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Pure Storage, Inc. (NYSE:PSTG)
Q4 2021 Earnings Call
Feb 24, 2021, 5:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day, ladies and gentlemen. Thank you for standing by, and welcome to the Pure Storage Fourth Quarter Fiscal Year 2021 Earnings Release Conference Call. [Operator Instructions]

I would now like to introduce your host for today's conference call, Ms. Nicole Noutsios. Ms. Noutsios, please go ahead.

Nicole Noutsios -- Investor Relations

Thank you, and good afternoon. Welcome to Pure Storage Fourth Quarter Fiscal 2021 Earnings Call. My name is Nicole Noutsios, Investor Relations at Pure Storage. Joining me today are CEO, Charlie Giancarlo; our CFO, Kevan Krysler; and our VP of Strategy, Matt Kixmoeller.

Before we begin, I'd like to remind you that during this call, management will make forward-looking statements, which are subject to various risks and uncertainties. These include statements regarding the COVID-19 pandemic and related disruptions, our growth in sales prospects, competitive, industry and technology trends, our strategy and its advantages, our current and future product offerings and business and operations.

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 related to our business is contained in our filings with the SEC and we refer you to these public filings.

During this call, we will discuss non-GAAP measures in talking about the company's performance and reconciliations to the most directly comparable GAAP measures are provided in our earnings 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 property of Pure Storage.

With that, I'll turn the call over to our CEO, Charlie Giancarlo.

Charles Giancarlo -- Chairman and Chief Executive Officer

Hello, everyone. Thank you for joining us on our Q4 earnings call today. I hope that each of you, your loved ones and colleagues are all safe and healthy. Pure ended fiscal 2021 with great strength in growth, setting revenue and sales records for the quarter and for the full fiscal year. Our portfolio has never been stronger. With record sales in our Pure as a service offering, FlashBlade, FlashArray//C and Portworx. The completeness of our product suite accelerated sales growth in our enterprise and cloud segments in each and every theater and in our major verticals. Our Q4 results are a confirmation of the strength of our long-term strategy and a leading indicator of our opportunity to accelerate growth.

I am pleased to share with you today these Q4 successes, our long-term strategy is to deliver a modern data experience to customers. It was gratifying that so many of our existing customers chose to significantly deepen the relationship with Pure as we become an ever more critical component in their own plans for digital transformation. We also saw net new customer acquisition growth over last quarter and continued strength in enterprise. In Q4, we booked eight, eight-figure deals with eight large enterprise customers. A new record. It was just two years ago that we began significant investments in our enterprise go-to-market team.

Our strength in that segment this past year is proof point of the successful execution of that strategy. Our ongoing commitment to marrying technological innovation with our customer-centric business model is increasingly recognized by customers and the industry. With seven years ranked as a leader, Gartner's recognition this year of Pure's clear leadership across both ability to execute and vision in their Magic Quadrant for primary storage arrays is a great validation of our strategy. And we also improved our already leading excellence in customer experience as measured through our Net Promoter Score. For calendar 2020, Pure's third-party certified NPS was 83.5, our sixth year in a leadership position and the highest score among vendors measured by Medallia.

One of the most important components of our growth strategy is, of course, Pure's leadership team. This quarter, we welcomed Ajay Singh, our new Chief Product Officer. As CPO, Ajay will be responsible for our five business units and our technology alliances, and will be a key contributor to our strategy to deliver modern data services. He brings, to Pure, extensive expertise in software and services to accelerate our growth into our as-a-service model and cloud-native support. Our growth in Q4 is proof that our ability to deliver a modern data experience is resonating with our customers.

They see the benefits of advanced technology from a trusted storage leader that supports a wide range of structured and unstructured data at scale and across any workload. But the Pure value proposition goes well beyond this. The Pure vision is to deliver real-time access to resilient hybrid cloud-managed storage services via code to developers and operations managers. Customers desire managed data services that are dynamic and provide a cloud experience with flexible on-demand consumption. Needless to say, we continue to dramatically outpace our industry in both innovation and customer delight, and I'm excited to share four reasons why customers continue to lead with Pure.

First, Pure delivers the simplest storage platform to operate, period. We continue to innovate with what customers appreciate, namely: seamless upgrades; cloud management; pay-as-you-go consumption models; and both traditional and cloud-native data services. This strategy is resonating with customers as validated in a weekly bond analyst report for cloud spending and adoption. Their survey showed that Pure leads both hyperscalers and on-premise legacy vendors in customer spending intent with an off-the-charts net score of 63%. Second, we continue to see strong customer adoption of our subscription services, which include our Evergreen and Pure-as-a-Service offerings.

Only Pure delivers a true enterprise-class utility with flexible storage consumption, a cloud experience on-premise, an easy path to move data to the cloud at any time and aligns spend with actual consumption. This year, we've continued to advance our subscription services platform reducing complexity by eliminating additional licenses and support costs and introducing a service catalog with transparent pricing. This quarter, our subscription services grew over 30% from one year ago. New customers for our Pure-as-a-Service offering included one customer over $10 million as well as U.S. customer cloud at work, MACA mining services in Australia and German telecom provider, Broadcom. And we saw customer adoption increase across every major area of the world.

Given the significant customer benefits with our subscription services, we have created enhancements to our field compensation for these offers going forward. Third, last quarter, we expanded our industry-leading data services capabilities for containerized cloud-native applications with the acquisition of Portworx. Cloud-native databases, analytics applications and AI frameworks such as Cassandra, MongoDB, Postgres, Kafka, Elasticsearch, Spark and TensorFlow are the tools upon which customers build their modern data pipelines. Pure has been successfully serving these applications at the highest performance levels with FlashBlade.

