Nimble Storage's CEO Discusses F4Q 2014 Results - Earnings Call Transcript

Feb.27.14 | About: Nimble Storage, (NMBL)

Nimble Storage, Inc. (NYSE:NMBL)

F4Q 2014 Earnings Conference Call

February 27, 2014 5:00 PM ET

Executives

Cynthia Hiponia – Investor Relations

Suresh Vasudevan – Chairman, President and Chief Executive Officer

Anup Singh – Chief Financial Officer

Analysts

Brent A. Bracelin – Pacific Crest Securities LLC

Bill Shope – Goldman Sachs Group, Inc.

George M. Iwanyc – Oppenheimer & Co., Inc.

Katy L. Huberty – Morgan Stanley & Co. LLC

Aaron C. Rakers – Stifel, Nicolaus & Co., Inc.

Richard Kugele – Needham & Co. LLC

Amit Daryanani – RBC Capital Markets LLC

Nehal Chokshi – Technology Inside Research

Operator

Good day ladies and gentlemen, and thank you for standing by. Welcome to Nimble Storage Fourth Quarter and Full Year 2014 Earnings Conference Call. During today’s presentation, all participants will be in a listen-only mode. Following the presentation, the conference will be opened for questions. (Operator Instructions) This conference is being recorded today, Thursday, February 27, 2014.

and I would now like to turn the conference over to Cynthia Hiponia, Nimble Storage Investor Relations. Please go ahead.

Cynthia Hiponia

Thank you, Katia. This is Cynthia Hiponia, Nimble Storage Investor Relations. And I’m pleased to welcome you to Nimble Storage Q&A conference call and webcast to discuss its earnings results. Joining me are Suresh Vasudevan, Nimble Storage CEO and Anup Singh, Nimble Storage CFO.

After the market close today, Nimble Storage announced financial results for its fourth quarter and full fiscal year 2014. The shareholder letter, earnings press release and a live webcast of this session are available on the Investor Relations page at the Nimble Storage website. A replay of this webcast will be available for 45 days. During the course of today’s call, our executives will make forward-looking statements within the meaning of the federal securities laws.

Forward-looking statements are subject to known and unknown risk factors and assumptions It is not possible for us to predict all risks, nor can we assess the impact of all factors that may affect our business or the extent to which any factor may cause actual results to differ materially from those contained in any forward-looking statements that we may make. Factors that could affect our financial results are detailed in our filings with the Securities and Exchange Commission, and may cause our actual results and performance to differ materially and adversely from those anticipated or implied by our forward-looking statements.

Please note that any forward-looking statements made today are based on assumptions that we believe to be reasonable as of today. We undertake no obligation to update these statements after today’s presentation to confirm these statements to actual results or the changes in our expectations, except as required by law.

During this call, we present both GAAP and non-GAAP financial measures. These non-GAAP measures have limitations and you should not consider them in isolation from or as a substitute for our GAAP financial information. For our quantitative reconciliation of GAAP to non-GAAP measures, please refer to today’s shareholder letter and press release regarding our fourth quarter and full year fiscal 2014 results, which are available on our Investor Relations website.

Let me now turn the call over to Suresh, Nimble Storage, CEO.

Suresh Vasudevan

Thank you, Cynthia. Good afternoon and thank you for joining us on today’s call. This is our first quarter as public company. I would like to start by first thanking all of our shareholders who have belief in us. I would also like to thank the 600 Nimble employees whose dedication and innovation made the IPO possible. Lastly, thanks to our 2,600 plus end customers and our 900 plus channel partners who placed their trust in us.

Given that, this is our first update to shareholders. we want to start by reiterating the core innovation that Nimble has brought to the industry. We were founded on the premise that we could transform to its architectures by leveraging two key external destruction, flash and cloud connectivity. Our belief was that flash required a fundamental redesign of the storage system from the ground up and that incumbent vendors who were incorporating flash into disc-centric architectures would not be competitive.

We also believed that the traditional approach of deploying on-premise software to monitor storage was archaic and the cloud based monitoring could radically simplify storage management. We completed our founding belief into a platform based on two fundamental innovations. CASL, our file system software that is industry leading at leveraging flash and disk, InfoSight, our cloud based management software.

Our CASL file system software delivers a compelling value proposition to end customers. First, it is dramatically more performance and capacity efficient, which translate into lower capital costs and substantially, lower operating costs for our customers.

Second, capital is industry leading in its scalability and addresses the broad range of workloads, ranging from performance-intensive flash centric workloads to capacity-intensive disk-centric workloads. Third, its orders of magnitude better at application data protection and recovery.

Our InfoSight cloud based management software leverages deep data analytics and the rich telemetry embedded within our platform to proactively monitor the health, capacity, performance and numerous other attributes about customer-deployed system. It provides real-time operational insights to our end customers and to ours, thus radically simplifying storage operations and improving the quality of support.

