We believe that the Nimble Storage Adaptive Flash platform offers the broadest approach to leveraging flash storage in the modern data center. As Hybrid-Flash arrays and All-Flash arrays displace disk-only storage arrays over the next several years, we believe that we are uniquely positioned to address the broadest spectrum of workloads within the data center.

Some large-scale wins at major enterprises during Q3 that illustrate the value proposition of our platform include the following:

•       A major global reinsurance company selected us as their storage standard to replace a leading incumbent vendor after evaluating several flash vendors, for a deployment of over 1PB of storage hosting databases, file servers, Exchange and their virtual server environment

•       A major healthcare information and data analytics firm selected us as a high performance storage solution to replace their legacy storage infrastructure in an environment that includes large-scale Oracle databases and petabytes of unstructured data

CareCentrix uses SmartStack for 8X storage consolidation from VMAX to Nimble

CareCentrix is a national home healthcare services network serving more than 23 million patients across the US. CareCentrix works with Payers and over 8,000 qualified Providers to create programs that improve quality and lower the cost of delivering patient care to the home. The IT organization faced an aging storage infrastructure that included VMAX, Data Domain, and an all-flash XtremIO array from EMC. In addition to the complexity of managing three different platforms, the legacy storage infrastructure didn’t provide the space reduction tools or ease of management CareCentrix required. With a requirement to eliminate storage silos and consolidate applications and workloads, CareCentrix selected the Nimble Storage Adaptive Flash platform combined with Veeam for data protection and immediately discovered increased system performance and overall flexibility. The combined Cisco UCS and Nimble arrays and Veeam Enterprise Suite, work seamlessly to deliver annual storage maintenance and power reduction costs of over 8X compared to the silos across their legacy storage environment. In addition, CareCentrix reduced its storage footprint 8X moving from 252RU’s of VMAX to just 30RU’s with Nimble. The ongoing dollar and time savings from the consolidation is being focused on driving strategic IT projects used to streamline and enhance the Payer, Provider and especially the CareCentrix Patient experience.

•       We partnered with a major systems integration firm to deliver hosted Exchange services to a large US Federal agency that was considering Office 365 or extending their current legacy storage solution as alternatives

•       A major law firm selected us as their consolidation platform after evaluating a traditional tier 1 storage array as well as an all-flash array, based on the performance benefits, the simplicity of our data management and our ability to deliver resiliency through InfoSight

Underscoring the differentiation of our Adaptive Flash platform, we were named a Leader in the 2015 Gartner Magic Quadrant for General-Purpose Disk arrays – the only storage vendor built in the last two decades to be in the Leader Quadrant. This is an important validation for us as a company, and key to our success within large enterprises that seek validation in choosing Nimble as their storage vendor.

As customers seek to simplify the deployment of infrastructure, we have partnered with industry leaders to create SmartStack converged infrastructure solutions that are experiencing rapid adoption. Since 2012, Cisco and Nimble Storage have partnered with software partners to develop nine SmartStack reference architecture-based solutions that have been deployed by over 750 enterprises.

We have a proven go-to-market engine for driving growth

Our strategy for driving growth is to acquire customers rapidly, spanning mid-sized enterprises, large global enterprises and cloud service enterprises, across the globe. Even as we acquire new customers rapidly, our storage systems are being deployed in larger and more mission-critical environments, which in turn drives larger transaction sizes. As important as new customer acquisition is, a steady and predictable pattern of repeat purchases by our installed-base customers driven by high levels of customer satisfaction is an even more critical driver of long-term growth. We executed well on several of our key growth drivers during Q3FY16:

•       Building a large customer base. During Q3, we acquired 617 new customers to end with an installed base of 6,828. A key driver of our rapid pace of customer acquisition has been the strength of our channel ecosystem as channel initiated bookings accounted for almost half of our total bookings during the quarter, the highest level in over six quarters. We now have over 4,000 accredited system engineers within our channel partner community – a key source of leverage in growing our customer base.

