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Operator
Standing by and welcome to the Pure Storage fourth quarter fiscal year 2021 earnings release conference call. At this time, all participants are in a listen-only mode. At the conclusion of our prepared remarks, there will be a question and answer session. If anyone should require assistance during the conference, please press star zero on your touchstone pad at any time. As a reminder, this call is being recorded. I would now like to introduce your host for today's conference call, Ms. Nicole Knottes. Ms. Knottes, please go ahead.
Nicole Knottes
Thank you and good afternoon. Welcome to Pure Storage fourth quarter fiscal 2021 earnings call. My name is Nicole Nutsius, Investor Relations at Pure Storage. Joining me today are CEO Charlie Giancarlo, our CFO Kevin Kreisler, and our VP of Strategy Matt Kixmuller. Before we begin, I'd like to remind you that during this call, management will make four looking statements which are subject to various risks and uncertainties. These include statements regarding the COVID-19 pandemic and related disruptions, our growth and 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. Discussion of some of the risks and uncertainties related to our business is contained in our filings for the SEC. We refer you to these public filings. During this call, we will discuss non-GAAP measures and talking about the company's performance. and reconciliations to the most directly comparable gap measures are provided in our earnings release and slides. This call is being broadcast live on the Peer Storage Best 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 Peer Storage. With that, I'll turn the call over to our CEO, Charlie Giancarlo.
Nicole Nutsius
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 and 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, Flasher AC, 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've 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 Wikibon 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 bobcom 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 into 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 4 billion kilowatt hours in energy use. avoiding the greenhouse gas emissions equivalent to over 7 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 gear 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 Flasher AC, 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 right-sizing 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, our 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 Kevin for details on our financials.
Portworx
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 Flasher AC 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 compared to last year, driven by strength both in the U.S. and international markets. We were 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 peer-as-a-service subscription, which includes CloudBlock Store. Total revenue, both in the United States and international, saw slight growth compared to a strong Q4 last year. Our remaining performance obligations, or RPO, which includes our committed and non-cancellable 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 continued 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 1 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 FY22, we expect that total revenue growth will be in the range of 14 to 15 percent, 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 FY21, 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.
Operator
Thank you. Ladies and gentlemen, if you have a question, please press star 1 on your touchstone telephone. In the interest of time, we ask that you please limit yourself to one question and one follow-up question. Once your questions have been answered, please jump back into the question and answer queue. We'll pause for just a moment to compile the Q&A roster. Your first question comes from Aaron Rakers of Wells Fargo. Can we now ask your question?
Aaron Rakers
Hi, this is Jake on for Aaron. First of all, congrats on the 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 and RPO.
Nicole Nutsius
Yeah, Jake, thanks for the question. Let me just start because I'd like to just start the overall conversation. with the fact that, you know, we really did see an excellent quarter across the board. And, you know, given the strength that we've had in subscription revenues that we commented upon, you know, 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. Kevin?
Portworx
Yeah, Jake, let me just add on in terms of, you know, obviously RPO or remaining performance obligations. You know, when you're seeing the growth sequentially is really being driven by the momentum we're seeing in our subscription services, principally around peer-as-a-service services. 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, you know, increased momentum with the sales of our integrated solutions and appliances as well.
Aaron Rakers
Great. Thanks for that. And then on another note, I was wondering if you could talk a little bit more about FortWorks and what you're seeing in the competitive landscape there.
Nicole Nutsius
You bet. You know, right now, Portworx actually is almost the only game in town from what we can see with respect to two areas. One is a 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, you know, 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. 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. We're seeing good traction directly by customers. And in particular, what is especially gratifying is the fact that we have a very high uptake by enterprise customers, large banks and other areas as well.
Portworx
Yeah, I would just add to that, Charlie, that I think it's been really gratifying to see the different types of customers that are adopting Portworx and 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 environments. 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.
Nicole Nutsius
Still early days, of course, but we're seeing good growth.
Aaron Rakers
Great. Thank you.
Operator
Your next question comes from Jason Adder with William Blair. Blair, can you ask your question?
Jason Adder
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?
Nicole Nutsius
Yeah, we are seeing, as we mentioned in our remarks, really good uptake by enterprise. And as you know, while we've sold into 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 see. 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, you know, a faster uptake by new enterprise customers. And in particular, as we mentioned, our 10, you know, 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 Paz, was a Paz, actually two of whom, through the year were PAS deals. And so, you know, 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 Adder
And just any comments on verticals and then what surprised you in the quarter?
Nicole Nutsius
Yeah, you know, frankly, the one vertical 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. You know, we're also strong in service provider and health care, and those have been good for us this year as well. And obviously the cloud business continues to be... Yeah, I mean, of course, we've talked about that before. You know, again, you know, 30% plus of our sales into cloud customers. We call it clouds, you know, 4 through N, 4 through 1,000, and that includes companies that only provide cloud service to their customers as well as the cloud service of more traditional companies such as Epic. So, you know, we're in the Epic cloud.
Jason Adder
And federal, any quick one on that?
Nicole Nutsius
Yeah, federal is still not an area of strength for us, to be honest. You know, that's an area where we are making some changes and looking to make improvement.