And now Portworx helps us expand support for these applications on any infrastructure, on-prem or in-cloud at any scale. We saw significant growth of in-cloud deployments of Portworx this quarter, with particular growth through our IBM partnership, given our best-in-class support for Red Hat, OpenShift and IBM Cloud Pak for data. The integration of Portworx onto Pure has been one of the best that I have ever experienced, and we are just beginning to leverage Pure's go-to-market engine to drive Portworx.

And earlier this month, we expanded our market leadership with major software updates to our flagship purity software on both FlashBlade and FlashArray to deliver enhanced performance, comprehensive ransomware protection and security, and we broadened file capabilities to serve more markets and use cases. Best of all, we enabled customers to adopt these new innovations without disruption, downtime, additional cost or the requirement to rebuy new capacity. Sustainability is my fourth and final point.

From our founding, Pure has focused on how our products can use less energy, require less cooling, need less maintenance and take up less space in the data centers and produce less waste. In the last eight years, we estimate that Pure's FlashArray offering alone has saved over four billion-kilowatt hours in energy use, avoiding the greenhouse gas emissions equivalent to over seven billion miles of automobile travel. It's eliminated 96% of data center rack space when compared to legacy solutions, which is approximately 19,000 racks or over 10,000 tons of legacy geared not deployed.

With Evergreen upgrades, customers continuously upgrade rather than discard their older storage equipment. Avoiding the rip-and-replace required by legacy vendors and reducing waste in landfills. Pure's industry-leading storage density allows customers to save on data center space and power when compared to other flash storage vendors. Now with FlashArray//C, customers can fit one petabyte of effective storage into roughly one rack unit, the size of a pizza box. Paying for only what one consumes is the right model for customers' bottom line and rightsizing energy use and physical infrastructure, ensures that customers don't pay to cool and power excess equipment.

I'm very pleased with both the internal investments we've made over the past fiscal year and our focus on operational discipline. We made a commitment early in the COVID-19 pandemic that we would continue to make strategic investments in global talent, focusing on innovation, including our acquisition of Portworx, customer support and scaling the company. We dramatically reduced travel, entertainment and other operating expenses, while increasing our investments in talent and critical growth initiatives in anticipation of increasing growth this year, while continuing to deliver operating income and generating positive operating cash flows.

Our employees and our charitable foundation, Pure Good, also stepped up investments focused on COVID-19 response, food and housing in our local communities and in our workforce development initiative. Continuing our thoughtful approach to operating in this new normal, we recently announced to the company that we plan to use a hybrid approach when we return to the office with most employees able to work from home part time. We believe that the hybrid office model will deliver the best combination of individual and team productivity and allow us to continue to attract and retain the best employees in the industry. I have never felt more fortunate to be at Pure.

Our dedicated Puritans are loyal customers and our partners and suppliers all displayed incredible perseverance, creativity and positivity during the past 12 months despite the personal challenges they each faced. The effect of the COVID economy on Pure's business has largely played out as we predicted over this past year. First, a short acceleration of business as customers shifted to work at home and online business, then a sharp pullback as they took stock both of their business prospects and new plans for digital transformation, followed by a gradual stabilization based on the new normal.

Now we look forward to a return to more significant economic growth as we expect the effects of COVID will begin to diminish during our fiscal Q2. I have increasing confidence that this year will be far better than last. On a macro front, I'm hopeful about the promise of increasingly plentiful and effective vaccines being distributed throughout the world. I believe that in this fiscal year, our customers will accelerate their investment in digital transformation with renewed confidence of economic recovery. They will be increasingly confident in their ability to deploy new vendors, new systems and software into new use cases and Pure will be high on their list.

Thank you. And now I will turn the meeting over to Kevan for details on our financials.

Kevan Krysler -- Chief Financial Officer

Thank you, Charlie, and good afternoon. We are very pleased with the strength of our Q4 performance, which was much stronger than we planned. FlashBlade and FlashArray//C both achieved consecutive record sales, and we continue to see strong demand with our enterprise customers who recognize the value that we are delivering. We completed a record number of deals above $10 million and also achieved record sales during the quarter to our Fortune 500 customers. Sales of our subscription services continue to be strong, consistent with what we have been seeing throughout the year, including one of our top deals above $10 million being Pure-as-a-Service.

Our sales growth, excluding cancelable orders, was slightly over 9% in Q4 and compared to last year, driven by strength both in the U.S. and international markets. We are also very pleased with new customer acquisitions during the quarter as 471 new customers chose one or more of our solutions. Now turning to specific Q4 financial results. Total revenue of approximately $503 million exceeded our expectations, growing 2% year-over-year. Despite a strong compare as Q4 last year was not impacted by COVID headwinds. Subscription services revenue grew approximately 32% year-over-year and represents approximately 30% of total revenue.

As a reminder, subscription services revenue includes Evergreen subscriptions and our unified Pure-as-a-Service subscription, which includes Cloud Block Store. Total revenue, both in the United States and international saw a slight growth compared to a strong Q4 last year. Our remaining performance obligations, or RPO, which includes our committed and noncancelable future revenue grew approximately 24% year-over-year. Non-GAAP total gross margins in Q4 was 69.4%, up 30 basis points sequentially compared to 72.1% last year. Product gross margins were 69.1% compared to 73.3% last year.

