Pure Storage Inc (PSTG) 2023 Q3 法說會逐字稿

Good day, and welcome to Pure Storage Third Quarter Fiscal Year 2023 Earnings Conference Call. Today's conference is being recorded. (Operator Instructions)

At this time, I would like to turn the call over to Paul Ziots, Vice President of Investor Relations. Please go ahead.

Thank you. Good afternoon, everyone, and welcome to Pure's third quarter fiscal 2023 earnings conference call. On the call, we have Charlie Giancarlo, Chief Executive Officer; Kevan Krysler, Chief Financial Officer; and Rob Lee, Chief Technology Officer. Following Charlie's and Kevan's prepared remarks, we'll 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.purestorage.com.

On this call today, we will make forward-looking statements, which are subject to various risks and uncertainties. These include statements regarding our financial outlook and operations, our strategy, technology and its advantages, our current and new product offerings and competitive industry and economic trends. Any 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 RPO 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 and is being recorded for playback purposes. An archive of the webcast will be available on the IR website and is the property of Pure Storage. Our fourth quarter fiscal '23 quiet period begins at the close of business, Friday, January 20, 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 off-line. We are once again pleased with our quarterly results, showing year-over-year revenue growth of 20% and subscription ARR 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 FlashArray//C, FlashArray//XL and FlashBlade//S also saw excellent growth this past quarter. FlashBlade//S, our newest product, is off to a great start in its first full quarter of sales. The number of S-systems sold were above our plan and petabytes sold were well above our plan. We're also seeing S customers taking advantage of the increased performance and scale, choosing to purchase larger systems than the prior generation.

Pure continues to lead the industry in product innovation, having released a record number of new products and services this year, including FlashArray//XL, FlashBlade//S, Pure Fusion, (inaudible) Port Works Data Services and Evergreen//Flex. We are proud to share that this innovation has once again been recognized with Gartner's highest rankings in their Magic Quadrant. Pure was named the leader for the ninth consecutive year for primary storage and a leader for distributed file systems and object storage, significantly increasing FlashBlade's ranking year-over-year.

Pure's 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 Meta's build-out of their Research SuperCluster (inaudible) or RSC. As a reminder, our shipments for MetaRSC consists of both FlashBlade and FlashArray//C. Meta relies on Pure's FlashBlade to provide lightning fast data delivery to their NVIDIA GPUs and FlashArray//C to provide performance-oriented and cost-effective bulk data storage at one tenth the space, power and cooling of a disk alternative.

NAND cost per bit continues to approach that of magnetic disks. Because of Pure's unique intellectual property, Pure (inaudible) QLC-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 Pure's NAND economics this coming year will enable Pure to deliver our QLC-based products at prices competitive with most near-line disc arrays on a total cost of ownership basis. We believe strongly that the days of the hard disk in the data center are over. Customers that do not take advantage of Pure's QLC products to replace (inaudible) fit systems are choosing the more expensive and energy-intensive option.

New enterprise customers this quarter include a large global telco, a large global payment processor and a major energy provider. Existing customers like Vertafore, 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 of major concern.

As mentioned, we saw strong growth in both new and existing Evergreen customers this quarter. Evergreen's 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 cited energy savings as a new important benefit. Also this quarter, we saw several large telco customers purchase our portfolio to support projects ranging from 5G deployment to modernizing infrastructure. For example, one of the largest telecommunication providers in Asia increased their Pure portfolio, including their FlashArray//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 in 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's Evergreen offerings, best-in-class power space and cooling and operating simplicity results in 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, an area where Pure excels.

As we look forward, we are keeping our eyes on a number of macroeconomic 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, Kevan Krysler, 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 11,000 and represent 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 FlashArray//C and FlashBlade//S solutions, both leveraging (inaudible) QLC 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 solutions and substantially reducing data center energy consumption.

We also continue to be pleased with meaningful contributions from new business as we acquired approximately 390 new customers this quarter, including across the telecom industry. Subscription annual recurring revenue or subscription ARR exceeded $1 billion this quarter, growing 30% year-over-year. Record sales of Evergreen//One in Q3 represent a key driver of our subscription ARR growth.

Remaining Performance Obligations, or RPO, grew 26% to $1.6 billion. Similar to the remarks we made in previous quarters, our RPO growth is impacted by product shipments for an outstanding commitment with one of our global system integrators. Excluding these product shipments, RPO grew 31% year-over-year.