I will now turn to our operational performance. We are very pleased with our performance during Q4 of fiscal year 2014, which capped off a very strong year for us. Our revenue in Q4 grew 107% over Q4 of fiscal year 2013 to $41.7 million and our full year, fiscal year 2014 revenue grew by 134% over the previous year $225.7 million. This growth stands from strong execution along all of our growth dimension.

The first is new customer acquisition as we added a record 527 new end customers during Q4, ending the year with an installed base of 2,645 end customers, an increase of 142%, compared to the 1,095 customers we had a year ago. Secondly, even as we grow the base of midsize enterprises, we are also executing very well on diversifying our customer focus to also add large enterprises and cloud service providers among our customers.

This third growth driver is international expansion. EMEA and Asia-Pac contributed nearly 17% to our bookings during Q4, the highest ever contribution for us. The fourth growth driver is repeat bookings from existing customers, even as we added new end customers at a record base during Q4, over a third of our bookings came from existing end customers.

While market momentum is allowing us to build a robust channel partner ecosystem and feeling growth for us, that’s getting 97% of our bookings during fiscal year 2014, flowing to our channel partners. We have more than doubled our channel partner base during the year to over 900 channel partners. The growth that we saw in FY 2014 and during Q4 FY 2014 is evidence of our broader market opportunity and we received numerous accolades throughout the year for our technology leadership and our execution.

During the year, we were named originally in our very first appearance in Gartner’s general-purpose disk array magic quadrant. During Q4, TechTarget recognized us as offering the best hybrid flash product in its Modern Impact awards. CRN named Nimble an emerging technology vendor for the third time. We showed a record 916% in Q4 spanning a broad range of performance and capacity profile across a wide variety of workforce, and discovering the broad applicability and horizontal nature of our platform.

Our technology differentiation continues to expand. We now have 200 customers that have deployed our Scalar software and we are on target to achieving great sales for Scalar in the very near future. Scalar is a major competitive differentiator, given that very few storage products in our industry are able to support Scalar functionality.

During Q4, we announced the data availability of a key capability within InfoSight that allows our channel partners to monitor customer deployed systems when customers are ready to providing to our channel partners. We also announced the data availability of advanced performance marketing capabilities among other enhancements to InfoSight. We expect all of the data features to become GA during Q1 of fiscal year 2015.

At this juncture, let me turn this over to Anup to provide a brief overview of our financial performance.

Anup Singh

Thank you, Suresh and good afternoon everyone. I will do a brief financial overview; since we have already supplied a lot more detail in our shareholder update, which is available on our website. We hope you like our format and appreciate any feedback you may have.

Q4 was a very strong financial quarter for Nimble. During Q4 and for all of fiscal 2014, we demonstrated significant improvements in all of our metrics. We continue to increase our market share and made significant progress towards achieving our long-term financial objective.

In addition, we strengthened the balance sheet, as we completed our IPO in December of last year. Our revenue in Q4 of $41.7 million was up more than double from $20.2 million in Q4 of fiscal 2013. We continued to see strong growth in new customer acquisitions, success in our land and expand strategy and an increase in the number of dealers of over $100,000.

Our non-GAAP number for gross margin of 67.2% was at an all-time high and up from almost 62% in Q4 of prior year, as we improved our product, as well as support and service margin.

Our non-GAAP operating margin was negative 21% as compared to a negative 46% in Q4 of prior year, due to both improvements in gross margin and operating expense leverage, even as we continued to invest in the business.

We are also very pleased with the results for the entire fiscal year. For fiscal 2014, our revenue of approximately $126 million was up by 134% versus fiscal 2014. And non-GAAP gross margin was 55.4%, three points above our gross margins from fiscal 2013, and non-GAAP operating margin was negative 27%, compared to negative 47% in fiscal 2013.

We executed again, all objective of improving operating leverage every year. In addition, we ended the year with cash of approximately $208 million, including approximately $177 million of net proceeds from the IPO. Strong management of the balance sheet in Q4 allowed us to generate our cash flow from operations of $2.2 million, as free cash flow improved to negative $3.3 million.

So moving to guidance for Q1 of fiscal 2015. We expect our revenue in the range of $42 million to $44 million and operating losses between $11 million and $12 million. This translates in to a non-GAAP EPS loss of $0.16 to $0.17 a share assuming approximately 70 million shares outstanding.

As a reminder, Q1 a typically our seasonally slowest quarter and Q4 our strongest. As we began fiscal 2015, we continue to focus on our financial objectives, which are: number one driving strong growth and the top-line and increasing our market share, number two, enhancing and maintaining our growth margins, which are best Hybrid for the storage industry and number three, driving sequential improvement in operating the margin every year.

With that, I will hand it over to Suresh.

Suresh Vasudevan

Thank you Anup. Nimble was founded on the belief that major confirmation on the storage service and we believe we have an opportunity as the leader of the transformation our execution during fiscal year 2014 and during Q4 brings up one step closer to that goal.