As you might recall, last year's product gross margins benefited from unprecedented pricing dynamics of NAND. Subscription services gross margins were strong at 70.2% compared to 68.1% last year. Non-GAAP operating profit during the quarter was approximately $36.7 million compared to $60.9 million last year. We were pleased that as we were navigating COVID related headwinds, we continue to invest in the business while only slightly increasing overall operating expenses. Operating income for the year was $46 million as operating expenses for the year grew less than 3%. Non-GAAP net income during Q4 was $38.8 million, and non-GAAP net income per share was $0.13.

Weighted average shares used for the Q4 non-GAAP net earnings per share calculation was approximately 297 million shares. We ended the quarter with over $1.25 billion in cash and approximately 3,800 employees. Cash flow from operations was $69 million and free cash flows was $48 million in the quarter. During Q4, we repurchased a little over one million shares for approximately $23.6 million, completing our $150 million planned share repurchase program. We have also announced a new share repurchase program of up to $200 million.

Now turning to guidance where we will provide some color on how we're thinking about this year as well as Q1. We do not plan on updating our annual view as we progress throughout the year. For FY '22, we expect that total revenue growth will be in the range of 14% to 15%, factoring in continued growth of our subscription service offerings that will be a significant contributor to our overall performance. Capitalizing on the investments we made in FY '21, we expect to grow operating income to near $90 million this year.

Now moving to our Q1 outlook as visibility continues to improve, and with the strength of our enterprise business and momentum of our technology platform, we are forecasting total revenue will be $405 million, growing approximately 10% from last year. Consistent with our Q1 seasonality, we are forecasting an operating loss of $20 million for the quarter and expect to generate positive operating income during the remainder of the year.

In conclusion, we are very pleased to end the year on a high note as our Q4 performance surpassed our expectations in the midst of continued COVID headwinds. We have confidence in our investments in innovation, that we believe will drive accelerated revenue growth and continued high levels of customer satisfaction while increasing shareholder value. We are excited to build on our momentum this year, capitalizing on the tremendous opportunities that we have in front of us as we expect COVID headwinds to lessen during our second quarter.

With that, I will turn it over to the operator, so we can get to your questions.

Questions and Answers:

Operator

[Operator Instructions] Your first question comes from Aaron Rakers of Wells Fargo. You may now ask your question.

Jake -- Wells Fargo -- Analyst

Hi, this is Jake [Phonetic] on for Aaron. First of all, congrats on a great quarter. I was wondering if you could start out by talking a little bit about deferred revenue growth and reminding me what sits outside of deferred in RPO?

Charles Giancarlo -- Chairman and Chief Executive Officer

Yes. Jake, thanks for the question. Let me just start because I'd like to just start the overall conversation with the fact that we really did see an excellent quarter across the board and given the strength that we've had in subscription revenues that we commented upon, as you might expect, we're seeing good growth and even greater growth in deferred than we see in actual revenues, which bodes well for the future, gives us additional confidence overall going forward. So Kevan?

Kevan Krysler -- Chief Financial Officer

Yes, Jake, let me just add on in terms of, obviously, RPO or remaining performance obligations. When you're seeing the growth sequentially is really being driven by the momentum we're seeing in our subscription services, principally around Pure-as-a-Service and the unified subscription with CBS. We're seeing some strength as well on deferred revenue, and that's really in part due to the momentum overall. We're seeing both with our sales of our subscription services as well as increased momentum with the sales of our integrated solutions and appliances as well.

Jake -- Wells Fargo -- Analyst

Great, thanks for that and then on another note, I was wondering if you could talk a little bit more about Portworx and what you're seeing in the competitive landscape there?

Charles Giancarlo -- Chairman and Chief Executive Officer

You bet. Right now, Portworx actually is almost the only game in town from what we can see with respect to two areas. One is SDS offering for container-based storage systems that operates both on-prem and in-the-cloud and the second is the Kubernetes layer on top, which allows for the orchestration and management of data services and in fact, we've recently provided additional information around what we call PX-Backup or Portworx backup that enables customers to automate by policy, the regular backup of the storage that they've created for their container-based systems.

So it -- and really, it's the only capability that combines those two elements and we're seeing very good traction. We're seeing good traction through our channels, and we're seeing good traction directly by customers and in particular, what is especially gratifying is the fact that the -- we have a very high uptake by enterprise customers, large banks and other areas as well.

Kevan Krysler -- Chief Financial Officer

Yes. I would just add to that.

Jake -- Wells Fargo -- Analyst

Great.

Kevan Krysler -- Chief Financial Officer

It's really -- that I think it's been really gratifying to see the different types of customers that are adopting import works in Kubernetes. On one hand, you have literally the largest Wall Street banks in the world transitioning all their applications to Kubernetes and using Portworx to build out very large shared container environment.

On the other hand, you have, for example, some of the largest gaming customers in the world that my kids spend probably too much time with, unfortunately, where every time we log on globally, they're building more and more points of presence to host those gaming sessions, totally in the cloud, all powered by Portworx and so the diversity between large on-prem as well as totally cloud-native use cases is amazing.

Charles Giancarlo -- Chairman and Chief Executive Officer

Still early days, of course. So -- but we're seeing good growth.

Jake -- Wells Fargo -- Analyst

Great, thank you.

Operator

Our next question comes from Jason Ader with William Blair. You may now ask your question.

