Q4 2020 Earnings Call
[music].
Ladies and gentlemen, thank you for standing by and welcome to the pure storage fourth quarter fiscal 2020 earnings conference call.
At this time all participants are in listen only mode. After the speakers presentation. There will be a question and answer session to ask a question. During the session you only two press star one on your telephone.
Please be advised that today's conference is being recorded.
If you require any further assistance. Please press star Zero I would you like to Kinda conference over to your Speaker today, Matt Danziger, Vice President Investor Relations. Thank you. Please go ahead Sir.
Thank you and good afternoon, welcome to the pure storage fourth quarter and full year fiscal 2020, <unk> earnings conference call.
Joining me today, our CEO Charley Jones Carlo our CFO, Kevin Chrysler, our VP of strategy back smaller.
Before we begin I would 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 competitive industry and technology trends.
Our strategy positioning and opportunities.
Current and future products.
Business it operations, including our operating model.
Growth in sales prospects.
Bookings and that's relation to our revenue.
And revenue and margin guidance for future period.
Any forward looking statements that we make our 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 relating to our business is contained in our filings with the FCC and we refer you to these public filings.
During this call, we will discuss non-GAAP measures and talking about the company's performance.
Reconciliations to the most directly comparable GAAP measures are provided in our earnings press release and slot.
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 for at least 45 days and if the property a pure storage.
With that I'll turn the call over to our CEO Charlie job Carla.
Thank you, Matt and good afternoon, everyone. Thank you for joining us on today's earnings call.
I am pleased with our Q4 performance, resulting in record revenue and the largest bookings quarter ensures history.
Oh sure highlights from the year explain why pure is best positioned to help enterprises navigate their digital transformation and share our excitement for the future.
Kevin joining us for his first pure earnings call will follow with a review of our financials and outlook for next year.
Accelerate last September we announced pure strategy for our second decade.
Our portfolio of products running our unified purity software and all managed by our pure one cloud can now serves the majority of data workloads for all customers.
Mission critical production test, Jeff analytics disaster recovery and backup and recovery in oil environments on premise in cloud and hybrid.
The purity software platform brings performance simplicity and cloud <unk> automation to storage at any scale.
We call. This strategy the modern data experience and we are succeeding by helping our customers transform their storage operations to a modern shared as a service model.
I will share more on how pures technologies at the center of our customers strategic initiatives.
Before I share our result, and because it is on the mines with both our customers in investors I would like to spend a moment on the Corona virus outbreak.
We sympathize with all of those directly affected by the virus and we commend everyone working so tyres Leslie to address it.
We have taken active measures to ensure the safety of our employees and those of our supply chain partners.
Based on what we know today, we do not anticipate a significant impact to this quarter supply and operations, although the situation remains quite fluid.
Sure hasn't placed a multi continents supply chain strategy to source components and assemblies, our products and we continue to monitor the developing situation diligently.
Now to our results I will share color from the full year and later, Kevin will provide highlights from Q4.
Fiscal 20 finished strong with total revenue of 1.64 billion growing 21% year over year, while navigating through an unparalleled industry pricing decline.
In Q4, we started to see a return to a more normalized pricing environment.
Viewers continued differentiation is evidenced by our 70.5% non-GAAP full year gross margin.
Non-GAAP operating profit was 56 million demonstrating yet another full year profitability.
We exited the year with over 1700, new customers, bringing our total customer count to more than 7500, which now includes 44% of the fortune 500.
Sure is delivering the modern data experience through our portfolio solutions and services built around four key tenets.
Fast matters cloud everywhere.
Symbols smart.
And the subscription to innovation.
These tenants Drybar engineering innovation engine and resonate with customers because it aligns with their requirements for cloud like Apiay, driven operations and performance across their infrastructure.
It enables them to deliver a storage as a service experience to meet the needs of their developers Dev ops teams and modern applications pure technology portfolio and continued pace of innovation are paying off with transformative products and solutions that delight our customers.
Pure enables customers to transform their storage operations from bespoke manually manage silos to a modern shared as a service model delivering choice and flexibility in how storage is consumed and managed.
A key hallmark impure strategy is our subscription services with cloud blocks store pure as a service and our evergreen business model.
Cloud block store on ADW S released in Q2 of last year is helping customers implement migration tested and disaster recovery use cases for mission critical applications and cloud block stories now in beta for Microsoft Azure.
Pure also joined Google cloud and those ready storage initiative for multi cloud deployments earlier this month.
We achieved the largest ever bookings of pure as a service in Q4, including wins at three major international banks pure as a service allows customers to unify their storage procurement strategy to a consistent cloud model whether deployed on premise in cloud or in a hybrid environment. So that.