We want to thank our customers and partners once again for inviting us, while investors for the company and our employees for the dedication and floor execution.

Anup and I are now happy to take any of your questions. Operator.

Question-and-Answer Session

Operator

Thank you sir (Operator Instructions) And our first question comes from the line of Brent Bracelin with Pacific Crest Securities. Please go ahead.

Brent A. Bracelin – Pacific Crest Securities LLC

Thank you. I guess first one for Anup, I wanted to talk a little bit about the linearity you saw in the quarter, it looks like DSO is down say too much that was just tied in through linearity or any color around the demand trends you saw on the month of January and then we’ve seen some slowdown in other vendors would be helpful.

And then Suresh if you could just give us an update on the Nimble, its a software, scale up software, you mentioned 200 customers it’s a lot than we had thought, are those most interface customers, cloud [indiscernible] software.

Operator

Brent, could you repeat your last portion of the question, I’m sorry you were cutting in and out a little bit.

Brent A. Bracelin – Pacific Crest Securities LLC

I’m sorry. The question was around software and the 200 customers and where that’s enterprise or cloud provider driven any color there on the feedback of scale that would be helpful, Suresh.

Anup Singh

So, Brent this is Anup. I take the first question on DSO. So, as you saw our DSOs improved in the quarter and actually it reached an all time low for the company. I would say couple of things are going on, which actually helped DSO in the quarter. Three things I would say, the number one, as a company we’ve definitely increased our emphasis on accounts receivables and DSO. As a matter of fact, if you look at the trend for each quarter of last year, you did see a sequential improvement in DSO through every quarter. So, a part of it is just, so the emphasis we’ve taken in from operational standpoint.

Number two, as you know, we started to transition to distribution, so as we do a migration to Avnet and distributor, it did actually a Cisco DSO overall and number three, we did see a benefit from the linearity of invoicing in the quarter.

So, obviously as I look kind of the revenue, which we booked in the invoicing we did, it was relatively liner across the quarter and that also supported the improvement in DSO.

Suresh Vasudevan

And Brent as it relate to scale our software first of all we were I mean very thrilled with that we saw in Q4 the fact that there are 200 customers deploying us across large numbers of system is, is very quick progress in one quarter how many people are based on the scale-out.

I want to start by just saying one thing about our scale-out. It’s a software release that will become as part of our architecture and over time it will become part of every software. So, it’s not as just you have to buy special equestrian equipment for other than in our industry often require specialized switches and specialized versions if you will. For us is part of a basic architecture. So over time we expect this to be in everyone of our customers hand.

Let me give you a couple of examples of the kind of customers that are deploying scale-out and why and I will give you a flavor for where we see this is going. At one extreme – one of our large financial service customers, extremely large growing, very quickly for us, have the expanding capacity quite aggressively, where they adding more and more disk shelves to our storage system. But they are getting to the point, where even the maximum amount of capacity, starting to overrun the capability of any single node.

For them scale-out is a very, very effective way of scaling the environment hundreds of terabytes, while still taking all of the capacity or the performance as a single system. So, that’s a high end customer.

At the other extreme, I will give you another example of the healthcare customer, one of the earliest customers nearly two and half years ago, they merged with another company and they have multiple nodes, what they saw was not so much and need to aggregate from a capacity or performing standpoint. What they saw was instead of managing the system, the standalone system by deploying scale-out, they can see all of this as one full of resources, much simpler to manage.

So, I think we will see scale-out go to both large enterprises as well as midsize enterprises and service providers over timeframe.

Brent A. Bracelin – Pacific Crest Securities LLC

Very helpful. Thank you.

Operator

Thank you. Our next question comes from the line of Bill Shope with Goldman Sachs.

Bill Shope – Goldman Sachs Group, Inc.

Okay thank you. Given the substantial strength you had in gross margin this quarter, can you give us some color on how we should be thinking about the swing factors for the near-term trajectory for both product and services margin.

Anup Singh

Sure. So, Bill I’ll take that one. This is Anup. So, as you know our target long-term for gross margins is 63 to 65 that sort of a range. The best way to look at our gross margins is break it up and look at the margin for product and margin for supporting the service.

So, if we start off and take a look at our margin for product, long-term we expect our margin for product to be in the 66 to 67 sort of range. We are currently around 69. During the quarter so in Q4 we did have the benefit of reduction in some of the cost of components in this case it is drive, so we did have a reduction in HDDs as well as SSDs that we intend to pass on to the customer in future periods as is normal in our industry, so usually you got the benefit there of timing and differences from new experience reduction in cost when you pass it on.

In the medium-term, you’ve got a few things which is going on in the business, which it could be a bit of a drag on margin for products. For example, our international expansion is continuing, we’re making significant investments in the channel and building that out and so on.

