Kash Rangan: Hi. Thank you very much. Congrats. Dave and Armon, I saw 65,998 people at AWS re:Invent, but somehow missed the two of you. So good to see the flow you’re getting there. Your booth was extremely active. And given that at AWS, we saw a bunch of announcements that were either foundational at the network layer, the chip layer or more so at the application layer, the database, data integration, AI, et cetera. There wasn’t a whole lot said about the infrastructure layer, and you have cloud watch, which helps at a potentially recessionary time. AWS helping its customers to control cost. And then you have your place here. I’m wondering how much more influential can AWS be as a true partner that actually not only works with you guys from a business development standpoint, but can actually bring your leads even more actively given everything that’s going on in the world going forward.
Navam one for you. I know that you said that you – that the revenue upside drop through to the bottom line. Are there any other measures fundamentally at a unit level how you’re watching costs and expenses, maybe this thing blows over, maybe it’s here to stay forever? But how are you managing expenses, not just managing the revenue upside to trickle through to the operating income? Thank you so much.
Dave McJannet: I’ll take the first one. This is Dave. Yes, I think I agree with you, there were not massive announcements at re:Invent, but I think that might be indicative of having reached a state already in cloud where we’ve reached that comfortable stage of infrastructure where, yes, this is just the reality that everyone’s working with, everybody’s estate includes Amazon and Azure and a few other things. And there’s some level of maturity there. I would not conflate that with the fact that many, many companies are still haven’t done that yet, but I think the notion is not very sensational any longer that should we adopt cloud. I think that’s a good thing for the market. It’s a good thing for us. We certainly see that reflected in our customers.
We certainly see really good co-engagement with all the cloud providers. And you see that partner of the year type awards are just indicative of it across all of them. So I actually wouldn’t – I expect this to be the steady state. Multicloud is just the reality. They’ve all accepted. They all appreciate that everybody’s estate needs connect to other things and in many instances, we’re the how they do that. So actually – I’m actually very encouraged by that sort of acknowledgment of market maturity. And I think we continue to see better each month engagement from the cloud providers with us.
Navam Welihinda: Yes. Kash, and this is Navam on your second question on the spend side. We’re absolutely pleased with what happened in the third quarter. And then we mentioned this during the Financial Analyst Day our spend envelopes or spend plans are intently predict – or are scrutinized based on the unit economics of it. So on a unit level, we’re very focused on CAC payback periods, and that is the driver of acceleration or a reduction of revenue of expenses.
Kash Rangan: Got it. Thank you very much. Congrats on the quarter again.
Navam Welihinda: All right. Thanks, Kash. So we have a couple of questions left, but we’re kind of running up on time. So if we could just limit it to one question for the remaining folks that would be appreciated. Thank you.
Operator: Thank you. Our next question comes from Pat Walravens with JMP Securities. You may proceed.
Unidentified Analyst: Hi, team, it’s Jeremy on for Pat. Thank you for the question. Navam, can you just remind us of the main drivers of gross margin? And then how should we be thinking about the trajectory of that metric just given the mix shift to cloud? Thanks so much.
Navam Welihinda: Yes, absolutely. There are three components to our revenue, our self-managed revenue, our cloud revenue and then the services and other. Services revenue is broadly held at near zero to negative margins slightly and subscription revenue is a high margin business. So what’s really pleased us is the amount of gross margin leverage we’re getting on our cloud products. And we’re seeing continued upticks in gross margins in cloud. And we believe that over time, as this line scales, we’d get to the 70s, high 70s margin. So as that walks up, I believe we’re in a good spot from a gross margin perspective. But in Q3, it was a great outcome from a margin perspective there.
Operator: Our next question comes from Miller Jump with Truist. You may proceed.
