Nimble Storage's (NMBL) CEO Suresh Vasudevan on Q3 2017 Results - Earnings Call Transcript

| About: Nimble Storage, (NMBL)

Nimble Storage, Inc. (NYSE:NMBL)

Q3 2017 Earnings Conference Call

November 22, 2016 05:00 PM ET

Executives

Elaine Gaudioso - IR

Suresh Vasudevan - CEO

Anup Singh - CFO

Analysts

Rich Kugele - Needham & Company

Alex Kurtz - Pacific Crest

Rocky Motwani - JPMorgan

Nehal Chokshi - Maxim Group

Steven Fox - Cross Research

Mack Brown - Goldman Sachs

Maynard Um - Wells Fargo

Ari Klein - BMO Capital Markets

Srini Nandury - Summit Redstone Partners

Dan Getty - Barclays

David Ryzhik - Susquehanna Financial Group

Operator

Good day and welcome to the Nimble Storage Q3 Fiscal Year 2017 Earnings Conference Call. Today's conference is being recorded.

At this time, I would like to turn the conference over to Elaine Gaudioso, Nimble Storage Investor Relations. Please go ahead ma'am.

Elaine Gaudioso

Good afternoon. Thank you for joining today's conference call to discuss fiscal third quarter 2017 results for Nimble Storage. Joining me today are Suresh Vasudevan, Chief Executive Officer; and Anup Singh, Chief Financial Officer.

After the market closed today, Nimble Storage issued a press release and shareholder letter announcing fiscal third quarter 2017 results. The shareholder letter, earnings press release and a live webcast of this session are available on the Investor Relations page of our website.

As a reminder, during the course of this call, we will make forward-looking statements, including statements regarding our revenue and earnings per share guidance for our fiscal fourth quarter. These forward-looking statements involve risks and uncertainties, some of which are beyond our control, which could cause actual results to differ materially from those anticipated by these statements.

For a more detailed discussion of these risks, refer to our earnings press release issued today and our Form 10-Q filed with the SEC. During this call, we will discuss GAAP and non-GAAP financial measures. A reconciliation of GAAP to non-GAAP measures is available on our shareholder letter and earnings press release available on our Investor Relations website.

I'll now turn over the call over to Suresh.

Suresh Vasudevan

Thank you, Elaine. Good afternoon and thank you for joining us on today's call. Our Predictive Flash platform leverages Flash and Cloud based Predictive Analytics with the ultimate aim of eliminating infrastructure constraint. Constraints that create an app data gap and disrupt the use enabling application. We believe that our Predictive Flash platform gives us an opportunity to emerge as a leading next generation infrastructure provider.

We executed well against this opportunity during Q3 of fiscal year 2017. We identified rapid growth in market share gain in the All Flash array market as a key strategic priority this year. During Q3, we saw strong momentum for our All Flash arrays as our product value proposition resonated strongly with customers and channel partners. We added 217 All Flash Array customers in the quarter, 115 of whom were new to Nimble customers.

In just our second full quarter after launching our AFAs, our annualized bookings run rate for AFA is approximately $100 million. AFAs now account for 24% of total product bookings, up from 17% during the last quarter. As a percent of array bookings AFAs increased to 30% up from 23% last quarter. We're seeing strong win rates across numerous bake off driven by three main factors.

First is InfoSight, our cloud-based Predictive Analytic software which provides unmatched operational simplicity, visibility and supportability to our customers. Second is our Unified Flash Fabric which facilitates deploying All Flash arrays for primary production workloads and cost optimized Hybrid arrays for secondary workload such as backup, disaster recovery, test and development and archive.

Lastly, our Flash-Optimized file system provides us a cog advantage which translates into superior price performance for our customers. We've established a track record of innovating rapidly to expand our appeal to an ever broader customer base with a product portfolio that is more differentiated today than ever.

During Q3, we continue to expand our Predictive Flash platform value proposition with several significant enhancements. We announced Quality of Service and multi-tenancy as key features that provide further appeal to cloud service providers and enterprises with large private clouds. As customers look to complement VM with continuous as the underlying input structure for application development, our Docker Volume plug-in provides persistent storage and rich data management services for Docker Containers.