So, even if we continue to benefit from economies of scale we do have some things as well that they could move the needle in the opposite way. So to net-net on a quarterly sort of basis on margins of product will move around ladder, but long-term our estimate there is 66 to 67. If we look at our margin for support and service, our margins there are increasing as we grown our installed base of customers, as we are seeing strong growth in revenue.

Also we’re getting efficiencies from our support infrastructure through the benefit of [indiscernible] amongst other things. Long-term or medium-term we expect our margins to support and service to approach about 60%. In the near-term, however investments are ongoing to support our growth to expanding our depots internationally building our service inventory and so on.

So, the short answer is quite is a long answer is that our model has a whole long-term for gross margin 63 to 65, for products about 66 to 67, support and service would be approaching about 60. Does that make sense?

Bill Shope – Goldman Sachs Group, Inc.

Yes, that makes sense. It sounds like there is some normalization in the near-term, long-term targets unchanged.

Anup Singh

That’s right.

Bill Shope – Goldman Sachs Group, Inc.

Okay, and then if you can give us some more color on your progress in supporting Fibre Channel this fiscal year this coming fiscal year, and given that you already having success versus Fibre Channel competitors. How should we think about this impacting demand trends once it is available?

Anup Singh

Sure, let me start by first reiterating our timeline we continue to be on track those in Fibre Channel at the end of this fiscal year, and that’s about the timeline that we are working again that’s very much on track end of the fiscal year is, when we will have this other capability.

Now it is true that nearly 40% of the time that we compete and win, we’re winning against Fibre Channel sometimes it has highest 55%, 60%. But our competition is not just [indiscernible] as Fibre Channel is an FX and [indiscernible], and we do very well against Fibre Channel product if you will, and that segments right technology healthcare and so on, at the same time there are several large enterprises that have already made an investment in Fibre Channel and fitting into their existing infrastructure they must have and much of they like our technology in the value proposition, Fibre Channel becomes a stumbling to making progress in those accounts. And so I think what you will find is that our available market expands risk Fibre Channel and our win rates also go up with Fibre Channel compared to where we are today.

Bill Shope – Goldman Sachs Group, Inc.

Okay, great. That’s very helpful. Thank you.

Operator

Thank you. Our next question comes from the line of George Iwany with Oppenheimer. Please go ahead.

George M. Iwanyc – Oppenheimer & Co., Inc.

Thank you for taking my question. Yes, can you give us a sense of how you see the rest of 2014 hereafter the April quarter do you see momentum building or how you get closer to the Fibre Channel launch as well.

Anup Singh

Yes, as I talk about when it comes to Fibre Channel, I would think of that as a capability that’s available at the end of the year, so it don’t make any difference to this fiscal year, it’s mostly something that will affect us in the next fiscal year, and we consciously chosen to think about guidance on a quarterly basis and so most of – sort of you have heard Anup briefed the guidance for this current quarter. I think that remains our guidance, the comments I would make is when you think about the fundamentals of where growth is coming from, which is acquiring new customers, having our existing customers come back and become part of the procure again if you will land and expanding business model. The international expansion opportunity that we have and the increase in ASP, those four growth drivers are very much intact and as we went through Q4, we are confident about all of those four continue to drive growth for us. I won’t get any more specifics in that and I think for the rest of the fiscal year.

Anup Singh

I guess I would add in and George this is Anup Singh, just to ask what drove that I mean look, Q4 for us is extremely strong and I think as we look ahead to next year, the one thing that we feel sort of pretty good about traction in the business, but also we intend to drive that sequential improvement in leverage every year. So we did for the past few years and our expectation is that if you look at our losses on a margin sort of basis, you should expect improvement in operating sort of margin every year.

George M. Iwanyc – Oppenheimer & Co., Inc.

All right and just digging in, into the international expansion opportunities, can you give us a sense of how do you expect Japan to go with the Toshiba partnership and then after that, just Asia in general, a little bit of commentary and the opportunity in India and Europe as well?

Suresh Vasudevan

Sure. I’ll start by saying, international has grown as I mentioned earlier well for as when we look at year-over-year basis has expanded really well and Japan in particular with the Toshiba relationship with an expanding opportunity. Toshiba is a very, very strong local partner and our firm belief was that the best way to capitalize on the opportunity in Japan to partner from under that very strong local presence. So we are very excited about that Japan might close for us.

Having said that, it’s also true that Japan in particular takes a while – ensure to take a while to penetrate the customers in Japan and that’s why the local partnership that’s so important. So we are more excited about the long-term opportunity while not getting specific about what short-term might will in Japan for us. But set back beyond Japan, and think the Asia-Pac and Europe, just overall international opportunities. There are two things that we are constantly book it on as an executive team. On the one hand, even in most of the share market for the rest of U.S. or Canada or UK, Australia, as much as we hire build up presence quickly in the last year or two years. We thought that be an integrated growth for the opportunity.