•       Rapid growth in large enterprises and cloud service providers. We now have over 400 global enterprises within our customer base, including 78 of the Global 500. Bookings from our global 5000 customers during the last 12 months grew at 65% compared to the previous 12-month period. Our bookings from cloud service providers also grew rapidly, as bookings over the last 12 months grew at 68% compared to the previous 12-month period

•       Increasing deployment size. Across our commercial and enterprise customer base, we are seeing ever-larger deployment sizes. Bookings from deals over $100K accounted for 45% of our total bookings, while bookings from deals over $250K were at record levels. A key driver of

being deployed in larger and more mission-critical environments is the continued progress we are seeing with Fibre Channel, as the mix of Fibre Channel grew from 17.4% in Q2FY16 to 23.5% in Q3FY16.

•       Growing international contribution. During Q3FY16, we achieved strong growth in EMEA as international revenues grew at 49% compared to Q3FY15, while year-over-year growth would have been 66% on a constant currency basis.

•       Land and expand model. One of our key differentiators is the level of resiliency and availability our customers experience with us, the level of visibility that we have into our customers’ environments with InfoSight, and the consequent high level of proactive support we are able to deliver. InfoSight identifies over 90% of support cases proactively before customers call us, and we continue to experience availability well ahead of five 9s across our rapidly expanding installed base. These differentiators translate into a steady pattern of repeat purchases.

We plan to make some key investments to drive growth that will constrain short-term profitability

Our first priority is to increase the investment in our core commercial business. In addressing this priority, we are leveraging some of our core strengths that have under-pinned our execution from the beginning. Specifically, we have a strong track record of leveraging marketing-led demand generation and our channel partner ecosystem to drive growth and productivity through our territory based sales teams. Over the next few quarters, our plan is to increase investments in ramping our territory based sales teams, and to drive increased pipeline through investments in demand generation and channel programs.

We believe the increased investment in our commercial business is the right business decision given that our mature commercial sales teams, on average, operate at productivity levels that are well above breakeven productivity levels. Therefore, while the incremental investments will constrain our operating leverage over the next few quarters, we believe that these investments will drive growth as well as operating leverage improvements over time.

Dreamscape Networks delivers web and e-commerce platform for 1,000,000 customers with Nimble

Dreamscape Networks is headquartered in the heart of Dubai Internet City and offers its customers a broad range of Internet services from registering global domain names to hosting services, web and e-commerce, search engine marketing and online tools. Hosting more than 300,000 websites for more than 1,000,000 customers requires a robust IT infrastructure that can scale in line with the increasing demands of the business and expectations of its customers. Running at near peak capacity data recovery was becoming an increasing challenge for the IT team to manage. Rather than continue to scale their legacy EMC infrastructure, they looked toward new and innovative technologies engineered to scale seamlessly and in alignment with escalating customer requirements. Dreamscape Networks selected Nimble arrays following an analysis of different vendor offerings and based on the superior performance characteristics and management simplicity of the Adaptive Flash platform. The customer has deployed additional Nimble arrays for replication and extra redundancy of storage capacity to support more than 800TB of data across its Australia and Europe installations. Dreamscape Networks has gained the advantages of simplified management, increased performance and integrated data protection curing the headaches associated with dedicated silos of backup storage.

Enterprise cloud hosting provider builds industry-leading DRaaS offering with Nimble

The Cloud Services organization at iland, a leading enterprise cloud hosting provider, was seeking an advanced encryption solution to more effectively address the storage and security requirements for its existing clients and accelerate its expansion into new markets. The Nimble Adaptive Flash platform with Federal Information Processing Standard (FIPS) certified software-based encryption proved ideally suited to iland’s requirements. By selecting Nimble as the storage foundation for their Advanced Security Suite – one of their most popular hosted services combined with industry leading back-up software from Veeam and Zerto and security offerings from Nessus, TrendMicro and Hytrust iland can now fully address the performance, capacity, data protection and security requirements that their clients demand. The Nimble Adaptive Flash platform enables iland to deliver access to Oracle, Posgres, Casandra and other workloads with high-performance and consistently low latency. The Cloud Services organization is also realizing higher levels of efficiency from the compact footprint of the Adaptive Flash platform including lower power and cooling costs. iland is now well positioned to meet the advanced requirements of their current clients and scale their offerings in line with the expansion of their business.

