questions on top line. First of all, Tim, on the 41% year over year growth, is there any way to sort of maybe if I how much came from existing customers versus new customer acquisitions and whether deal size on a year over year basis is contributing to the growth on an average And then secondly, do you see any constraints in terms of trude up growth rate for you guys given the NAND supply environment? Question. The relative split between new customers and existing customers has stayed about the same, a very healthy number on each side of that equation, if you will. Deal sizes, there was a question earlier. We don't talk really a lot about deal sizes, but they still they continue to hold where we like to see them. So, we're very happy about that as well. And as it relates to NAND supply, we continue to manage very well and have good line of sight and visibility, that is not something supply constraints are not something that concerns us from a revenue perspective. Thanks very much. And that was our last question. I will now turn the call over to Charlie John Carlo for closing comments. Well, thank you. And thank you all very much for joining us today. In closing, we had a very solid Q3 We believe the future will be driven by information, and all of us here at PURE are focused on helping customers build a better world with data. Momentum remains strong across our leading technology portfolio, and we really look forward to a strong finish for the year. And thank you again for joining us and, that's the end of the call. Thank you. This concludes today's conference call. You may now disconnect.