They can focus on what matters driving business transformation.
Pure provides a true hybrid utility model offering flexible storage consumption as a genuine hands free Opex service.
Turning to our portfolio pure suite of products has never been more comprehensive today, we announced the seventh generation of Flasharray further raising the bar on the product that continuously redefines modern storage.
This new Flasharray ex delivers 25% higher performance for mission critical applications with a fully end to end envy EMEA architecture across all models and supports advanced storage class memory and like every generation of Flasharray, the new Flasharray X is available through our non disruptive evergreen.
Subscription upgrade for existing customers Flasharray see introduced in Q3 of last year is the first and only all flash product in the industry to bring flash performance to tier two application economics, we are seeing phenomenal adoption of Flasharray C and in its first two quarters.
Has already become pures fastest growth product ever.
Sure Flashblade product has redefined what's possible with big fast data as customers look to create an all flash data hub to consolidate their file an object data to power next generation analytics, AI and container infrastructure.
A particular area of strength is the massive growth of log analytics as customers use flashblade to solve cyber security fraud detection and I want to use cases in partnership with Splunk elastic and Vertica.
And rapid restore continues to be a popular use case for Flashblade made better in Q4 with the introduction of Flashblade safe mode. A unique anti ransomware solution that is already helps several metropolitan area cities protect and recover from potential ransomware attacks.
Lastly, we held our annual sales kickoff meeting in San Francisco, just two weeks ago and the excitement from our team was extraordinary on our debt Cadle anniversary last fall, we announced our strategy to transform the current box based enterprise storage environment to an integrated multi cloud experience enough for a 21.
Beyond we're committed to deliver on our modern data experience and pure as a service strategies to accelerate our customers digital transformation journeys.
And with that I'll turn it over to Kevin.
Thank you Charlie we were pleased with our solid broad based performance across all key financial metrics this quarter.
Total revenue during Q4 was 492 million growing 17% year over year.
Product revenue was 377 million growing 11% year over year and subscription services revenue was 116 million growing 41% year over year, which includes revenues from our evergreen subscriptions peer as a service and cloud block store.
Total revenue in the United States in Q4 was 345 million growing at 15% year over year in total international revenue in Q4 was 147 million growing 21% year over year.
Non-GAAP gross margins in the quarter four product and subscription services continue to be strong in differentiates us in the market.
Total non-GAAP gross margin in Q4 was 72.1% increasing 4.5 basis points year over year non-GAAP product gross margin in Q4 was 73.3%, increasing 5.5 basis points year over year and non-GAAP subscription service.
As margin in Q4 was 68.1%, increasing 1.3 basis points year over year.
Total non-GAAP operating profit during Q4 was 61 million, increasing 30 million year over year.
Non-GAAP net income during Q4 was 64 million and non-GAAP earnings per share was 23 cents per share non-GAAP net income in Q4 of the prior year was 37 million and non-GAAP earnings per share was 14 cents per share weighted average shares used for the non-GAAP earnings per share.
Calculation was 277 million in Q4, and 264 million in Q4 at the prior year.
Operating cash flow for fiscal 2020 was 190 million and was 165 million in fiscal 2019.
Operating cash flow in Q4 was 70 million and was 81 million in Q4 of the prior year.
Free cash flow for fiscal 2020 was 102 million and 64 million in fiscal 2019.
Free cash flow was 56 million in Q4 and was 51 million in Q4 of the prior year.
Total cash and cash investments at the end of the year was 1.3 billion compared to 1.2 billion at the end of the prior year.
Total deferred revenue at the ended the year was 697 million increasing from 536 million at the end of the prior year.
During Q4, we repurchase shares any open market totaling $15 million and have approximately 135 million remaining in our share repurchase authorization.
Total headcount at the ended the year was approximately 3400 employees and was approximately 2900 employees at the end of the prior year.
As Charlie mentioned in his prepared remarks, we are actively monitoring the corona virus developments and although we're not seeing specific impacts on the business. Currently the situation is fluid and unpredictable potential adverse effects to our business have not been incorporated into our annual guide or.
Our Q1 guide.
With this strong performance and growth outlook of our multiple subscription service offerings, we expected our bookings growth will begin to outpace revenue growth next year.
Revenue derived from our subscription service offerings is recognized over time and is recurring.
As such we believe they useful metric to evaluate and provide more transparency to the growth of our business next year is the annual growth rate of total bookings, which we expect to be approximately 20%.
We will update or annual guidance, including total bookings growth for the full year at the beginning of each fiscal year.
We are focused on growing our highly differentiated evergreen peers or service and cloud blocks door subscription services.
Given that the subscription offerings provide recurring revenue.