Our headcount has increased to nearly 4,900 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 (inaudible) $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 70.9% in Q3. Sales of our larger configuration systems and new FlashBlade//S contributed to slightly higher product gross margins of 70.1%. Subscription 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 $1.5 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 back order.

In Q3, we returned approximately $24.5 million in capital to repurchase approximately 900,000 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 $25 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 '22, including 53 weeks.

Also, from our previous remarks, approximately (inaudible) $60 million of product revenue recognized in the first quarter of FY '23 had been forecasted to close in the second half of the year. Adjusting for this impact of seasonality, our expected revenue growth in the second half of FY '23 would have been nearly 21% year-over-year. For FY '23, we are reiterating our annual revenue guidance of approximately $2.75 billion, an increase of 26% versus FY '22.

Our operating profits remained solid, which is reflected in our Q4 operating profit outlook of $130 million or operating 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 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 tailwinds next year. While it remains too early to provide guidance for FY '24, our current preliminary view is for operating margins to remain robust around 14% to 15%.

In closing, 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 e-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, Kevan. 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.

(Operator Instructions) Our first question comes from the line of Amit Daryanani with Evercore.

And congrats on the (inaudible). I guess my question, Charlie, for you really is, your print and the guide you have provided, it's surely impressive, especially in comparison to the commentary, I think from some of your peers like Dell and (inaudible) NetApp recently. So I'd love to just understand what do you think is driving this contrast with your peers, I don't think you're foresaw (inaudible) a backlog, for example, that would be helping you. So it would be great to just hear what do you think is enabling this divergence of performance at (inaudible) versus your peers? And then what do you think the durability of this (inaudible) average until year as we go forward.

Thank you, Amit. And I hope you're well. Thank you for the question. Well, Amit, I think it's a -- based on a variety of different things, but fundamentally upon our core strategy. So the core strategy, first of all, is to drive an all-flash data environment in the data center. 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 the vendors developed a software stack that focused on the benefits of using a pure semiconductor versus just refilling disk-oriented architectures with SSDs, and that's allowed us to provide a product that's simpler to operate, uses less power -- space, power (inaudible) and cooling requires far less labor, 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 roots or our initial product, which was block-oriented to now having file and object based systems. And then thirdly, now starting to pursue replacements for secondary tier disc alternatives. So this allows us a lot of market -- allows 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 an 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 is the most important number in the company, that's -- 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 as a share taker in this $50 billion market. And as you well know, we're still coming up upon $3 billion in terms of our total revenue. So lots of growth opportunities in the future.

Thank you, Amit. Next question, please.

Our next question comes from the line of Meta Marshall with Morgan Stanley.

Maybe a question from me of -- clearly, you are highlighting that some of the memory pricing getting cheaper is helping with the QLC disk (inaudible) conversion. So I just wanted to kind of get a sense of what kind of traction you're seeing with either very large enterprises or hyperscalers with that motion (inaudible) and whether you're seeing kind of some shortening of sales cycles as we kind of get closer to some of these conversion points.

Yes. Thank you. Let me address the hyperscaler first. Obviously, we -- I spoke about Meta in my initial remarks. The fact that we were able to deliver (inaudible) Flash or AC for their bulk data requirements at a price point that competed with their own software running on their -- what would have been their disk arrays, really speaks to the power of the -- of being able to use QLC and flash to compete with disc. And now that environment also benefited from the lower power and lower space requirements. And I think that's part of what will allow flash to compete against disk in this environment or increasingly in this environment as flash prices start to -- NAND costs 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 -- FlashArray//C has been an incredible grower for us, and that does compete largely with the hybrid disk market, and we think we'll be able to go after the non-hybrid that is the what's called the nearline market as we go into this new year. So we believe that -- thirdly, the 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 it's specifically because of the power savings that they're buying Pure products, or getting them initially to start with Pure products. So we think it's going to become an even bigger issue as we go forward. So we are starting to see that now in large enterprise.

Thank you, Meta. Next question please.

Our next question comes from the line of Wamsi Mohan with Bank of America.

Charlie, I was wondering if you could share some color around the outlook on IT spending into 2023, particularly for the storage market. And some of your 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 in storage is going to grow or decline and how much you can outgrow that market? And what's embedded in that in sort of that operating margin of 14% to 15%?