So one big part of our priority is going deeper in markets where we have strong presence, because of that much more opportunity to left, at the same time, we want to diversify our revenue base, so that we are starting to make headway in other international markets where in some we have just one local team. In others that we have no presence at all, it’s a constant balance between how do we go deeper in markets where we have strong presence while adding new markets if you will. The best thing I would say as a cutback, we do expect international revenues to continue to strengthen as a portion of our overall business, but we expect a lot of growth throughout our share markets as well.

George M. Iwanyc – Oppenheimer & Co., Inc.

Thank you. And one final question is how should we look at headcount additions in the next quarter, and kind of as the year progresses?

Anup Singh

Yes. So this is Anup here, so we don’t offer exactly the guidance in terms of numbers of employees and so on for future quarters. However, I would say if you look at growth and headcount for the last few quarters. So Q4 just ended, we added a total of net 64 employees, Q3 was 64 as well. So I think as you look ahead for Q1, the investments that we are making in future quarters, you probably should model approximately about the same number of growth in the coming quarters as well.

Suresh Vasudevan

I would just also add in terms of how we are thinking about sort of investments and business models, fundamentally what will limit our investments is our belief about how quickly we can invest talent without sort of valuing the quality of the turns we are brining on board and how quickly can you get them productive. And so whether that’s in R&D, whether that’s in sales and marketing, we continue to operate as the TC that the market opportunity for us is big and driving investments to capture the opportunity quickly is a very big priority for us. It so happens that the pace at which we can invest [indiscernible] that we still have double operating leverage over time, but our fundamental priority remains on driving growth, just given the size of the opportunity we’re competing for.

George M. Iwanyc – Oppenheimer & Co., Inc.

Great, thank you.

Operator

Thank you. our next question comes from the line of Katy Huberty with Morgan Stanley. please go ahead.

Katy L. Huberty – Morgan Stanley & Co. LLC

Hey, thanks. With the big step-up in the number of new customers, just what you would expect to see of the seasonal pipeline build or do you think that results us some tailwind from either the free marketing on the back of the IPO or changing the distribution model and ramping at that?

Suresh Vasudevan

Okay, the answer is a bit of all of those. So let me step back a little bit and say seasonally, the first thing I would say Q4 is always our strongest quarter. we typically head into Q4 where a very strong pipeline and that pipeline is often sort of new customers and so that’s a factor that’s laid a role in how much the new customer acquisition jumps for us this quarter.

The other factor aspect [indiscernible] is the channels for us. It’s not just that we are adding more channel partners. The amount of engagement we have with channel partners that we have brought on board, in fact, that’s a high priority for our deeper engagements with our channel partners, and that’s working well for us.

Specifically, what we are seeing is more and more of our channel partners are able to drive deals to a very large extent in a sales cycle without having to assist from us and that’s helping sort of bring more new customers into our fold. That’s certainly, a second factor that played a role.

It’s really hard for me to exactly quantify the impact of the IPO. It’s very clear that we saw a major marketing benefit from the IPO. It’s also clear that the number of calls that we typically are on about is the company going to around unlike your technology, but I’m concerned about buying some of builds have sort of certainly gone down as we are finding more and more customers comfortable with us. How can we translate that in terms of its direct impact on new customer acquisition?

Katy L. Huberty – Morgan Stanley & Co. LLC

Okay, that’s great to hear. And the gross margin – the product gross margins and better disk drive costs, was that one-time deal to buy drives at lower prices or you’re getting better pricing, because of a new level of scale that you’ve reached, are you broadening suppliers if any color around why you’re able to see a nice improvement in cost for that?

Suresh Vasudevan

Yes, absolutely. The biggest driver in the fact that we are moving towards having, so in the case of disk drives, we are increasing the build source and that allows us the ability to have better negotiating power, if you will and take the best sort of price wise, and that – so that’s one key benefit that we saw in the disk drive arena. on SSDs, we basically were able to jump on to the next generation of SSD. So another version that’s probably same supplier if you will, but the fact that we were able to qualify newer generation SSDs helped us. Over time strategically, we build the dual sourcing or multi-sourcing all of the components and we should expect that to yield benefit, so this is not a one time deal or special purchases, it’s just the fact that you are not able to have benefit plus a management on our key components.

I want to highlight, what have Anup typically in our industry, you are familiar with this offline component cost decreases in particular disk drive cost decisions, just make their way back into customers end, and so that it is mostly a timing benefit as you will.

Katy L. Huberty – Morgan Stanley & Co. LLC

Okay. Got it. And then lastly, Anup I know you’ve run through disk drivers et cetera with DSO, but I want to ask the question a little bit more high level, because I don’t think I’d ever seen a price storage company hit a zero day cash cycle even for a quarter, so it’s real impressive to see what you’ve done in that front. I just wonder whether there is something different about how you’re running this supply chain or operation versus first rest of the industry.