Total revenue next year is expected to be approximately $1.9 billion growing 16% year over year.
Non-GAAP gross margins are expected to be approximately 69.5% and non-GAAP operating income is expected to be approximately 60 million for the fiscal year.
Moving to our Q1 guidance total revenue for Q1 is expected to be approximately 365 million growing 12% year over year.
As you might recall last year's Q1 revenue benefited from a shipping issue during Q4 19.
When normalizing for this shipping issue, our guided Q1 revenue growth rate would be four basis points higher.
Non-GAAP gross margins in Q1 are expected to be approximately 69.5% and non-GAAP operating loss in Q1 is expected to be approximately $40 million.
I'm very excited to have joined the team at pure storage and the opportunity ahead.
We see strong momentum in our portfolio, including our innovative subscription service offerings that will continue to position us well in the market and with our customers with that we will now open the call for questions.
As a reminder to ask a question you will need to press star one on your telephone.
Withdraw your question press, the pound or hashi, please standby well, we compiled acuity roster.
Your first question comes from Alan rate, Aaron Rakers from Wells Fargo.
Yeah, Thanks, guys for taking the question.
If you can you I think you mentioned during the <unk> during the prepared remarks that you're starting to see a more normalized pricing environment and slash can you can you just help us understand how we should think about that dynamic to the model and I'm. Just curious of what you saw pricing wise this last quarter.
On a on a quarter over quarter basis, and what underpins your assumption for the current quarter guidance.
Right well as you know from prior quarters, you know we yeah. We had had a early in the early parts of the year. Just thought you know Brett taking price declines in the market that were created through a buyer free fall of NAND pricing earlier in the year now Nam prices do fall every year, which is.
Generally good for us because it creates elasticity in the market allows us to go after more magnetic magnetic storage, which we're very excited about but when it drops very suddenly then last as he doesn't have time to catch up.
In Q4 is what we are used to seeing a generally your and your out in normal years, and and we know that.
Yeah, no commodity prices are a habit have stabilized for some time are projected to go up next year, and so that presages to us a normal pricing environment and one of which we can hopefully.
Regroup regained even better growth initiative.
Certainly allow us to continue to grow it has the industry and Aaron. This is yeah, you think about specifically for the annual guide in Q1 guide a in this concept of a normalized pricing environment that that really contemplates both say volume expansion as well as.
Normalize declines and as he's a and again, that's what we've seen outside of the dynamic had that we saw this past year.
Okay, and then just as a quick follow up and maybe somewhat tied to that as you know you guys continue to report a oh really remarkably strong gross margin for the business both product and overall.
How do you guys think about using maybe gross margin more actively so to go after more velocity in the business is that is that something that as we look at this next you know forward fiscal year.
Given the guidance that you guys are starting to invoke a little bit more activity on that front or.
You know what's embedded in the gross margin outlook going forward. Thank you yeah. Thank you as you as you know you know we can use gross margin in two ways. One is to fund the business and the other of course is too.
Fund pricing declines compared to competitors.
Our view is that and we look at this literally every week and our belief is that in fact, it's the software value that we provide that is having our customers.
Paying 10% to 20% premium for our product versus our competition and we don't really believed that we ever lose a deal based on price I mean, we do lose deals and when we do the price may be lower than ours, but generally speaking it's for other reasons I and so the minute we feel like we could win we would certainly.
The trade off price for Oh for more wins, but we don't believe that that's what we're seeing right now we continue to believe that expansion of the salesforce.
More feet on the street, calling on more customers on more opportunities is the right way to use our our margin.
Thank you.
Thanks, Aaron next question.
Your next question comes from Alex Kurtz from Keybanc capital markets.
Hey, Thanks, guys for a for taking the question.
Charlie the last couple of quarters with the pricing environment I remember, having discussion with you about when when the market.
Stabilize that.
Yeah, there would be some revenue upside as you kind of see.
The Nam price environment improve rate because at some level a little bit of a pass through impacting both negatively and positively so.
As you look at the full year guide is that contemplated at all as far is capturing some some revenue upside from this.
We definitely are looking at this year as a much more normal pricing environment and that.
Allows us to forecast, a 20% growth year compared to a flight industry. We're certainly not you know we're we're looking at a roughly a flat macro you know year to year, So we're not projecting upside or downside on <unk>.
In the overall industry overall, but we believe that in a in a overall.
Environment, which pricing holds that we're going to have well above competitive performance in terms of growth and let me just to add onto that if I could Alex and Charlie you know look we're in terms of our business growth next year as Charlie said, we're running at 20% and that's why we provided that looks bookings metric for the Alex.