Jason Ader -- William Blair -- Analyst

Yeah, thank you. Charlie, can you talk about I guess, just generally, enterprise demand, which are the strongest verticals for you right now? And then what -- I guess, what surprised you in the quarter overall?

Charles Giancarlo -- Chairman and Chief Executive Officer

Yes. We are seeing, as we mentioned in our remarks, really good uptake by enterprise and as you know, it's a -- while we've sold in enterprise, most of our existence, we really didn't make a major focus on it from a sales standpoint until a couple of years ago and since that time, we've had two effects that we can really call out. One is that major strengthening of sales into existing enterprise customers taking on more and more of their overall portfolio that we can fill.

And secondly, a faster uptake by new enterprise customers, and in particular, as we mentioned, our customers in the eight figures, we've had several this year that were brand-new customers that contracted with us for eight figures, one of whom was a PaaS -- actually, two of them through the year were PaaS deals and so our reputation, I think, in enterprise has been very strong, and we can expect, we think, this to continue as conditions around COVID improve.

Jason Ader -- William Blair -- Analyst

And just any comments on verticals? And then what surprised you in the quarter?

Charles Giancarlo -- Chairman and Chief Executive Officer

Yes. Frankly, the one vertical that -- where we had been struggling a bit is now coming through for us, and that is big banks. Big banks were, if you might say, more conservative in their use of new technology and new -- well, especially new vendors and we've seen an opening up of that segment for us. We're also strong in service provider and healthcare, and those have been good for us this year as well.

Kevan Krysler -- Chief Financial Officer

I mean obviously, the cloud business continues to...

Charles Giancarlo -- Chairman and Chief Executive Officer

Yes. I mean, of course, we've talked about that before. Again, 30% plus of our sales into cloud customers. We call it clouds four through n, four through 1,000 and that includes companies that provide -- only provide cloud service to their customers as well as the cloud service of more traditional companies such as Epic. So we're in the Epic cloud.

Jason Ader -- William Blair -- Analyst

And federal, any quick one on that?

Charles Giancarlo -- Chairman and Chief Executive Officer

Yes, federal is still not an area of strength for us, to be honest. That's an area where we are making some changes and looking to make improvement.

Jason Ader -- William Blair -- Analyst

All right, thank you.

Operator

Your next question comes from Alex Kurtz of KeyBanc. You may now ask your question.

Alex Kurtz -- KeyBanc -- Analyst

Thanks and congrats on the good quarter, guys. Just on RPO and thinking about what the right metrics are for measuring the business, given the move to Pure-as-a-Service and Cloud Block Store, is that really how we should be thinking about the growth rate going forward. I'd just like to hear your thoughts on how you guys look at the growth of the business outside of reported revenue growth.

Kevan Krysler -- Chief Financial Officer

Yes, Alex, this is Kevan. A couple of things that we look at in share. Obviously, the bookings outpacing revenue is one metric that we look at and we were at 9% year-over-year growth on sales, which is outpacing revenue, really, in large part, given the continued momentum we're seeing in our subscription services.

If you break that down a bit more, when we're looking at the unbilled component of RPO and the strength there, that's primarily driven by our Pure-as-a-Service offering and then deferred revenue is really supported by the continued momentum we're seeing around our Evergreen offering as well as the incremental momentum we're seeing in sales of our appliances, which includes the Evergreen support as well and subscription. So that's kind of how we're thinking about it and seeing good strength and momentum across the board there.

Alex Kurtz -- KeyBanc -- Analyst

Charlie, would you add anything there? Because if the future of the company is increasingly going to be Pure-as-a-Service, shouldn't RPO be kind of at the center of the discussion around what the growth rate of the business is?

Charles Giancarlo -- Chairman and Chief Executive Officer

On a longer-term basis, there are going to be other metrics. RPO certainly one of them, such as ACV and net new. We've talked about this in the past. We think we need to get to a certain critical mass before we can -- before we think it makes sense to start to identify those on a regular basis. But increasingly, as subscription becomes a larger and larger part of what we do, yes, we're going to need to release more information along those lines to investors.

Kevan Krysler -- Chief Financial Officer

Yes and Alex, we'll take a look at that as we go through this year. We do plan on having an Analyst Day this year, and we'll land on a date and obviously, we'll look at some other metrics. It will give you a good read in terms of our overall subscription business. Because for me, it's far beyond just Pure-as-a-Service, which is great, but our Evergreen and Portworx are layered nicely into that as well, obviously.

Alex Kurtz -- KeyBanc -- Analyst

Yeah, thank you.

Operator

Your next question comes from the line of Karl Ackerman with Cowen. You may now ask your question.

Karl Ackerman -- Cowen -- Analyst

Yes, good afternoon gentlemen. Kevan, could you discuss the linearity of opex leverage for fiscal '22? I ask because the $20 million loss in Q1 appears a little bit larger-than-normal seasonality, but yet, the full year outlook for operating margin of $90 million, well, it implies the best operating margin on record. So I guess, maybe specifically, could you discuss the investments you are making in Portworx that might explain the outlook for Q1?

Kevan Krysler -- Chief Financial Officer

Yes. I think -- yes, good question, Karl and then I think the first thing I'd start out with is with Q1, you typically have this seasonality. That is our seasonally lowest quarter in terms of revenue. That's pretty consistent and so we were benefited if you look at the compare in Q1 of last year on a couple of different areas. One was really around the fact that we did do some realignment with our workforce and took a benefit in Q1 last year. When I think about what we're looking at in Q1, that might be a little bit different on the opex front. Certainly, some strength around our sales of our subscription services. So we do have more comp coming through as a result over time because of the subscription services.