Operator
All right. Thank you. Your next question comes from Alex Kurtz of KeyBank. He's going to ask a question.
Alex Kurtz
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.
Portworx
Yeah, Alex, this is Kevin. A couple things that we look at and share. Obviously, the bookings outpacing revenue is one metric that we look at. 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 industry. You know, 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, you know, good strength and momentum across the board there.
Alex Kurtz
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?
Nicole Nutsius
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.
Portworx
Yeah, and Alex, we'll take a look at that as we go through this year. We do plan on having an analyst stake. this year and we'll land on a date and obviously we'll look at some other metrics that 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
Yeah. Thank you.
Operator
Your next question comes from the line of Carl Ackerman with Cohen. He's going to ask a question.
Carl Ackerman
Yes, good afternoon, gentlemen. Kevin, 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 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?
Portworx
Yeah, good question, Carl. And I think the first thing I'd start out with is, you know, 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 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, you know, 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, Carl.
Carl Ackerman
Yes, it does, Kevin. 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 disks given the aerial density improvements shown from HED roadmaps, You know, your FlashRay C addresses very well, I think, the demand for low-cost, fast storage across multi-tenant environments. And so, first, do you think FlashRay C will remain the largest driver for you over the next two or three years? Second, now that FlashRay C appears to be more than 10% of your revenue, is there a way to frame the TAM or growth opportunity of your FlashRay offering? Thank you.
Nicole Nutsius
Yeah, no, it's a great question. We do think we had regularly given out TAM numbers before. We think FlashRay 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, you know, FlashRay 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 purely a price standpoint with hybrid disk arrays. And third, and to your point, the price of QLC and what we're able to do with it for C shows that flash continues to decrease on a per-bit basis faster than magnetic. And what that means is that the – 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 flash or AC. We think we're in the best position to continue to take advantage of that.
Portworx
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 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 crystallarity of our founding vision of pure 10 years ago to look at Flash as something that would really be the dominant storage technology in the data center. 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.
Nicole Nutsius
And just to finish your question, which has to do with 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.
Operator
Thank you. Your next question comes from Rod Hall of Goldman Sachs. You may now ask your question.
spk04
Oh, 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.
Nicole Nutsius
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 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 up against NetApp, and primarily those two vendors, I would say.
spk04
Okay, great. And then I wanted to follow up on the supply shortages that are out there and expectations that NAM pricing is going to go up later in the year. I wonder if you maybe could 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 NAM do to your economics later in the year? Thanks.
Nicole Nutsius
You bet. So as you may recall, we have a very strong supply chain. We were unaffected. And, of course, our supply chain team was very busy, but our customers were completely unaffected at the beginning of last year when COVID hit. We have some of the best supplies. 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. I think that was it. I mean, on NAND, the margin impact used to remind us that we would expect any kind of – 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.
spk04
Great. Okay, thank you.
Operator
Your next question comes from Tim Long of Barclays. Tim, now ask your question.
Tim Long
Thank you. Just two, if I could, just following on the big deals, could you just talk a little bit about, you know, obviously it was a great quarter. Talk a little bit about how the pipeline for the large deals looks and anything on the complexion there. And then second, Charlie, can you touch a little bit on the commercial side? 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 in that vertical thanks that let me take that second part then I'll hand it over to Kevin so we continue to see weakness in in commercial although I will say we saw a serial strengthening of that our sequential I should say strengthening of commercial
Nicole Nutsius
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 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, you know, our forecast sort of is based on a lessening of COVID effect, both in the commercial market as well as, you know, in enterprise generally. But Yeah, no, commercial, mid-market 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.
Portworx
And then just adding a little bit of light in terms of around our guide for Q1 and annual in correlation with the big deals that we were really pleased to see in Q4 is, Look, we've got plenty of opportunities that we're looking at and working with customers on that we're hopeful will continue the 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 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. You know, 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.
spk04
Thank you.
Operator
Yeah. Your next question comes from Eric Suttiger of JMP Securities. Can you ask a question?
Eric Suttiger
Yeah, I'm taking the question now. First off, I'd just be interested to hear, as you look out to the pandemic dissipating, how do you think that will 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?
Nicole Nutsius
Yeah, we've 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 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 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 feel comfortable going to the office trying new things. So that's what we'll be looking at.
Eric Suttiger
Okay, that's very helpful. You don't break this out, 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?
Nicole Nutsius
We do look at cross-sell metrics, and it's quite interesting. 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. Flasher AC tends to be majority new customer, sorry, existing customer, but we do have brand new customers for Flasher AC as well. So it's a good balance. If I had to put an overall percentage on it, it would be about 50-50, but it depends on the product.
Eric Suttiger
What about Pure as a service?
Nicole Nutsius
You know, that's very interesting. We've had a very high percentage of 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.
Eric Suttiger
Okay, very good. Thank you.
Operator
Your next question comes from Pindalim Bora of JPMorgan. You may now ask your question.
spk00
Great. Hey, thank you guys, and congrats on the quarter. Charlie, given that this is the first fiscal year for Dominic to put his impression on the sales org and its processes, could you talk about any material changes that you're thinking of or you have already
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