For the center in terms of how we're looking at it in a couple dynamics that I would just a highlight one is again the subscription services that there were seen in terms of momentum, which really is creating this dynamic of lag between bookings and revenue that will see next year, but we also want to be prudent.
Given the current environment, a as we're clearly seeing some headwinds on the macro side and want to make sure. We're contemplating that now that would exclude corona virus, but outside of that we're still seeing some headwinds.
Just one question quickly for you Kevin giving your time at Vmware a company that can obviously distribute software at scale globally.
What do you think about as far as bring best practices from from that platform to pure and kind of where do you see opportunities too.
Band Evergreen and cloud block store, what's your initial thoughts so far.
Yeah, Yeah, let me I'll share some some initial thoughts in terms of my view, but I would also probably comment from an observation standpoint that the company is doing a really nice job in fact best practice in terms of software development. The amount of investment we have in our R&D group on software and clearly that's what's.
Already differentiating this company from from its competitors and so from their you know what we'll look at different models to expand on and that's why we're really focusing on or subscription services, including peer as a service and a club block store yeah and.
Hi, Alex you actually know this well 95% of our developers or software developers. So you know where software company that.
And it started out by shrink wrapping it in a in iron and now you know more significantly.
We have products such as cloud block store, which is 100% of our purity software operating directly on top of 80 of WMS and now in beta on Azure.
And it's a unique and unified software offering operating across all of our products.
Multi cloud.
Multi platform and.
Pretty soon you know both with respect to Flasharray multi tier and multi protocol. So we think this is a real big differentiator most of our competitors have multiple products to deal with different workloads and environments, we're going to be able to satisfy it with one one software based all managed by a single management system in pure one.
So you know we think.
It's such a pleasure to have Kevin on board to help us.
Because of course, it does mean transitions in the way that that we look at a record recognizing revenue at managing yes subscription business business managing software business. So it's great to have his skill set on board.
Thanks, Alex next question please.
Your next question comes from Rod Hall from Goldman Sachs.
Hi, This is about 80 entourage. Thanks for taking my question.
If I look at the full year fiscal year 21 revenue guidance of 1.9 billion dying in places like when you go through 16% Utopia. However, if I compare this 1.9 billion guidance to the.
Did you noted fiscal 20, new guidance that you, let you guys give any other back.
The hypothetical implied growth annuities only 7%.
You mentioned that.
Past us subscription business, but outside of that just wondering if anything has changed fundamentally in the arc flash money market fund the past here.
There's an element of can limit to us in the guide asked them have caught up.
Well I can't speak to the 7% I don't understand that calculation I mean, it is you don't we are prepared remarks identified the revenue growth is 16%, but we do believe that increasing amounts or all of our bookings as subscription.
Revenue.
Is going to of course cause bookings to increase at a faster rate overall than revenue and that's what we meant to start to identify a you know for our for our investors.
Alright.
Oh, Hey on operating expense has to that so that implies opex guidance type if my math to side it looks like.
It's going it's roughly the seamless passenger revenues I don't know barely 15, 16%.
Can you give some color on why you're not seeing the benefits of operating leverage as the revenues could increase of.
Yeah, I think the first thing I would highlight is that that we'd be expecting our growth of operating expenses to actually be less than our revenue growth, which would be different than than what we saw this year. So so good improvement on that on that front. The other thing I'd highlight is you know when we look at our investment plan for next year, we're contemplating a 20%.
Growth rate. So again, that's why we provided a new metric for you in terms of bookings and you know as we're growing this is the subscription revenue business, obviously, you'd see a lag in revenue due to the recurring revenue were generating our subscription business and that's putting some pressure on our operating profits, but even with this dynamic like.
I said, our revenue growth will be outpacing our investment growth and look we're just committed to continuing to invest in growth our philosophy of driving more operating leverage a into the business over the long term I remains unchanged.
Thanks Bala next question please.
Your next your next question comes from Katy Huberty from Morgan Stanley.
Thank you good afternoon, 500 cost new customer signed in the quarter is I think a record can you just talk about the initiatives behind driving the stronger level of new customers and therefore bookings and then I've a follow up.
Absolutely Katie we took on an initiative early in the year to really.
Improve our overall ability to build.
On on lead generation and building a good pipeline and that included really focusing on new customers, especially of course enterprise customers.
And we're very pleased that to finish so strong in the year and we believe that this is something that's going to continue to work for us I I'm, especially pleased with the growth.
That we saw in enterprise customers, a lot of them quite new and therefore opening up new potential for the future.
And then any color around the contribution from Flasharray see in terms of percentage of bookings or the number of new customers that that product brought to you in the quarter.