We also introduced SiteAnalyzer, a cloud based software that provides visibility into non-Nimble end user environment enabling our channel partners and sales team to assess size and recommend solutions without having to resort to guesswork. Our strategy for growth remains focused on rapidly acquiring new customers across the globe, driving larger deployment, increasing the mix of revenue from larger global enterprises and cloud service providers and driving repeat business from existing customers.

We executed well against this strategy during Q3, as our revenue growth accelerated from 21% in the first half of 2017 to 26% in Q3 of fiscal year 2017, and 28% on a constant-currency basis. Over the last two years, as we systematically expanded our product portfolio and broadened our channel partner base, we're achieving steadily larger deployments within our customer base. During Q3, contribution bookings from deals over 100,000 and deals over 250,000 were both at record levels. Bookings from deals over $100,000 grew 35% compared to Q3 of last year and bookings from deals over $250,000 grew 75% over Q3 of last year. As a result of average deal size was at record levels during Q3 of fiscal year 2017.

A key driver of this expansion in deal sizes is the fact that we're now frequently being deployed in tier 1 workloads, displacing high-end legacy arrays and winning against high-end All Flash arrays. Bookings from large enterprises during Q3 of FY'17 grew at 53% over Q3 of FY'16 as we expand our base of larger enterprise customers and deploy larger deals within that base. Our large enterprise customers' base at the end of Q3 of FY'17 grew 28% over the same time last year, and we continue to see a steady pattern of repeat deployments from that installed base.

Another segment that is driving rapid growth for us is cloud service provider. SaaS companies as well as infrastructure of the service companies, these are companies that are using our product as a key building block for delivering cloud services. We've become a de facto storage center within hundreds of service providers for wide ranging services including desktop as a service, hosted exchange services, DR as a service, hosted virtual environments and many others.

During Q3, bookings from CSPs were 65% compared to last year. As we look ahead, we believe we have an opportunity to enhance our Predictive Flash platform and address the needs of customers that are embracing the public cloud as well. We now have an installed base of 9,450 customers, up 38% from a year ago, as we continue to systematically acquire new customers every quarter. Our customer base spans mid-sized enterprises over 10% of the Global 5000 enterprises and hundreds of cloud service providers. This large installed base combined with the high level of customer satisfaction drives strong repeat bookings.

On a trailing 12 month basis, repeat bookings excluding renewals from our installed base grew to 49% compared to 44% in the prior 12 month period. As customers look to alternatives to legacy storage vendors, they're looking for next generation vendors with superior technology as well as validated reference architecture. Our SmartStack converged infrastructure solutions developed in partnership with Cisco continues to grow rapidly because it presents a compelling and highly differentiated alternative to FlexPod and Vblock.

During Q3, we announced a strategic relationship with Lenovo which further expands our converged infrastructure solution portfolio. Lenovo ThinkAgile converged infrastructure solution combines our Predictive Flash arrays with Lenovo's server technology. We are excited about the expansion of our portfolio of converged infrastructure partnership and the global distribution reach that Lenovo brings to bear as Lenovo's sales force and channels take the ThinkAgile solutions to market.

We continue to garner industry recognition for our innovation and industry impact. A momentous milestone for us is that we were recognized for the second year as a leader in the 2016 Gartner Magic Quadrant for General-Purpose Storage arrays. We are positioned by Gartner as the most visionary vendor along the axis in the Leaders quadrant. We were also presented the 2016 CRN Tech Innovator award for the AF1000 All Flash array for being the most innovative storage product in the channel. Computerworld Malaysia awarded Nimble the 2016 Readers Choice Award driven by the combination of price, performance, functionality, reliability and ease of use.

Let me now turn this over to Anup to provide a summary of our financial performance during Q3. Anup?

Anup Singh

Thank you, Suresh, and good afternoon everyone. During Q3 we continued to execute well against our financial and operational plan. We achieved revenue of a 102 million above the midpoint of our guidance of a $100 million to $103 million. Revenue growth of 26% during the quarter increased from the 21% growth we achieved in Q1 and Q2. Excluding the impact of foreign currency fluctuations, revenue increased 28% compared to a year ago quarter.