So we're dealing with that a little bit in Q1. But to your point, seeing a lot of strength post Q1 in terms of what we see in returning to operating profitability and to your point, really happy with the fact that we're looking at almost $90 million of profitability for the year and really, what we're doing is capitalizing on the investments we made really through this COVID environment, and we saw some early indicators of that return in Q4, expect that to carry forward as we continue through the rest of the year. So hopefully, that helps you out, Karl.

Karl Ackerman -- Cowen -- Analyst

Yes, it does, Kevan. Thank you. Maybe a question for Charlie. Earlier today, Seagate spoke about how data growth is going to double every three years. While it would appear that most of these data will continue to be stored on high capacity disk in the areal density improvement shown from HEV road maps. Your FlashArray//C addresses very well. I think the demand for low cost, fast storage across multi-tenant environments. And so first, do you think FlashArray//C will remain the largest driver for you over the next two or three years? Second, now that FlashArray//C appears to be more than 10% of revenue, is there a way to frame the TAM or growth opportunity of your Flashray offering? Thank you.

Charles Giancarlo -- Chairman and Chief Executive Officer

Yes. No, it's a great question. We do think -- we had regularly given out TAM numbers before. We think FlashArray//C fits within the TAM numbers that we had identified previously. It just opens up more of that market to us from a serviceable portion. But FlashArray//C continues to be, first of all, the fastest new product we've ever introduced.

Secondly, the only product of its class that can compete from a purely a price standpoint with hybrid dick arrays and third and to your point, the price of QLC and the price of -- and what we're able to do with it foresee shows that flash continues to decrease on a per bit basis, faster than magnetic and what that means is that as those costs converge, we're going to see more and more of the magnetic market move over to flash. It opens up the opportunity for us, given our first-mover advantage in that secondary Tier of storage with FlashArray//C, we think we're in the best position to continue to take advantage of that.

Kevan Krysler -- Chief Financial Officer

Yes and the only thing I would add to that is there was some great analyst commentary just this last quarter about how we're a couple of years off from that complete convergence, but that commentary misses the benefit of data reduction and so today, we actually deliver the value that folks think are years away of being able to replace disk in the data center completely with flash and I think it's the crystal larity of our founding and vision of Pure 10 years ago to look at flash as something that would really be the dominant storage technology in the data center to deliver the all-flash data center. It seemed like a pipe dream 10 years ago, but those are the exact kind of deals we're doing today for customers, bringing together the strength of FlashArray, FlashBlade and FlashArray//C to go after every use case in the data center.

Charles Giancarlo -- Chairman and Chief Executive Officer

And just to finish your question, which has to do with the FlashArray//C versus everything else. It's a great new product, and we expect great things of it. I also expect great things from FlashBlade and from Portworx. They're all in large growth segments of the market. It's certainly true that the secondary tier market has been immune to the economics of flash up until now and it's equal in size and opportunity to the primary tier market that we've already taken advantage of. So yes, we think it's going to be a great opportunity for us, but not the only one.

Karl Ackerman -- Cowen -- Analyst

Thank you.

Operator

Your next question comes from Rod Hall of Goldman Sachs. You may now ask your question.

Rod Hall -- Goldman Sachs -- Analyst

Great, thank you. So I wanted to ask you, I wanted to go back to these eight large enterprise deals that you guys called out and see if maybe you could talk a little bit about the competitive situation there. Was there any particular competitor you were displacing there? Any particular use case that's resonating with people. I just wonder if you could dig into those deals a little bit more and help us understand how you won those, and then I've got a follow-up.

Charles Giancarlo -- Chairman and Chief Executive Officer

Absolutely. Well, it was a mixture of new and existing customers, mostly existing customers. Certainly, a mixture of portfolio of the verticals, big banks, cloud and traditional -- more traditional enterprise companies. I would say that on average, as I think across all eight of them, it shook out pretty similarly to our average competitive portfolio that is to say, mostly Dell, but certainly, NetApp, a very big win in -- up against NetApp and primarily those two vendors, I would say.

Rod Hall -- Goldman Sachs -- Analyst

Okay, great and then I wanted to follow-up on the supply shortages that are out there and expectations that NAND pricing is going to go up later in the year. I wonder if you maybe can wrap those two questions into one answer. Do you expect supply shortages to be a problem? And are you factoring that into your thinking and how you're factoring it in? And then what does NAND do to your economics later in the year? Thanks.

Charles Giancarlo -- Chairman and Chief Executive Officer

You bet. So as you may recall, we are -- we have a very strong supply chain. We were unaffected, and of course, our supply chain team was very busy but we -- our customers were completely unaffected at the beginning of last year when COVID hit we have some of the best lead times in the business overall. As we look going forward, yes, we do expect NAND pricing to stabilize, if not to get a bit stronger, that is a bit higher in the next couple of quarters.

We think demand has picked up and supplies are a bit constrained, but we don't expect any shortages. There have also been reports, of course, of other semiconductor shortages, we're on top of that, we don't expect to see any, although certainly, lead times are starting to lengthen, but we're taking appropriate action there overall. There was another part of the question was -- I think that was it. So we...

Rod Hall -- Goldman Sachs -- Analyst

I mean, on NAND, the margin impact, just remind us if you would expect any kind of...

Charles Giancarlo -- Chairman and Chief Executive Officer

We don't expect much of a change in margins due to -- NAND is fairly well-behaved from the way we look at things. Right now, and therefore, we don't really expect much change in margin due to NAND pricing.