We are as you know Katie I really hesitate to give out to individual numbers on individual products, especially new products because they can be quite lumpy, but you know two quarters of growing revenues with the flasharray see as I mentioned fastest new product fastest growth of any new product in the company's history I think one reason.
That is it is a flasharray, it's just the flasharray with Q will see rather than regular so it. It's a full flight it's not a I wouldn't consider it for example.
Version 1.0 product.
It's a version 7.0 product with a with a new price performance range built into it.
And so we would.
Expected to get out of the box early and good but he is probably it's performing better than we might have hoped to first quarter I knew was going to be good because obviously we had been.
So it had been pent up demand, we have been pre selling it for a couple of quarters before that but to see the second quarter outpaced. The first was really a largely based on in quarter.
Demand demand Gen.
Who is really nice.
That's great to hear and just lastly, Kevin you said that you don't expect any supply or operational impact from Corona. Cyrus do you do you have much of the revenue base in China and you have you seen any.
Demand either in that market or an eight A.P.J. more broadly.
So you know, we do have some business and PJ its a lower percentage than what we see across the world, but as we mentioned, we're not seeing any demand issues at this point in time relating to Corona virus right and can you just fireeye as you know we have very little.
Oh revenue that comes out of China, we're not really invested in China in that way and so and tries it relatively small part of our supply chain.
Thank you can see you next question please.
Your next question comes from Karl Ackerman from Cowen.
Good afternoon, everyone.
I was curious.
How much of the slowdown in revenue over the last few quarters do you think is attributed to what.
Seems to be a shift in the purchasing decisions of how on prime customers procure storage, such as greater and put across software storage and compute departments before making the final decision and I guess does that partially explain maybe the ela elevated level of Opex investment you plan for this year.
So just if you could comment on that and then as my follow up just given what appears to be somewhat of an uncertain spending environment. How are you thinking about ways to extract costs beyond just maybe more efficient sales cohorts such as customer acquisition costs.
And or other indirect channel costs I think it right. Thank you. So you know in terms of the changing nature of decision, making in the enterprise. That's certainly the case I feel that we've actually.
That's an area, where we've actually had some fairly good results. We believe because we're we're very focused around workloads and use cases and were able to go into the different departments not always the storage admin and be able to describe our products in terms of how we can make it easier with less less activity around.
Around infrastructure manage management for those organizations to get the output of the applications that there that they're looking for so I think thats actually worked for us I wouldn't say that that's increased our cost of sales at all if anything I think it's made us a bit more effective in being able to to penetrate accounts at let's say we're still.
Only held before by our competition on the.
I'm, sorry, just a real operational efficiency Oh, the operational efficiencies, we have a big push this year to really expand the efficiency and effectiveness of our channels part of that was due to the fact that utilize a smaller vendor before other channels really relied on us to do most of the selling as.
We're getting bigger and more a greater percentage of their oh of their portfolio is based on pure their training more of their staff to do more the selling but another part of this is that we were deficient.
Our systems and in our materials to any to better enable our channel partners to be more independent and there's been a big initiatives starting last year, but ongoing this year and we I think we'll see some more fruit coming out of that this year and Carl that this is Kevin even when you're contemplating the the lag in revenue, which is putting some pressure.
On operating profits this year when you take a look at our operating expense as a percentage of revenue that's coming down slightly and we're looking to get some operational efficiencies, especially within sales and marketing and the non quota carrying had environment and so we expect to see some improvements there. Despite what we're trying to.
To do for an investment standpoint, and R&D as well as that continue our investments with our quota carrying hands.
Thanks, Carl next question please.
Your next question comes from Jason either from William Blair.
Yeah, Thanks, guys I jumped on the call late so.
Apologies. If this was already asked I thought it was on the Vmware call with Kevin here, So [laughter], Oh, but I wanted to just understand a little bit better about the on the leverage so.
Original you're talking about 6% to 11% for fiscal 21, obviously the revenue growth has been pretty solid and you're clearly taking a lot of market share.
But what was the explanation you gave for you know the.
Limited leverage this year because Mike My math says is about 3% operating margin implied for fiscal 21, Yeah. Your math is in line there, Jason and we address setting in how we were looking at that for next year is first of all when we think about our business growth trajectory, it's about a 20% growth rate and that's why we've provided a new metric.
For bookings to give me a sense on how fast we think the business will grow next year and so as a result to the fact that that growth is being driven by increased subscription services, we're seeing a lag in revenue during due to the recurring nature of the revenue being recognized.
But even with that dynamic of our revenue growth. It's it's a it's a revenue growth is outpacing our our investment growth even with that dynamic.
But look at the end of the day, we're still committed to investing for growth in.