Our international sales grew 34% from Q3 fiscal '16 and at 40% excluding the impact of foreign exchange. International contributed 23% of total sales during Q3 compared to 22% in Q3 last year. Our non-GAAP gross margin was 66% in Q3, a decrease of 90 basis points from the year ago quarter. Our product gross margin was 66.2%, and our support and service gross margin was 65.2%.

In general, we expect our gross margins to fluctuate plus or minus a 100 basis points each quarter due to factors such as geographic mix of sales, new versus existing customers, low end versus high end solution, exchange rates and so on. Our overall gross margin remained above our long term target of 63% to 65% and we expect to continue to operate slightly above the high end of this range in the near term.

Our Q3 total non-GAAP operating expenses were $82.8 million, an increase of 2.3 million or 3% from Q2. Operating expenses increased 28% compared to Q3 last year, mainly due to sales and marketing expenses increasing to 36%. In particular, our investments in bringing AFA to market have been very successful. This is evidenced through strong AFA traction and the result we've seen in growth in large enterprises in cloud SPs and larger deal sizes. Our overall expense plan remains in line with the expectations we laid out at the start of the year.

During the last year, we added over 200 employees to the Company and ended Q3 with over 1,250 employees on board. Our Q3 operating loss was $15.4 million, in line with our guidance for a loss of $14 million to $16 million. Q3 operating margin was negative 16% compared to negative 13% in Q3 last year, and negative 16% in Q2 fiscal '17. Q3 non-GAAP EPS was a loss of $0.18 per share on 86.3 million shares outstanding. This was at the midpoint of our guidance for a loss of $0.17 to $0.19 per share.

Moving to the balance sheet, we ended Q3 with cash and cash equivalents of a 180.7 million, a decrease of 13.5 million during the quarter. Cash flow from operations during Q3 was negative 11.3 million compared to negative 3.1 million in Q3 fiscal '16. Free cash flow during Q3 was negative 18 million compared to negative 12.2 million in Q2 fiscal '16. We expect to end the fiscal year with a cash level fairly similar to the balance at the end of Q3.

Let's now turn to Q4, our guidance for Q4 is as follows. Total revenue of a $112 million to $115 million, this range represents a growth rate of 24% to 28% compared to Q4 '16. Non-GAAP operating loss of $11 million to $13 million, at the midpoint, this represents an operating margin for the entire fiscal year of negative 15.7%. This is in line with the range of negative 11% to negative 17%, we indicated at the beginning of fiscal '17.

Non-GAAP net loss of $0.13 to $0.15 per share, which is based on shares outstanding of approximately 88 million.

With that, I will hand it over to Suresh.

Suresh Vasudevan

Thank you, Anup. Our market opportunity derives from the disruption underway in data center infrastructure, as customers look to radically simplify IT infrastructure and minimize cost.

First, we believe that we can gain share from legacy storage vendors whose complex storage solutions are no longer competitive. Second, we have an opportunity to leverage the shift towards converged infrastructure. Third, as customers increasingly leverage the public cloud, we have an opportunity to enhance our Predictive Flash platform to provide a multi-tenant flash offering addressing public cloud deployment as well.

Consequently, we believe that we have the opportunity to emerge as a leading next generation infrastructure vendor.

Anup and I are happy to now take your questions. May I request that each of you please restrict yourselves to one question? Operator?

Question-and-Answer Session

Operator

Thank you. [Operator Instructions] And we will take our first question from Rich Kugele of Needham & Company.

Rich Kugele

Good afternoon. So Suresh, can you talk a little bit about in more specific terms the win rates for the All Flash array relative to where your win rates are for hybrid? And then just anything you have on the competitive environment given both NetApp and HP talking about triple digit growth within their All Flash arrays in their most recent quarters? Thanks.