Revenue and Non-GAAP Gross Margin

Product revenue for Q3FY16 was $65.6 million, representing 81% of total revenue and an increase of 28% from Q3FY15. The split of product revenue between new and existing customers in Q3FY16 remained consistent over the past four quarters with approximately 45% of total product revenue obtained from our existing installed base of customers. Support and service revenue for Q3FY16, which includes our maintenance and InfoSight service, was $15.1 million, representing 19% of total revenue and an increase of 90% from Q3FY15. Our international business contributed 22% of total revenue during Q3FY16 and grew by 49% from Q3FY15. Within International, revenue from our EMEA operations increased by 54% from a year ago, and revenue from APJ increased by 38% from a year ago. Excluding fluctuations in foreign currency, international revenues would have been 23% of total revenue, with growth of 66% compared to Q3FY15.

Gross margin was 66.9% in Q3FY16 as a decrease in Product gross margin was partially offset by an increase in Support and Service gross margin. Our reported Gross margin would have been 100 bps higher or 67.9% had exchange rates remained at year ago levels. Our industry leading Gross margin remains above our long term target model of 63% to 65% and continues to reflect the efficiencies of our Adaptive Flash platform.

Product gross margin in Q3FY16 was 67.8%, 110 bps lower than the 68.9% achieved in Q3FY15. Our reported Product gross margin would have been 68.9% or flat to prior year had exchange rates remained at year ago levels. However, our Product gross margin decreased by 150 bps from Q2FY16 due to higher discounts, adverse effects of product mix and exchange rate movements, and lower product revenue.

Support and service gross margin in Q3FY16 was at a record high of 62.8%, up by 680 bps from 56% in Q3FY15. The expansion in support and service gross margin was driven by increased revenue from our larger base of customers and economies of scale from our support organization, enabled by the automation capabilities of InfoSight.

Non-GAAP Operating Expenses and Margin

Q3FY16 total operating expenses were $64.8 million or 80% of revenue compared to Q3 last year operating expenses of $49.4 million or 84% of revenue. Our operating expenses increased by 31% vs. last year, compared to our gross profit increase of 36% and our revenue increase of 37%. We ended Q3FY16 with 1,049 employees on board, an increase of 74 during the quarter. Our operating leverage improved by 400 bps mainly driven by R&D and G&A.

•       Research and development (R&D) spending in Q3FY16 was $18.0 million or 22% of revenue. Leverage improved by 320 bps compared to Q3FY15 when spending was $15.1 million or 26% of total revenue. Our long-term target for R&D spending is 11% to 13% of total revenue.

•       Sales and marketing (S&M) spending in Q3FY16 was $40.7 million or 50% of revenue. Leverage was flat compared to Q3FY15 spending of $29.4 million or 50% of revenue. Our long-term target for S&M spending is 28% to 31% of total revenue.

•       General and administrative (G&A) spending in Q3FY16 was $6.0 million or 7% of revenue. Leverage improved by 80 bps compared to Q3FY15 spending of $4.9 million or 8% of revenue. Our long-term target for G&A spending is 5% to 6% of total revenue.

Balance Sheet and Cash Flow

We ended Q3FY16 with cash and cash equivalents of $209.7 million, a decrease of $3.8 million during the quarter. Cash Flow from Operations during Q3FY16 was negative $3.1 million or negative 4% of revenue compared to negative $6.5 million or negative 11% of revenue in Q3FY15. Free Cash Flow during Q3FY16 was negative $12.2 million or negative 15% of revenue compared to negative $11.5 million or negative 19% of revenue in Q3FY15.

In Q3FY16, we achieved a cash conversion cycle of 12 days, in line with the last two quarters and ahead of our target of 20 days. We ended Q3 with accounts receivables of $44.5 million, an increase of $1.4 million from Q2FY16. Days sales outstanding (DSO) were 46 days, an increase of 2 days from Q2FY16 due to less linearity of billings during the quarter. We ended Q3 with inventory of $14.7 million, an increase of $1.0 million from Q2FY16. Days sales in inventory (DSI) were 49 days in Q3FY16, consistent with the last few quarters.

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