Operator

Your next question comes from Tim long of Barclays. You may now ask your question.

Tim Long -- Barclays -- Analyst

Thank you. Just two, if I could, just following on those -- the big deals. Could you just talk a little bit about -- obviously, it was a great quarter to talk a little bit about the pipeline for the large deals looks? And anything on the complexion there? And then second, can you -- Charlie, can you touch a little bit on the commercial vertical? Obviously, cloud and enterprise were called strong. So maybe just walk us through what's going on there. I'm sure it's a lot of macro, but kind of the outlook for some recovery in that vertical?

Charles Giancarlo -- Chairman and Chief Executive Officer

Let me take that second part, and then I'll hand it over to Kevan. So we continue to see weakness in commercial, although I would say we saw serial strengthening of that. Or sequential, I should say. Strengthening of commercial. But frankly, it's still suffering, and it's one of the areas that as COVID subsides, we hope to see improve. There are some early signs that, that might be the case. But clearly, the mid-market has suffered much more than the large enterprise overall on average. Our expectation, what we've built into our planning is that we should see because of the -- both the summer months and hopefully, some effect of the vaccine.

We should see a dissipation of the COVID effects in the middle or somewhere in our Q2 and that's our forecast sort of is based on a lessening of COVID effect both in the commercial market as well as in enterprise generally. But yes, no, commercial mid-market is still suffering, but we're seeing some light at the end of the tunnel, and we're hoping that as COVID subsides, we're going to see that improve.

Kevan Krysler -- Chief Financial Officer

And then just adding a little bit of light in terms of -- around our guide for Q1 in annual in correlation with the big deals that we were really pleased to see in Q4. Look, I mean, we've got plenty of opportunities that we're looking at and working with customers on that we're hopeful. We'll continue to pace as we progress through next year, including these large deals we saw in Q4 and building on that, but when we think about the opportunity set, it's really broader as we think about next year.

Subscription services continues to have great momentum, and that's building for us and then obviously, that helps out with a little bit more certainty in terms of how that rolls out into revenue. So that's great for us to see. As we see build of our opportunities, we see some nice build out further beyond Q1, which is nice in terms of our guide for the annual year. So we've got some good confidence on that. But it's broad-based and not completely focused, if you will, on the big deals, which we're always pleased to get.

Tim Long -- Barclays -- Analyst

Thank you.

Kevan Krysler -- Chief Financial Officer

Yeah.

Operator

Your next question comes from Erik Suppiger of JMP Securities. You may now ask your question.

Erik Suppiger -- JMP Securities -- Analyst

Yes. I'll proceed in the question. First off, I'd just be interested to hear, as you look out to the pandemic dissipating, how do you think that would materialize? What will change for you? Is it more just being able to engage personally with the customer? Or where do you think the most notable changes will take place?

Charles Giancarlo -- Chairman and Chief Executive Officer

Yes. We thought about this a lot. I think the most noticeable change will actually be customers being willing to start to reenter the office and why is that? Well, we depend a lot on -- as a company on two things. One is commercial, as we talked about, but the second one is customers willing to take on new products or put products into new use cases and we're largely still an on-prem vendor and their willingness to do so is enhanced tremendously when they can go into the office.

You might imagine that using a new product in a new workload is something that customers are -- can be concerned about and when they're able to go into the office and address things, if something goes wrong, they feel much more comfortable being able to do that. So our dependence on both commercial and net new logos depends on customers feeling more comfortable to go into the office. So that's really what we're going to be looking at. Now it doesn't require 90% of their team to be able to go in the office, just their technology team to be -- to feel comfortable going to the office, trying new things. So that's what we will be looking at.

Erik Suppiger -- JMP Securities -- Analyst

Okay, that's very helpful. You don't break the south, but can you talk a little bit about what portion of your customer base buys across the different product categories, FlashBlade, FlashArray and maybe PaaS? Or do you look at your cross-sell metrics? Anything you can share on that front?

Charles Giancarlo -- Chairman and Chief Executive Officer

We do look at cross-sell metrics and it's quite interesting. It's -- if we look at FlashBlade, for instance, it's roughly 50% of our sales will go into an existing FlashArray customer, an existing customer and half will go into a brand-new customer as well. I would say Portworx is a bit too early. FlashArray//C tends to be a majority new customer -- sorry, existing customer, but we do have brand-new customers for FlashArray//C as well. So it's a good balance. If I had to put an overall percentage on it would be about 50-50, but it depends on the product.

Erik Suppiger -- JMP Securities -- Analyst

What about the -- Pure-as-a-Service?

Charles Giancarlo -- Chairman and Chief Executive Officer

That's very interesting. We've had a very high percentage of net new customers on Pure-as-a-Service. It really has allowed us to enter new customers with a unique value proposition where we might not have been given a chance before.

Erik Suppiger -- JMP Securities -- Analyst

Okay, very good. Thank you.

Operator

Your next question comes from Pinjalim Bora of JPMorgan. You may now ask your question.

Pinjalim Bora -- JPMorgan -- Analyst

Great, hey. Thank you guys and congrats on the quarter. Charlie, given that this is the first fiscal year for Dominick to producing pressure on the sales or and its processes. Could you talk about any material changes that you're thinking or you have already put in place going into the new fiscal year in terms of comp changes or incentive structure changes.