Suresh Vasudevan

Sure, let me start with sort of the first question on win rates, which I would say to win rates first of all have remained really strong in the All Flash segment as strong as we've had in the Hybrid Flash array market in the past. And more specifically, if I look at the top competitive that we encountered they are the market leading All Flash vendors. And if you look at the growth that we've seen in All Flash quarter-over-quarter in just the second full quarter, the run rate that we've built with All Flash is very strong, almost a $100 million run rate in just the second full quarter.

In most instances what we find is that the value proposition of our All Flash array grew beyond just the characteristics of All Flash arrays, specifically I think we find that our customers see InfoSight and its ability to radically simplify management, provide really strong visibility to what's going on in the data center as rising above just the characteristics of the array and it's one of our principle drivers of win rates.

The second thing you're seeing which is that often the conversation starts around All Flash arrays, but our ability to combine both All Flash and Hybrid Flash into our Unified Flash Fabric is the second big differentiator. And lastly just the efficiency of our architecture means that we often go in with better performance at comparable or lower prices, and so the cogs advantage is a third big driver of our win rates. So overall our win rates in All Flash have been very strong.

And what's interesting when you look at the growth of the other companies you mentioned to the All Flash space, sequentially we believe they're growing at a rate that's faster than others. Of course for us it's hard to do a year over year comparison given that we didn't have All Flash last year, but just the growth in the All Flash array market and our competitiveness, we think allows us to continue this trajectory of rapid share gain in the All Flash array market.

Operator

And next we'll take a question from Alex Kurtz of Pacific Crest.

Alex Kurtz

So, Suresh, how do you think about gaining some leverage on top line from these larger transactions, these larger customers over the next couple of quarters because obviously last couple of quarters have been good execution, but when do we start to see some real velocity on the top end there with your deals over $500,000? When should we expect to start seeing that materialized in a more subsequent way in a quarterly basis? I know speaking with you, these transactions are hard to target when they close especially the $1 million transactions, but maybe you could outline the opportunities there?

Suresh Vasudevan

Yes, so, let me start by saying we began this year, our priorities were used All Flash arrays to drive increases in our larger deals as well as penetration within the global enterprise segment and that was the key imperative for us. I'll start off by saying our growth rate, our revenue growth rate the fact that it's improved in Q3 from the 21% in the first half to 26% in Q3 and 28% on a currency adjusted basis, already gives us confidence in the fact that the investments we're making are driving higher growth. And frankly much of the investment we that we needed to put in place has already been done, so as we look ahead the pace of incremental investments relative to the pace of revenue growth is going to be moderate on the investment side. And so that's the first comment I'd make, lot, we're already seeing good returns on the investments we've made.

This quarter, Alex, we basically saw a very dramatic growth in our large deals. They're greater than 250k deals segment for us, grew 75% year-over-year, the greater than 100k deal segment grew 35% year-over-year, and that's only six months into having All Flash arrays, that's the product of the fact that we're in a far greater number of large deals and a far greater number of larger enterprises then we've ever engaged in before. And we believe that this phenomenon will continue to unfold in a positive fashion for us. Q3 in many ways is the beginning of the traction that we're seeing with large deals, and we believe that’s the only accelerator as you look at the next three to six quarters, given our own pipeline, given our own set of pilots that we're seeing with larger customers. So, we think what we started in Q3 will continue as we look ahead.

Alex Kurtz

So, just to clarify, you think you can get back to 30% sustained growth, not completely timeline on that, but in the short-term. Is that something that you see in your pipeline?

Suresh Vasudevan

We tend to give guidance one quarter at a time Alex, all I will say is we're seeing very strong momentum in the growth initiatives that we've targeted, whether that's All Flash, whether that's large deals or penetrations into larger enterprises and cloud service providers. So, we expect that momentum to continue. I don't want to translate that into specifics of numbers beyond the guidance we've already given.

Operator

And we'll take a question from Rod Hall of JPMorgan.

Rocky Motwani

Hi, this is Rocky on behalf of Rod. Thanks for taking my question. Your large enterprise and cloud bookings growth appear healthy, but could you talk about the trends you're seeing with your S&P customers? And you've talked about seeing good return on your investments, and could you talk about where you're today in comparison to last November when you said you needed to make more investments in this segment?