Anup Singh

If we did it’s part of the secret sauce of Nimble, so not sure I can tell you what this is. But no, I think look, we’ve got our goals and target and turn and we spend a lot of time on execution, again sort of objectives days of DSO, the days of inventory, which also you might see improved against the last few quarter. And so, a lot of efficiencies in our supply chain overall we’ve talked about we had moved our manufacturing to Flextronics, such as our inventory management it is improving in addition to obviously the factor they talked about DSO.

So if I think about the objective and sort of the target from both sort of DSOs and as well as the cash to cash sort of the cycle. As you said in the latter our target is 20 days, the cash to cash. DSOs especially I would expect the probably be in the 35 to 40 days sort of range. I do think we got some benefits because of the Q4 effects and our linearity of invoicing as I mentioned was better in Q4 as compared to some other quarters.

But going forward, I would expect this to be in the 35 to 40 days for DSOs.

Suresh Vasudevan

I will just underscore one aspect of that Katy, which is good; frankly we can’t have a December in every quarter. The fact that December the stock linearity and helps with how shipments work is also helpful.

Katy L. Huberty – Morgan Stanley & Co. LLC

Sure, that makes sense. Great job and execution guys.

Suresh Vasudevan

I appreciate it.

Operator

Thank you. Our next question comes from the line of Aaron Rakers with Stifel. Please go ahead.

Aaron C. Rakers – Stifel, Nicolaus & Co., Inc.

Yes, thanks for taking the question and congrats on the quarters as well. I want to go back, I know you’re not going to give any specifics on headcount growth but I want to ask differently as we look at the guidance that you guys have laid out. I would like to understand how you’re making assumptions around productivity expansion, be it either from a total sales force perspective, or relative to your channel based, which drove about 51% of deals originated in this last quarter. So any kind of context of what assumptions you’re making, should we expand from what we seen reported nice as we look through fiscal 2015?

Suresh Vasudevan

Yes, Aaron I would say, let me talk just the broader question of sales productivity. Again, I’m not going to comment on specific productivity measures, but I will say, we are – as we look at our Google Now business model, not just in this quarter, but sequentially over the quarters. Our sales productivity has been on a nice ramp and on the trajectory that we wanted to be, so and we also have a very good understanding of what happens when we bring on new sales team and what’s their products – how long it takes for them to get on to the ramp of an mature team and how long before a mature team gets to close program if you well. And so there is a steady progress in our productivity that we’ve been exhibiting to for some time. This specific wins that brought down to, well, anything with a larger topic.

Now this productivity has something that will affect in that as our more and more sales team become mature sales teams and a mix of matured will be structured into the maturity. The productivity should be aided. What drags it down is that as we get more international and we get into larger sales cycles with enterprise customers there tends to be a damping effect on overall productivity. That’s really the longer term modeling price that we take on and we think about what’s possible during the year, what’s possible next year and so on.

Specifically when it comes to guiding at a quarterly level there’s one factor that does play role, Anup mentioned this earlier is the fact that Q4 tends to be much higher productivity than Q1 just for the first quarter if you will was Q4 becoming more of the accrued rate and another rate that we typically get. So that’s another factor that we get into account and we think about how to guide.

Aaron C. Rakers – Stifel, Nicolaus & Co., Inc.

Okay. And then just maybe to build on that, I guess when look at, I think those 366 total deals north of $100,000 this last fiscal year, can you just remind us where we stand in terms of average yield size? I think the last quarter you had about 42% of total bookings at 100 days less yield sizes. And then I’ll just throw out the final question. Any incremental thoughts on kind of monetization of InfoSight give the clear traction that you’ve seen with that service offering?

Suresh Vasudevan

Yes. So let start with the first part of your question. Our average deal size across all kind of customers was in the mid 60s. One of the things that tends to happen when our new customer acquisition jumps by as much as it did in Q4, it tends to have sort of a flattening effect on our overall ASP. Then we look at the number of deals about 100K both sequentially and from a year-over-year perspective it grew very nicely. So we still have a large of deals of 100K and that’s progressing extremely well. The overall average across all kinds of customers was in the mid 60s.

We talked about InfoSight. So there are two answer to this, one answer is it’s not a separately licensed revenue stream and as we know its part of the entitlement that all of our customers get. But we fundamentally see three rays, which aids our financial model. The first is simply the fact that it allows us to have a much more healthy support gross margin Anup talked about the fact that our productivity and supporting services is progressing nicely thanks to InfoSight. Just as we look at for example how many cases that are supporting gears can handle, how many arrays can an individual supporting gears tackle? We are seeing very significant productivity increases on a year-over-year basis and that’s the first form of money division.

The second form of money division is really the fact that InfoSight allows us to have visibility into our customers’ expansion need. As an example, just in the last six months there were nearly 250 customer transaction around expanding capacity, expanding flash, upgrading controllers. InfoSight allows us to have those conversations well before a customer reaches the point of saying what shall I do next about storage need.