And our overall philosophy of driving more operating leverage, which again, we will see and sales and marketing next year over the long term remains unchanged.
Okay. So just to be clear. This is just a function of more of the business.
Being ratable and as a result, you're gonna.
If you're basically getting lost revenue upfront and therefore, you can't get the leverage as quickly as that you're thinking about that right that's right yeah.
All right. Thank you. Thank you.
Next question. Your next question comes from Simon Leopold from Raymond James.
Great. Thank you for taking the question.
Wanted to to try to maybe get a bridge on what happened in the in the gross margin in fiscal 21, both the next quarter as well as the year in that you've had two quarters with wood product gross margins that look like your yeah, they've been 73 and so on.
That's being better than expected and so I'm trying to discern how much of the the forecast is regarding input pricing competitiveness product mix.
Great. Thank you could help credit connect the dots between where do you bid and where you're going on gross margin.
Yes, sure Simon and this is Kevin it all ticket it at first and again like you you've mentioned our gross margins have been terrific.
I really do believe this is a differentiator for us and them in the market now a couple of things specific to this year that I think as is different than how we're looking at it tough for next year, but we did see some benefit in our gross margin. This year from they extraordinary pricing dynamic that we experienced and again as is.
Charlie mentioned, we think that pricing dynamic is going to normalize a similar to what we saw in Q4 throughout next year. So obviously, we wouldn't get the benefit in gross margin next year from that pricing dynamic. The other element I would highlight is that we did see a last year more of a mix shift towards our.
Larger systems, which also had a higher margin profile for us and we were actually estimating that that mix shift will remain relatively consistent as we look at next year. So those two benefits. If you will will normalize going into next year and that's why you see a little bit of the drop in gross.
Great and I wanted to follow up in terms of.
The demand side of the Corona virus in that it's obviously, a very fluid situation.
And I get certainly the aspects around your supply chain I'm, a little bit surprised that you're not seeing anything from a demand perspective in that it sounds like we're seeing large enterprises.
For example, you may have customers that are airlines and hotels that maybe rethinking their businesses and so I respect it back you've got your due diligence in Youve surveyed your sales channel I, just sort of feel a bit puzzled that you're not picking up slowing from from your customer base is right.
Anyway, you can help us get a better understanding of why you'd you'd see that resilience or your immunity from the virus absolutely. Simon. So we're just going to speak very you may very well be correct, but let me just speak factually, we're not yet seeing it in any of our Q1 business.
And I think it's far too early to start predicting Q2 and beyond.
Given the uncertainty of the virus.
Whether its contained or not contained how much of the quarantines.
You may affect.
You know customers orders and so forth. So you may very well be be correct. I hope you I hope you're not but the fact of matters, we're not yet seeing any effect on our Q1 business or on the Q1 forecasts.
Obviously that could change in two weeks, but we are where we are right now in the quarter.
Thanks for taking my questions you bet next question. Please.
Your next question comes from Georgia line from Oppenheimer.
Thank you for taking my question. So Charlie just following up on that are there any regions, where there any.
Any.
Indications that things are changing our deal Atlas.
Sales cycle is basically the same as they were last quarter.
It's very early in the quarter to be honest with you. So.
I'm not even sure that God.
We would see it unless it were a dramatic change you know in tenor.
But so far no.
Okay, and just from a competitive standpoint, how do you feel about when rates versus your main competitors.
You know very good.
No no real change as you know every every week every every month every quarter.
Is a tough fight with our competitors, but we continue to outpace them you know in terms of gross you know were group. If we look at Q1 through Q3 for where we have the industry analysts we grew to three times more than our closest competitor in probably 20 points more than the industry as a whole I think were take.
I can share from every from every competitor and if you look at some of the some of the more recent announcements there they were actually shrinking.
While while we're growing so.
Yeah, we feel very good about our competitive position.
Thanks, and last question Oh, Yes. Please.
Oh, just on the cloud box a store with measure in beta now eight of U.S. being GA for a while how how do you see the customer reaction to the expanding reach.
Very good I think for several reasons one is they really see it as as up.
As a unifying force in a portfolio, where they can designed to one set of interfaces that can designed to one management environment and manage their their data regardless of whether it's on prem into <unk> or regardless of which cloud or they put it into their they're pleased that they can take some of their primary you know there their primary application environments.
And now they have any easier way of being able to a transition them to the cloud without having to do you know a full refactoring or rewrite of the of the software.
And you know, we're seeing a lot of interest in in the new use cases that I outlined in my prepared remarks.
Actually around D.R. Dev ops.
And and backup and recovery so.
You know it is very new I will put it that way, it's very new for customers and so there's a and we're happy to see a lot of tire kicking and a lot of testing going on and we're a it gives us great optimism as we are that the products will continue to scale and grow our customers minds.