Suresh Vasudevan

Yes, so, let me start with the first question. When we think about sort of how we're doing with our overall mid market that has remained very much the main engine of the Company and that continues to do extremely well for us, specifically one of the key metric we look at to understand how that segment is unfolding is the pace of customer acquisition in any given quarter we look to acquire anywhere between 500 and 800 customers, and this quarter we landed very much along the lines that we expected.

So that continues to do well for us, and a lot of what's driving the growth in that segment or well being in that segment, if you will, is the fact that channel partners that we've invested in are really driving sort of strong growth for us, and strong operating leverage for us. The introduction of our new All Flash AF1000 series was a big boost to us as well in that segment and so lots of things continuing to go very well for us in our main midmarket engine if you will.

Anup Singh

I'll take the second half of the question, so I think it was about the investments that we started to make at the end of last year, and I think if you look at the plan we laid out at the beginning of the year, we said that this was going to be an investment year especially in sales and marketing. And so, the guidance we gave for the range, if you take our Q4 balance into account we're roughly going to be in that range of negative 11 to negative 17 on margin.

I think if you look ahead, our view is that as we get to the end of Q4 this year, the investments that we made this year essentially have laid the foundation for growth in FY '18. So looking ahead our expectation is that the incremental OpEx increases going forward is going to be at a slower level to more in moderation, which means that our losses are going to go down and our leverage is going to improve in FY '18.

Operator

And we will take a question from Nehal Chokshi of Maxim Group.

Nehal Chokshi

With the Dell closing the acquisition of EMC, are you seeing any increased level of opportunities here? I may have a follow-up depending on the answer.

Suresh Vasudevan

Yes, Nehal, I would say there are two very obvious places where we're seeing some benefit from the Dell-EMC merger. The first one really is in channel partner Affinity. There's a larger number of channel partners that are ex-EMC partners that continued to have relationships, strong relationships with EMC-Dell, but are much more open to embracing our products. In some parts driven by a concern that perhaps the model will become more direct, but in other parts also driven by the fact that in the Compellent, Equallogic parts of their product portfolio, there's more vulnerability and uncertainty on what's going on.

So the first benefit we're seeing is in really our channel traction of channel Affinity. The second comment I would make is when we compete against Compellent and Equallogic in particular, it’s becoming more obvious that customers are uncertain about how much ongoing investment from an innovation perspective will exist in those platforms, and we've seen that reflect in our win rate, we've seen that reflect in our customer conversations. So that's the second place that we're seeing benefit. If there is a third one I would comment on just ability to hire and frankly converged infrastructure deployment in partnership with fiscal, that's the third place where we're seeing benefit as well from the fact that sort of we are SmartStack growing nicely, they're displacing Vblock.

Nehal Chokshi

Okay. So my follow up question is that the number of incremental customers you've had in the quarter I think was about flattish year-over-year in terms of incremental customers in the year ago period. It sounds like what you're describing is that you should be seeing greater opportunities and perhaps an acceleration in the year-over-year growth of the customer acquisitions, could you perhaps help bridge this delta that I'm seeing here?

Suresh Vasudevan

Yes, I think a couple of comments, one I think our new customer acquisition was along the lines we expected particularly sort of when you think about the larger-and-larger installed base we have and the opportunity to drive more from our installed base, we had an expectation for what our new customer acquisition would look like. I mentioned earlier 500 to 800 is sort of the range that we expect depending on seasonality within quarters. That's the range that we laid out.

And so, that's been in line with our thinking what we were really excited about, and what we're consciously trying to have happened is drive larger deals particularly sort of not just in our large enterprise business, but even in our commercial business drive to larger deals, which All Flash Arrays will allow us to do. And that's something that we're seeing already unfold.

And you've to remember Compellent spanned a really broad price spectrum while EqualLogic is a bit more narrowly targeted. Compellent was a much broader price spectrum, and so we do see the growth in large deals as a big positive for us.

Anup Singh

And maybe I'll just add to the seasonality comment Suresh made. Q2 and Q4 for us are seasonally the strongest quarters for customer acquisition, and Q1 and Q3 are kind of the slightly slower. So, basically, adding 600 in the quarter was exactly in line with basically our expectations as we're going into the quarter.