The third and perhaps the most important one that we are passionate about is simply that it creates an enormous amount of customer goodwill. It’s really how to quantify the national benefit of how quickly we’re able to resolve cases and that causes repeat deployments for us and that still has the most impact if we see from InfoSight.

Aaron C. Rakers – Stifel, Nicolaus & Co., Inc.

Thank you very much.

Suresh Vasudevan

Thanks Aaron.

Operator

Thank you (Operator Instructions) Your next question comes from the line of Richard. Kugele of Needham. Please go ahead.

Richard Kugele – Needham & Co. LLC

Good afternoon gentlemen. Just a couple of questions. First I just wanted to ask a little bit back into the international side. That was a pretty big increase in the quarter to 17%. Can you just talk about how – what’s driving on a discount, maybe you added a significant number of channel partners and can you break that out or do you need to see the first directly and then I’ve got some follow ups?

Suresh Vasudevan

Sure. So international for us is really EMEA and Asia-Pacific and both EMEA, Europe and Asia did really well for us in Q4. Our overall business model is not different internationally than it is in the U.S. and that all of our business flow to our channel or virtually all of our business flows through channel. So we are getting partners on board that is a key part of how we go to market, but being complemented general relationships with direct sales presence. Some of the markets where we have strong presence, where we are maturing quickly U.K. is a place where we’re seeing strong traction I have been there for some time now and we are seeing very, very strong growth in the U.K. if you will. The same is true with Australia; it’s one of our most mature market. We have quite a strong presence locally in Australia, that’s doing well.

Scandinavia listing good growth, but we have operations in several countries and we are seeing the same model for that in all of these markets as well. So nothing unique about what’s happening there other than the fact that as we lean into the market for a while we’re seeing traction with customers and that’s complementing the growth.

Richard Kugele – Needham & Co. LLC

And is there also a consistent average customer sale size between international sales in the U.S.?

Suresh Vasudevan

There is now a noticeable difference in both whether it’s a mix of large customers and midsize enterprises or the average size of customers that we see very, very similar to what we see outside as well.

Richard Kugele – Needham & Co. LLC

Okay, then my final question is just on the scale of data. How should we be thinking of that relative to the existing customer base? Will that be something that the existing customers will be able to upgrade their systems to or relatively more of a go forward option?

Suresh Vasudevan

It’s a great question. It was a real core part of our design philosophy to not have scalar be either disruptive or request special constraint switches and pillion. And so for us its software release that is available to every one of our customers. One of things that’s sort of helps us to have a very high availability profile within our customer base is that when we launch a new release import tax allow us to surgically target Rich customers they should put it into the release and gradually expand the base of people that are deploying us. And that’s what we’ve been doing with scale-out.

We will very soon get to a point where it will be eligible for all of our customers and that will be part of their embattlement. They can all upgrade to scale-out whether or not they choose to plus a multiple nodes, even a single node will be adding some of the functionality for scale-out software.

Richard Kugele – Needham & Co. LLC

And you would anticipate that if they did move to scalar that it will pull with it an additional either storage trays or systems tray?

Suresh Vasudevan

That’s right. What it does is two things from a go to market perspective. The first thing that it does for us is it immediately allows us to compete in environments that are – that require hundreds of thousands of payout, and hundreds of terabytes of capacity. So very, very large independent deployment we can now compete and have a single system in order to meet those requirements, and that’s one big benefit. The other benefit is in terms of brand and expand, it just allows for more easy incremental expansion for customers that we’ve already – that are within our base and it allows us to keep deploying additional work loads and so what you see sort of land and expand benefits as well.

Richard Kugele – Needham & Co. LLC

Okay great. Thank you very much.

Operator

Thank you. The next question comes from the line of Amit Daryanani with RBC Capital Markets. Please go ahead.

Amit Daryanani – RBC Capital Markets LLC

Hey thank guys for taking the question. I just had a couple of quick follow-ups and something you have been talking about. So, one on the ASP side, can you provide any color on the difference between the new wins and then the larger enterprise guys in terms of the ASP differential and you said you brought that down a little bit.

And then two, since there are no long-term guidance there, is there any sort of breakeven point in terms of revenue leverage in the model and that will be about it.

Suresh Vasudevan

I start with the first part of the question which is sort of color on ASP businesses between either large enterprises or small enterprises on new customer versus repeat customer. I would say even in large enterprise typically when we engage with the larger enterprise its not often that we immediately see very, very large deals.

The first project for many of our larger device customers, for many of our large service provider customers always start with the project and ASPs are higher than [indiscernible] enterprises, but the first deal with larger enterprises often not very, very different. What tends to happen is the propensity of large customer to come back and deploy us for what more and more workloads and then deploy larger systems it was much higher and that sort of on the ASP side.