Thank you. Thank his question please.
Your next question comes from Lumping Manhattan from Bank of America.
Hi, Thank you.
Can you help us think through how much of your 2020 growth either in revenue our bookings terms, you're expecting that might come from upgrades from prior controller sales versus new customer sales.
Yes. This this is Kevin we we don't break that out and really what we're looking at is really.
The differentiation between our subscription business, which is growing at a very fast rate versus you know cap purchases.
And that's really how we were looking at the business or the Wamsi I think you know with 500, new customers in the quarter and seven over 1700 on a year to year basis. I think you can you know Oh I understand that theres quite a quite a bit of business that comes from new customers. You know of course God, the new customers have to absorb the the products that they buy get used to.
I understand our value proposition to come in for more of a week some very large new customer we've gotten some very large orders from from brand new customers, which is a change from before when we were younger there'd be a lot of tire kicking before purchase now we're finding new customers buying with sometimes you know seven figure.
New a new product sales.
So your first time sales I should say so we're very pleased with new customers, but of course, you know the meat and potatoes are the business is growing our our revenue inside of existing customers and I think that's an area, where we continue to focus a lot of attention.
Okay, Thanks, Charlie and.
Just on cash flow you, obviously had a very nice cash flow generation for the for the full year.
How are you expecting both capex and free cash flow trend in this and this coming year.
Yes, I think a general line of thinking for Capex next year would be about 5% of revenue is how you should be thinking about it.
Okay Yeah.
Thank you so much next question please.
Your next question comes from and John Bar from JP Morgan.
Oh, Thank you hey, guys.
One question on.
The platform motion Charlie we've heard from your partners, a pretty positive things about HM selling to platform love to hear what what how are you driving the sales motion what are you seeing especially as you positioning pure as a service as the default choice essentially some Sam and I mean, making any specific changes on the comp plans.
To incentivize kind of a bundle.
So.
Absolutely well.
Pendulum, we just we just completed our sales kick off and a big theme of the kick off was what we call. Our modern data experience strategy and pure as a service and I would say that the encouragement for the Salesforce is to position pure as a service first in a new.
New customer situation, because it very much differentiates us in the market overall now that being said the salesforce is paid a pretty much equally there's should be no.
For a salesman they will get paid roughly the same whether it's pure as a service or.
Or a capex sale, because we really want them focused on providing the customer what they want what they want they need we want to give the customer flexibility and give them choice, but at the end of the day, we want the customer to really be deciding for themselves not our sales team based on how there how their compensated.
But we're we're very pleased with the take up of up a pure as a service and we definitely a good acceleration a year for us and Oh I think it's taking time customers time to look at their own data centers differently than they look at the cloud of course clouds always subscription first but their data centers have been capex.
First but now it's opening up a great new opportunities I will say you know some color on this is that we're getting not just first time six but also seven figure deals for pure as a service first time deal it might be an existing customer or new customer, but either way. These deals now.
First time period as a service deals in these customers six and seven figures.
Interesting, okay and on that vein I guess as that takes Oh accelerates and the subscription to become the business becomes larger and you're talking about this lag effect.
Revenue and you kind of highlighted the bookings metric how should investors track bad on a quarterly basis I mean should people started looking at calculated billings our people based bookings or would those metrics have kind of and impact from from term changes and maybe maybe at some noise. What is the best metric for investors.
Right. It's a great question, we as Kevin mentioned on the call earlier, we provided a bookings metric and that that can be used.
On an annual basis right now is what we're looking at to to track it somewhat but we do understand that there are other metrics that as this becomes a greater percentage of our business that investors are going to want to know I'll, let Kevin.
Speak to that yeah, I think it gets starting point, especially with the traction we're getting with her subscription services was this first new metric around bookings on an annual basis and I think an annual basis is the right way to look at it at least for this year, because you're you're gonna have variability quarter over quarter. So.
I will give this a start and you know as we get into the year. If there is important information to reflect we'll we'll definitely do that.
Thank you pendulum understood. Thanks next question please.
Your next question comes from Erik Suppiger from GMP Securities.
Yeah. Thanks for taking the question a couple of questions. One just to be clear are you a not doing any of your contract manufacturing in China.
Then secondly.
Can you talk a little bit about your visibility into your flash supply do you have a.
90 days out or what kind of inventory do you stockpile on that.
Yes, I'll, let me start with that and then I'll turn it over to Kevin for some of it. So we do have some of our sub assemblies, Oh that come out of China. We've been right on top of that we know each of the factories each of the lines know how they're operating and so as we said we're very confident we're fairly confident as confident as one can be it in and.