Operator

And we'll take a question from Steven Fox of Cross Research.

Steven Fox

Just bigger picture, you've touched on a lot of reasons why you're gaining market share, but have you seen any changes by your major customer segments in terms of how they're spending either positively or negatively overall? And how that might play out into the year? And then I've a quick follow-up.

Suresh Vasudevan

I would say not substantive changes when we think about demand patterns within our customer base or even competitive dynamics. It's by and large being similar for us. Very clearly, there's a shift to the Flash centric solutions from more traditional solutions, but other than that I would not call out any significant patterns in terms of changed customer buying behavior.

Steven Fox

And then just in terms of the gross margins last quarter to this quarter into the current quarter, I know Anup you've mentioned some puts and takes that can effected by a 100 basis points or so, but what specifically was happening with gross margins and maybe we should consider that was effecting it quarter-over-quarter and…

Anup Singh

So, gross margins, Steve. As you know, we came in at 66 on gross margins, slightly above that for product, which is certainly in line with kind of the internal range and expectation that we have. In Q3, especially, the reduction we saw in Q2 was more of a mix issue and a slight reduction in pricing. And as I mentioned earlier on, it is going to fluctuate every quarter. For example, we had a really strong quarter in APJ in Q3.

And generally in Asia Pac, our gross margins are a bit lower than the Company average. So, it's sort of impacted the margins. If you look at our trends and margins even though we were down a bit sequentially from Q2, we were actually above the margins we reported in Q1. And so, I think overall when you step back, we're at 66, we're actually operating still above the model of 63 to 65, and that's an expectation as we look ahead, we don't see a major sort of a change in the net run.

Operator

And we'll take our next question from Simona Jankowski of Goldman Sachs.

Mack Brown

Hi, this is Mack Brown on behalf of Simona. i guess I wanted to follow up on that last question about gross margin and around the pricing environments specifically that you saw in the quarter. I guess, is there any way to help us quantify on product gross margins? How much of the year over year decline was because of pricing as opposed to mix or some of the other factors that you called out? And then related to that just curious, if you're seeing any difference in the competitive intensity across your All Flash versus Hybrid portfolios out in the market place?

Suresh Vasudevan

Yes, so we don't go into too much sort of detail in terms of breaking down, but I would say as we did the analysis on the -- the mix was indeed the greater driver of the change in margins from a sequential basis as well as a year-over-year. And then the other variable was a slight reduction in pricing, but again as I mentioned, I think we are going to expect fluctuations in a quarterly sort of basis, we did not see anything which was significantly unusual or structural in the quarter.

Anup Singh

And in terms of competitive dynamics the two comments I would make are, we continue to see both companies as the ones that basically dominate who we compete against in terms of frequency; and that’s the Dell-EMC, HP-NetApp and Pure, these were the companies that we tend to compete against. And frankly most engagements now it's hard to start an engagement knowing whether it's an All Flash or a Hybrid Flash, we generally tend to approach the engagement at how do we deploy solutions that uses our strength in both.

And so, we don’t think of it as a separate dynamic in All Flash versus a non-All Flash market as much as every engagement involves some deployment of flash. Perhaps, the only change I would call out in addition to the fact that it's becoming more clear that four other companies are basically the most frequent competitive set as opposed to year ago when we had a perhaps more competitive. The mix of how frequently Pure has gone up and that's probably the only change I would call out compared to perhaps two or three quarters ago.

Operator

And we will move to Maynard Um of Wells Fargo.

Maynard Um

Thanks, sorry if I missed this but calculating this correctly your All Flash Array growth was 48% sequentially. My understanding is the channel education in the Flash Product didn't start until mid or late last quarter. So as we look into the fiscal fourth quarter and beyond, I guess should we expect that growth to accelerate going into next quarter? And then similarly on the hybrid side, it looks like you declined slightly sequentially, so are you seeing any cannibalization of the hybrid business because of the Flash business or is Flash additive? Or how should we think about the two businesses? Thanks.