Anup Singh

Amit, this is Anup. I take the question on guidance on breakeven. So, a reminder as we’ve articulated throughout our process including the road show is that, our strategy is to continue to drive strong growth in sales and increase our share in the market. At the same time, we’re also investing to build out our platform. Our road map is which and there is a lot of innovation that we can do as a company and we are doing as a company.

However, at the same time as I mentioned earlier on, we are demonstrating improvement in leverage every year, even as we are investing to drive that growth in revenue. The last thing on breakeven if you look at the breakeven also from the free cash flow sort of standpoint, we actually expect to be free cash flow breakeven are positive several quarters in advance of breakeven on a operating income sort of basis. And this is because of the fact that we usually invoice upfront for supported maintenance, which is about three years on average. So, our margins from cash flow will always to be ahead of margins in the PNL. Is that make sense?

Suresh Vasudevan

Maybe I just add one of the comment to that as well Amit, which is for us trying to quantify the breakeven point in terms of a specific revenue number is perhaps it’s not so critical at thing what is the growth rate. To the extent that we feel we can continue to have good sales productivity and we can induct more sales people, while making sure we are making process on productivity to be extent that they have gross margin that’s healthy what we are asking is continuously improving the leverage.

And that point, our goal would be to invest aggressively and so depending on the growth rate if the breakeven point begin sooner or later every time sort of make sure that we are working to the fundamentals what our productivity, what our gross margin and how can we drive growth from more investments in sales and R&D and so on.

Amit Daryanani – RBC Capital Markets LLC

Great, thanks guys.

Operator

Thank you. Our next question comes from the line of Nehal Chokshi with Technology Inside Research [ph]. Please go ahead.

Nehal Chokshi – Technology Inside Research

Yes, thanks for taking my question. Some of the prospect hearing from some of your competitors and hoping that you can address this. Is that Nimble Storage has a dual controller, but it is a active/passive architecture. And if that is not on the roadmap, why is that not on roadmap?

Suresh Vasudevan

Yes, interesting question. I will talk by saying if you think about the difference between active/passive or active/active. So, let’s talk about why do I have to control in the first place. The fundamental reason they have two controllers, is to make sure that when one goes away, when system is still [indiscernible] no interruption [indiscernible].

If I have two controllers both doing work then each of my controllers is being leveraged for the cost side particular controller. If I had active/passive then one of those controllers is not doing work, while the other one is doing. So, I’m incurring more cost in my system from the perspective of the application itself you are delivering availability and you are mentioning whatever performance need for the controller.

Our own perspective is that the cost involved in adding the controller, while beginning an active/passive architecture vastly [indiscernible]. So, the higher cost is roughly got by one key benefit that most of our competing architecture really difficult to deliver.

Which is that when you have an active controller card, two things happen. If you have a failover then your operating integrated mode because instead of two doing work, you only have one doing work for us a consistent performance was really important.

The second thing that tend to happen the disruptive software upgrade tend to be difficult in active/active configuration. And for us it was far more important to say, the storage environment will survive failures and never take applications down. So, fundamentally we believe resiliency, availability and a consistent performance experience trumps the cost benefit from perhaps having both the controllers do work.

We don’t actually have a roadmap if did not load with active/active, you don’t see the need do that and you actually don’t see that ever as a competitive barrier when we are competing.

Nehal Chokshi – Technology Inside Research

Okay. And just a follow-up on that, the fact that you guys have is [indiscernible] architecture also addresses the fact that you have the ability to – have the no performance degradation or you have the no performance degradation. But you have the ability provide all the performance that an active controller architecture may be able to provide add some more cost point. Is that essentially correct.

Suresh Vasudevan

From a performance standing perspective active/active or active/passive – from a performance standpoint it does have as much of an impact as the fact that we can aggregate multiple systems. We are aggregating the performance [indiscernible] of the system. So, you can start the capability that we have is you can start with Nimble and the system that maybe 10,000 IOPS and take it all the way to hundreds of thousands of IOPS without ever disrupting an application, very few product if you can do that.

That’s really the ability to aggregate [indiscernible] that is a much more performance than in active/active versus active/passive debate.

Nehal Chokshi – Technology Inside Research

Okay. Thank you.

Operator

Thank you. And I am showing no further questions in the queue at this time. I would like to turn the call back over to Ms. Hiponia and management for closing remarks. Please go ahead.

Cynthia Hiponia

Thank you. On behalf of Nimble Storage, thank you everyone for joining us today and we look forward to updating you again on our next earnings call and I believe Suresh has a couple.

Suresh Vasudevan

I would like to say thanks as well. Thanks to our shareholders for your belief in us once again and thank you to all of our employees for making the quarter successful. Thank you.

Anup Singh

Thanks.

Operator

Thank you ladies and gentlemen, this does conclude our conference for today. Thank you for your participation. You may now disconnect.

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