Charles Giancarlo -- Chairman and Chief Executive Officer

Yes, absolutely. Well, we've consolidated our overlay sales operations now into a single overlay and that's going to allow us to really treat which is going to be a highly technical sales and SE operation and that really allows us to balance, if you will, new products, while at the same time, transitioning the more mature new products into the core sales, the mainstream sales operation. So that's been a significant change.

Of course, we've made -- as we do every year, we've made changes to the compensation program, not -- and I want to be clear, not major changes, but balancing all of our -- balancing all of the products and the intentions that we have for this year, making sure that we have incentives, as we talked about before, as I talked about in my prepared remarks for Pure-as-a-Service, but also for Portworx going forward.

I think Dominick's understanding of how to sell an enterprise and how to sell, in particular, software and service offerings has really modified the way we've thought about that and, therefore, allowed us to change and in many ways, simplify our compensation program to really focus on the elements that are important, while at the same time, making everything else mainstream and to make sure that our sales force really has the the training, the knowledge and the skills to sell our entire portfolio.

Kevan Krysler -- Chief Financial Officer

And I'd just add, just in terms of, Charlie, on the field compensation and what Dom and yourself are doing it, really extends to Evergreen gold subscription. We're really trying to make sure that the field is promoting that, given the value proposition there. Pure-as-a-Service, Cloud Block Store, and Portworx as well as FlashBlade. So we've continued to highlight FlashBlade. We've gotten wonderful momentum with FlashBlade in that offering and use cases, and that will continue as we look out to next year.

Pinjalim Bora -- JPMorgan -- Analyst

Understood. Helpful and just a follow-up, maybe Charlie or Kevan, any one of you can take this, but when I look at the guidance, seems pretty solid, but when I look at the range, maybe it's a little bit wider than usual. So trying to understand how would you peg the environment going forward? Would you say it is back to normal? Is there -- I mean, the shape of the year, would it be more in the second half ramp versus the first half? Help us understand that.

Kevan Krysler -- Chief Financial Officer

Yes snd I'll start with that tactically and let Charlie add on to it, but I think you're thinking about that right, right? So we're looking at probably in the Q2 time frame, really to start to see noticeable diminishing effects, if you will, of COVID. And we've built that into how we're thinking about the entire year and so that is playing into it. So obviously, second half, we are looking for some incremental momentum in terms of how we're thinking about our annual outlook. Charlie, do you have anything else you want to add on that?

Charles Giancarlo -- Chairman and Chief Executive Officer

Yes. No, I think that's correct. The only -- the uncertainty we face is, was it the beginning of Q2, is it the end of Q2? And what does the end of -- what is the fall of the year look like from a COVID standpoint? But our belief is that it will continue to improve throughout the year second half -- and obviously, the comparison -- this coming year are going to be wonky as well, given COVID last year. But that being said, we feel fairly good about the guide that we've -- about the forecast that we have.

Kevan Krysler -- Chief Financial Officer

Yes. I'd just add on a little bit more in terms of, obviously, the momentum that we've seen this year and expect to continue next year in terms of outperformance on our subscription services. That gives us a little bit more predictability in terms of how things will fall. We've got really solid growth drivers, as we've talked about with FlashBlade and FlashArray//C. We do expect continued momentum with enterprise and as Charlie mentioned, it's really looking at the commercial and mid-market recovery, really second half, post COVID, if you will.

Pinjalim Bora -- JPMorgan -- Analyst

Got it. Thank you very much.

Operator

Your next question comes from Simon Leopold with Raymond James. You may now ask your question.

Simon Leopold -- Raymond James -- Analyst

Thanks for taking the question. Charlie, I think my question really goes back to your comment about the trend being a little bit wonky in that we've got a relatively -- or very easy comparison to the pandemic. So I'm wondering if you could give us some idea of what you see as the maybe normalized growth rate on a year-over-year basis, if there is some way to adjust for what the effect of the pandemic has been and what you think your growth should be?

Charles Giancarlo -- Chairman and Chief Executive Officer

Yes. Well, definitely safely within the double-digit range. Certainly, as you might recall, this time last year, we were projecting a 20% growth rate. I have no reason to believe why that wouldn't have been the growth rate going forward. But as it is, we're going to be facing at least four to five months of this calendar year, still with a strong COVID effect, and it's hard to say exactly how long that will be. So I hope that gives you some semblance of where we would expect to be.

Kevan Krysler -- Chief Financial Officer

Yes. Yes, I would add on to that for the quarter for Q1 of last year. That would be a strong compare. Obviously, when COVID set in for us, that was later in the quarter and so we had a strong start to last quarter as well as the fact that we had some tailwinds as folks were working through some technical debt to respond to COVID. So I'd actually view Q1 last year as a strong compare, but it's a fair statement for the full year.

Simon Leopold -- Raymond James -- Analyst

Great and then in line of sort of the idea that there's recovery and some return to normal, what is your thinking in terms of your operating expense budget where you might be introducing or reintroducing travel expenses and things like that. Have you made some assumption for the timing and impact? And is that incorporated into this operating income for the full year that you've considered? Or do you think that happens later?

Charles Giancarlo -- Chairman and Chief Executive Officer

It's -- you're thinking about this exactly right. We're going to feather that in. It's incorporated into our guide. Clearly, we've taken, this past year, we've taken T&E and put it into headcount, if you want to put it that way, into investment. As we go forward -- travel is not going to start-up like a light switch. It's going to take time to build up. Customers will have their own pace by which they will want to physically meet and get together.