Yes. Let me start with sort of our view 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 speaking about the current economic environment and how that -- their prognostication for next year. The way we're looking at it is a roughly flat U.S. economy next year and perhaps a slightly recessionary international economy, obviously, varying a lot country by country. And as we go into that, we're seeing IT spending holding steady, maybe it's slightly up relative to the overall GDP growth. But in addition to that, what we are looking at is storage remaining relatively healthy relative to the rest of the IT economy. So we actually believe that storage might be up moderately next year. That being said, you're correct. In terms of our own results, we believe we'll continue to take market share. And we believe that we -- similar to this quarter versus our competitors believe that we'll be able to stay in the double-digit growth area. Perhaps a bit more moderate than our overall growth this year, but we believe still solidly well into the double digits.

Thank you, Wamsi. Next question, please.

Our next question comes from the line of Sidney Ho with Deutsche Bank.

I want to ask about your visibility beyond this quarter. I'm not asking specific for financial guidance for calendar '23 yet. But previously, you talked about having good visibility in 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 (inaudible) Goose would be one 1 quarter. So how would you characterize the pipeline in the first half of next year at this point? And maybe comment on demand trends between the enterprise versus commercial customers?

Sure. Generally, our ability to have visibility in the pipeline extends about 2 quarters. So current quarter plus 1, current quarter plus 2. So you're asking -- and that would extend to -- through Q1 of next year, not -- our Q1 that is of next year. And generally, we don't necessarily have visibility 3 quarters out, 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 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 -- but as I said, that our visibility into Q1, Q2 remains fairly good.

Thank you, Sidney. Next question, please.

Our next question comes from the line of David Vogt with UBS.

Maybe just a follow-up to Kevan's comments about preliminary margins next year and Charlie's comments about growth being well into the double digits next year. I know you mentioned, Kevan, that there's going to be some items that are not going to repeat this year -- excuse me, fiscal '23 versus this year. But just quickly kind of doing top -- back of the envelope math, it would suggest that your sort of incremental margins next year are going to be under pretty material pressure; if your margins are going to come (inaudible) in at 14% to 15%. Can you kind of walk us through what's really the incremental spend -- categories of spend that you're looking at next year, given where you are and sort of where the long-term operating model should shake out over the medium term?

Yes. No, I appreciate that, David. Yes, look, we're quite pleased with the overall margin expansion that we've seen this year. And 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 tailwinds. And we're thinking that it's approximately 1.5, 1.5 points to our operating profits this year. And really, it's kind of in 3 areas. We've talked about 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's a benefit -- a pick up there. And then there was slower-than-planned hiring during the first half as well. Now we've made really good progress, as you've seen on our hiring of talent, particularly in Q2 and this quarter. And obviously, that's going to 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 doing our first in-person sales kickoff in the new year. We haven't had that in 2 years --

3 years.

-- or 3 years. So obviously, we're considering that as we're looking at our operating margin and profits for next year.

Thank you, David. Next question, please.

Our next question comes from the line of Mehdi Hosseini with Susquehanna.

Just a quick follow-up for Charlie and the team. You have done a good job of expanding margin very diligently, keeping the OpEx very reasonable and realizing margin expansion. I just wanted to get an update on the strategy looking to the next 1 to 2 years, especially into next calendar year, perhaps as the enterprise budgets are more constrained. How is that strategy going to evolve? Are you going to spend more to capture more dollars of revenue or the strategy is to remain focused on having more leverage in the P&L? And I'm not asking for a guidance, but it would just be helpful if you could give us an update how the strategy changes into a rather challenging macro environment.

Absolutely. And it's a very fair question, Mehdi. So we are consistently focused on revenue growth. That being said, we never like to go back on margin and largely because it's about operational discipline, that 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 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 a good core product. But we're going to be very diligent and focused. And we also want to be just thoughtful about potential pitfalls in 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 Nehal Chokshi with Northland Capital Markets.

(inaudible) just very generic color regarding the contribution from Meta's Research (inaudible) Supercluster. Can you give a little bit more detail around that? And more importantly, trying to get a sense as far as what is the revenue growth excluding Meta?

You're right. Well, let me give it a shot, and then Kevan will give you -- fill in 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 strength and good business with Meta as we go forward.

So Kevan, I know there's a lot behind this quarter, so perhaps you can provide some of…

Yes. So I'll touch on the financial comparison Nehal. I hope you're doing well. When you think about the economics of our Phase 2 shipments to Meta, when comparing that to our Phase 1 shipments back in Q3 of last year. Without getting into specifics, we did make some modifications to the deal structure of Phase 2, 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 the same deal structure for Phase 2 that we used in Phase 1, revenue growth, frankly, would have 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 '22. So hopefully, that's helpful for you, Nehal, in terms of how we're thinking about it.