Suresh Vasudevan

Yes, I'll start off by saying Maynard that more and more, we are not trying to manage the mix between All Flash and Hybrid Flash. And honestly almost every engagement starts off as a discussion around how do we optimize whether it's an exchange deployment and oracle deployment, how do we optimize the deployment many end up combining both All Flash and Hybrid Flash come end up being just All Flash, some under being Hybrid Flash. So I'll start by saying, our objective is not to focus on the mix as well it has to sort of drive whatever solution makes the most sense. And in fact it's one of our core strength. That said, I would say we are still seeing very strong and rising momentum with our All Flash arrays, and we expect to see that momentum continue.

We saw that from Q2 to Q3, we indeed drive that last quarter also we spent quite a lot of the time educating our channel. Perhaps, the best thing we're seeing is the excitement within the channel about our product about our win rates. So, that's a very strong sort of hint on where the All Flash momentum is headed for us without trying to quantify exactly what the mix would look like. I expect to see us have very strong momentum with All Flash. As I said before that our mix is likely to reflect the market mix or even be slightly ahead of the market mix looking at the trends that we're now seeing. I think that's how I would think about what we should see going forward on All Flash versus Hybrid Flash.

Maynard Um

And then just as a follow-up, can you just touch on the Lenovo deal and when do you expect that should start to ramp in terms of revenue for you?

Suresh Vasudevan

Yes, so, the first phase of our relationship with Lenovo is focused on a converged infrastructure solution where they combined their servers with ours Flash Arrays, and that's what they're taking to market. So they're reselling our product as part of that converged infrastructure solution. And really I think the relationship we'll have just been at its infancy in Q4. I expect mostly what we'll see is it's starting to have some impact and very minimal impact in the first quarter.

As we go towards the middle of the year, the relationship broadens into beyond converged infrastructure into a storage relationship as well. And so that's when I expect to see the Lenovo relationship bear fruit mostly impacting our second half as they become something more than just converged infrastructure partner and become a full on-storage partner as well.

Operator

And we'll take a question from Tim Long of BMO Capital Markets.

Ari Klein

Hi, this is actually Ari Klein on behalf of Tim. First as a quick clarification on the deals over $100,000, is that mutually exclusive from the ones that are over 250,000?

Anup Singh

No, it's a superset of the deals over 250,000.

Ari Klein

So, can you maybe elaborate because obviously that kind of means that the ones between a 250 are in -- not growing nearly as much; anything we should know about its going on there?

Anup Singh

No, I don't think, again it's generally speaking what we're looking for is a drift in our deal sizes to larger deal sizes. The fact that our greater than 100k deals as a whole are greater than sort of the average growth rate, the fact that our greater than 250k is much greater than our average -- the overall average, just skewed towards larger deal sizes and that's most important element we want to communicate; I don't think we're -- there's much to be made of what's the exact mix in the 100 to 250; we track further splits beyond the two I gave you and we don't necessarily worry about sort of granular split at various price bands.

Suresh Vasudevan

And I think already -- the key thing to takeaways is I think we mentioned it in the remarks that our ASP, our average deal size in Q3 was actually at a record high for us as a company. Right and this is really important in terms of being able to drive the leverage in the model as we look ahead. So, that's the exiting thing which is happening as we grow our AFA sales and getting some more-and-more larger deals.

Ari Klein

And then just one last question if I can, the cash positions, little bit of decline, are you comfortable where you're at right now?

Anup Singh

Yes, we are. I mean our -- in Q4 the linearity for cash flow actually is the strongest for the year and as a matter of fact I think I mentioned in remarks that I would expect our cash to end either similar to slightly up from the balance of the end of Q3. So, our cash is going to be above 180 million and going forward we would expect our burn to decrease significantly as we improve our P&L in the course of next year.

Operator

The next we will hear from Srini Nandury of Summit Redstone Partners.

Srini Nandury

I am actually following up on the help second question. If you look at your new versus existing customer bookings, your new customer bookings have gone down 56% to 51%. Is this due to elongated deal cycles or the deals are getting larger than larger and customers are taking time to whack your transaction, any color would be great? Thank you.