So we're going to be cautious. I don't even want travel and entertainment to get up to the same level it was pre COVID. But at the same time, our expectation is that expenses will grow slower than revenue and that's on a total basis. So by definition, since we've pre invested, if you will, into headcount, it will mean an even slower growth in the area of travel and entertainment.

Operator

And your next question comes from Katy Huberty of Morgan Stanley. You may now ask your question.

Katy Huberty -- Morgan Stanley -- Analyst

Thank you for the question. The $10 million subscription deal was particularly impressive in the quarter. Can you just talk about what you think is driving underlying adoption of Pure-as-a-Service. Is COVID a factor as companies focused on cash preservation? Or is this much more of a sustained shift in how customers are thinking about buying product on-prem? And then I have a follow-up.

Charles Giancarlo -- Chairman and Chief Executive Officer

Thank you for the question. The $10 million subscription deal was particularly impressive in the quarter. Can you just talk about what you think is driving underlying adoption of Pure-as-a-Service. Is COVID a factor as companies focused on cash preservation? Or is this much more of a sustained shift in how customers are thinking about buying product on-prem? And then I have a follow-up.

Katy Huberty -- Morgan Stanley -- Analyst

That makes sense.

Kevan Krysler -- Chief Financial Officer

I would also just add to that real quick, Katy, that we really view this as a product innovation strategy as much as a business model and it's one that I think when you look at what we're offering compared to the kind of financing options, many of our competitors offer, it really allows us to differentiate our experience with customers. We're delivering a cloud-like experience that bridges on-prem and actual deployment in the cloud that's unified subscription and another interesting thing we did this last quarter was open up the services catalog. So we are providing transparent pricing, where a customer can go in and see exactly what storage costs and subscribe to it, and we've seen the first transactions come through that in an automated fashion.

Katy Huberty -- Morgan Stanley -- Analyst

Great and Charlie, I want to come back to an earlier question, somebody asked about large deal pipeline. Can you just talk about the broader pipeline exiting January, what that looked like versus October? And have you already started to see improved conversion and close rates even in the commercial market?

Charles Giancarlo -- Chairman and Chief Executive Officer

We've seen in the commercial market, as I've mentioned, is improving somewhat, but still far below where we had exited last year, for instance. We're seeing better conversions on the enterprise side of things and so that's -- gives us hope and in general, I'd say, certainly compared to a year ago, increased amount of enterprise and large enterprise, much larger fraction of large deal activity. I hope that gives you some color.

Operator

Your next question comes from Amit Daryanani of Evercore. You may now ask your question.

Irvin Liu -- Evercore -- Analyst

Hi, this is Irvin Liu dialing in for Amit. I jumped on the call a bit late. So forgive me if this was addressed. Can you help us better understand some of the assumptions that are embedded in your 14% to 15% revenue growth outlook for fiscal '22? Just any thoughts on product versus support revenue trajectories would be helpful. Just trying to parse this out. Thanks.

Kevan Krysler -- Chief Financial Officer

Yes. I'll start, and then I'll let Charlie jump in. But obviously, what we've been chatting about is terrific momentum with subscription services that we've seen really throughout the entire year. We fully expect to build on that as we look out to next year and that's really being driven by our evergreen subscription by Pure-as-a-Service, unified subscription with Cloud Block Store and Portworx. So again, I'd say business as usual with continued momentum there. I think on the product side, what you've seen is a modest improvement in Q4 in terms of where we're landing from that perspective.

We expect to build on that. You'll see some improvement in terms of how we look at that for Q1 and then obviously, we would expect to get back to growth on product revenue as well as we go throughout the year in terms of how we're thinking about it. The growth drivers really will continue to be enterprise as well as FlashBlade, FlashArray//C, and then we fully expect, to Charlie's point, after or as COVID diminishes to get further recovery from our commercial business and building upon our strength that we saw in Q4 on net new logo. Charlie, would you add anything else there?

Charles Giancarlo -- Chairman and Chief Executive Officer

I think, Kevan, you handled most of it. I would just say that we do expect product growth that is traditional capex product growth to increase, albeit we expect subscription growth to outpace the capital equipment growth on a going-forward basis.

Operator

This concludes the question-and-answer session. At this time, I will turn the call back over to Charlie Giancarlo for closing remarks.

Charles Giancarlo -- Chairman and Chief Executive Officer

Thank you. In closing, I'd like to thank you all, and thank all of our employees, our customers and our partners for all of their support through this past year. Despite it all, Pure has accomplished a great deal, both in terms of the innovation in our products as well as our market penetration and even with all of the uncertainty around the exact timing of the recovery from this pandemic, we're confident in our vision, our strategy and our team's ability to grow and to scale Pure. I want to thank you all for joining us today. Goodbye.

Operator

[Operator Closing Remarks]

Duration: 59 minutes

Call participants:

Nicole Noutsios -- Investor Relations

Charles Giancarlo -- Chairman and Chief Executive Officer

Kevan Krysler -- Chief Financial Officer

Jake -- Wells Fargo -- Analyst

Jason Ader -- William Blair -- Analyst

Alex Kurtz -- KeyBanc -- Analyst

Karl Ackerman -- Cowen -- Analyst

Rod Hall -- Goldman Sachs -- Analyst

Tim Long -- Barclays -- Analyst

Erik Suppiger -- JMP Securities -- Analyst

Pinjalim Bora -- JPMorgan -- Analyst

Simon Leopold -- Raymond James -- Analyst

Katy Huberty -- Morgan Stanley -- Analyst

Irvin Liu -- Evercore -- Analyst

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