Thank you, Nehal. Next question, please.

Our next question comes from the line of Simon Leopold with Raymond James.

I wanted to see how you're thinking about product gross margins in light of the idea that memory prices appear to have come down and look like they'll be down meaningfully over at least 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?

Yes, Simon, a 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 5 years of experience of how this operates. And of course, as you well know, costs and prices operate on different time frames, and they are not 100% connected to one another. We compete with companies that utilize SSDs and therefore, don't get -- are not exposed specifically to the raw -- the cost of raw flash, whereas we are. Our point of view on this is that, as always, we tend to have advanced opportunity with a lower cost compared to our competitors, which doesn't mean that they won't discount in the market. So I suppose that we believe that we will see pricing come down sometime in the future, maybe not right away. We'll see prices start to come down. Overall, a good thing for us. It allows us to go after more of the disc market. One of the things that's very different this time around is that these -- this round of NAV reductions is going to make flash, especially with our products on the QLC side with FlashArray//C and S much more competitive with (inaudible) pure disk-based products. And to be direct, we're going to use any cost reductions we see to go after that market. So 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 to focus on the disk side.

(inaudible) Yes. And Teri, if I could jump in. I think it's really important here to just again emphasize the sustained and structural advantages that Pure has in 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 flash 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 well, a, being able to source 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. #2, to be able to make much more efficient use of that NAND, have faster time to market and just realize and deliver to customers significant reliability and performance advantages. And so you (inaudible) add it all up, I think this set of advantages was a huge benefit in the early days. But as we look at today's technology set, QLC, the road maps beyond QLC in terms of cost-effective NAND. It's just absolutely requisite to be able to deliver that technology to customers in a (inaudible) reliable perform in an efficient manner.

Thank you, Simon. (inaudible) Next question, please.

Our next question comes from the line of Matt Sheerin with Stifel.

Yes. As we think about modeling for next year, it looks like you're going to come up against some tough comps with Meta. And so are there expectations for contributions from that customer next year? And then as related to that, in terms of other hyperscale opportunities. Could you update us on what that pipeline looks like?

Absolutely. So on Meta, it's -- as we've identified, we shipped Phase I, by (inaudible) Metazone blog, there's -- they had indicated an (inaudible) exabyte to be shipped in total. So there's still more to be completed in that project for the (inaudible) RSC. There's no further guidance we can give you on the timing of that right now. We just don't have that for certain. So unfortunately, we're not able to provide additional insights into that. And in terms of other hyperscalers, conversations continue. 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. Next question, please.

Our next question comes from the line of Krish Sankar with Cowen.

Very impressive op margin of 15% last quarter and your guidance of 14% to 15% for next year. I'm just wondering, what is the op margin last quarter have been without Meta in the mix? I'm kind of -- you mentioned that you cannot quantify Meta revenue. But you kind of highlighted that 14% to 15% op margin for next year's guidance. So I'm kind of curious how to think about that with Meta in the mix? Because my understanding is Meta's op margin accretive since you don't go through the channel. Any color there would be helpful.

hey, Krish, this is Kevan. Look, when we think about Meta from an operating margin perspective, I think you -- it would be good to be thinking about that in terms of the company profile on operating margins. So I don't think that's a 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 put that in that category.

Yes. I do want to correct one statement, however, which is that, in fact, we do use a -- we do have a partner with Meta. It's an integration partner, and so there is economics involved in that.

Thank you, Krish. It looks like we have one more question in queue. So this will be the last question.

Our last question comes from the line of Eric Martinuzzi with Lake Street.

Yes. You talked about having a little bit better success on the hiring side. As we look at Q4, where is -- is that kind of equally distributed across R&D and sales and marketing?

I would say that we -- while we're continuing to hire in both and in particular on the R&D side, we are expanding overseas largely to take advantage of overall lower cost profile. And to make it more -- to be honest, to be just much more balanced as a company between our onshore and offshore headcount 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 to continue the growth, we have to continue to develop -- to improve our capacity on the sales side. So we'll be continuing to invest there.

Thank you, Eric. Before we conclude, I think Charlie has a few parting comments.

Yes. 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. And they're going to make -- and they are making us the preferred choice for leading organizations around the world.

I 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 Pure Star's third quarter fiscal year 2023 financial results call. Thank you for your participation. You may now disconnect your lines.