Suresh Vasudevan

There is a factor, Srini, as the fact that are the frequency with which we are engaging in much larger deal is significantly higher than it ever been in the past and we are -- that’s a good thing that something that you have been aiming for. It reflects in the fact that our larger deals becoming a larger component of our overall mix if you will. And candidly, it's just in many ways the All Flash momentum is still early is driving us into larger and larger deals. So that's the first comment I would make reaffirming what you asked.

The second comment I would make is as the installed base get larger to some degree, we would expect that the repeat purchases by our installed base will gradually increase as a percentage of the mix. And so for us, it's important that we drive overall growth rates for the combination of both new and existing customers. But that’s also something, we would expect as the base is larger and within that base our large number of cloud service providers, larger enterprises that have higher propensity to buy more. We would expect that repeat bookings will inch up relative to new bookings overtime.

Operator

And we will hear from Mark Moskowitz with Barclays.

Dan Getty

Hey, guys this is Dan Getty on for Mark. Thanks for taking my question. I just wanted to go into some of the strength that you are seeing in the cloud service provider customers. As we know that’s an area of focus for a number of your competitors as well. So where specifically, are you winning? Or are their storage needs just going quickly enough that mostly [indiscernible] benefit? Thank you.

Suresh Vasudevan

Yes, absolutely. So let me first characterized what we mean by cloud service providers, and we are seeing a very strong traction in the segment. Typically, when we say cloud service providers, a large number of SaaS companies are part of that mix as well as infrastructure as a service companies. And when I look at the 100s of cloud service providers that we now have in our base they're several that are large global service providers, and we also have hundreds of smaller SaaS companies, smaller more regional infrastructure as a service companies that are part of that mix. So, expand every range in terms of size as well as both SaaS and infrastructure as the service, cloud service providers. The key win driver that we see over and over again there are three that come back as our core strength.

The first one tends to be the visa customers for whom mix SLAs are often financial penalties, our ability to use InfoSight and give them a level of operational availability as well as simplicity drive downs both operating cost and allow them to meet SLAs. So that's we're finding as the big factor that causing us to win. The other two -- the second factor just the economics of deploying us versus somebody else whether in terms of lack of rack space whether that's in terms of capital cost in terms of the performance they are delivering, the efficiency of our architecture allows them to lower cost and that’s a second factor. The last one is just the ease of scaling, our scalability architecture needs that they can start with a very small footprint and keep expanding that non-disruptively as their business growth, this is key for service providers. And so, all these three we find a very strong differentiator for us when we compete against others in the cloud service part of phase.

Operator

And we'll take our final question from Mehdi Hosseini of Susquehanna Financial Group.

David Ryzhik

This is David Ryzhik for Mehdi Hosseini. Suresh, can you give us your thoughts on the product portfolio, what areas of innovation we could probably expect; and in that context can you share your thoughts on the hyper converged market? What do you think the barriers to entry are and whether Nimble can actually invest into that segment?

Suresh Vasudevan

Let me just very quickly start by saying when we described sort of our current portfolio, we think of two pieces of software as the core of our intellectual property. The first is our InfoSight cloud based analytics software and the second is our Nimble operating system and the file system that Flash optimized. We leveraged that to compete originally in the Hybrid Flash array market and more recently in the All Flash array market. And for the last year we've now already finished both aspects of Hybrid Flash as well All Flash things we've already accomplished in leverage from the underlying software technology.

As we look ahead some of the areas that we're focused on where we believe we've a strong opportunity to compete are things like how do we take the same software stack and optimize that for different forms of conversion. We've been very successful in the cloud service provider market when it comes to SaaS and hosted infrastructure as a service, how do we take the same software stack and help our customers as they think about not just hosted infrastructure as a service, but public cloud deployment. We believe those are some of the areas we'll see drive leverage from our underlying technology as you look ahead at the next several quarters.

Suresh Vasudevan

At this point, I want to just thank you all for joining us today. Thanks to our employees, customers, partners, as well as investors. Look forward to seeing you again in 90 days. Thank you.

Operator

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

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!