Certain environment for Q1, we have high degree of confidence Q2.
Obviously, it's a fluid situation, it's too early to project for Q2, we have no reason to doubt it but it's still.
Yeah, we can't really speak to it with a with surety at this at this point in time.
Yeah, nothing to add to that Charlie Yeah, you know in terms of the flash supply we have good visibility into it we're very close to our suppliers as you know most flash comes out to places like Korea, Japan and the U.S.
We are fairly well diversified and weve as we as I said before we feel fairly confident in our ability to supply this quarter.
All right can you just talked about competitive dynamics with flasharray seat, but shipping that for a couple of quarters or is there any a any updates in terms of who you're seeing most or any any.
Competitive pricing dynamics there.
This is kicks off like this one so I think one of the biggest surprises around flush risi is it's largely been completely on answered by the competition and so we've really enabled ourselves to go after a whole new set of use cases are unsure two data with flush receipt and interoperability between X and see allows customers to implement here in strategies and to really have application seamlessly.
Go back and forth between tier one tier two flash so it's been a great growth story haven't heard much from the competition on it at all and so we feel like that's a great part of our business that are set up well for the year.
Thanks, So much Eric next question. Please do.
Your next question comes from I mean, sorry, not any from Evercore.
Hey, guys. This is Michael unfair Ahmed.
So wanted to touch on the guide a you know for Q1, you're pointing said sales up around 11% versus the full year around 15% you just tell us kind of what changes the year goes on the.
Growth in flat.
Yeah, you know in my part this is Kevin in my prepared remarks.
Q1 revenue does does is inline with our expectations a couple of things that that I mentioned, though is you know back into Q1 of last year. We had shipping issue in Q4 that actually benefited Q1 to about four points and we actually a evaluate or normalize that shipping issue in the bench.
Sit in Q1 hundred 20, we're right in line from a seasonality perspective, whether you look at it from Q4 to Q1 or whether you look at as a percentage of total revenue. So I think we're quite aligned in terms of how we're looking at it but it did impact our growth rate for Q1.
Okay, and then a somewhat the it sounds like you know cures a service is going pretty well. We're just kind of wondering you know with where you're seeing the uptake on that is it more existing customers or is it something you're seeing you know enable net new games.
Yes, no. It's both actually it's very interesting I, we're definitely seeing net new gains.
But that is new customers, who are buying in this like to buy in this manner, but we're also seeing existing customers, we're changing the way that they want to buy.
And it's actually given us new opportunities frankly.
In environments, where we might not have done quite so well.
But the fact that our competitors can't really compete with this model. So it's a it's really giving us new opportunities both in existing accounts as well as a new accounts one of the dimension I would add that I think sometimes we have folks misses that pure as a service is also a transportable subscription and so the conversation, we're having with customers about.
Well to deploy now on Prem would have that optionality to move to the cloud whenever there like is really game changing and it's something that differentiates our as a service offering compared to all the competition, yeah that was particularly true in one very large customer that we have.
Plans on migrating over time to Asher Oh, they're beta customer obviously of our CBS on Azure there are big user of our on Prem by continued to be buyers of our on premise storage, but the fact that they will be able to more easily move their primary workloads over to Asher update because.
It's based on our product has been just a huge advantage for us.
Okay and is that something that you know you're not seeing offered by competitors in the market.
We're seeing repackage leases.
The same.
Thanks, So much Michael next quarter. Thank you.
Your next question comes from the line of me, how cheap from Maxim Group.
Yes, thank you in a congratulations great quarter.
So that's a bookings guidance of 20% of revenue growth of 16% the delta subscription to help.
Tease out to make sure that this is indeed the.
Delta there is indeed subscription can you tell us what percent of bookings and typically are 20 was actually subscription and how much do you expect to to increase to in fiscal year 21.
Yes. This is Kevin and you know again, a you know as I mentioned, we're sharing the bookings growth rate for next year really because this is the first year, where we're seeing a divergent divergence where expected bookings growth rate is outpacing our revenue growth rate, we did not see a.
Similar dynamic last year and so that's why we're not going to go into a lot of detail in terms of what our bookings growth rates were in the in the prior year really because the divergence. We're seeing is the first for for this upcoming year and again the bookings growing at a faster rate than revenue is really being driven by the momentum of our.
Evergreen subscriptions and here as a service and our cloud blog store.
Okay, and then can you just give a little detail on the mechanics of the subscriptions here.
What's the distribution of a subset of.
Have a subscription booking between revenue deferred revenue and unbilled contract value in the first quarter of a dollar <unk> book subscription.
Yes, So you know well in terms of the detail first of all you know TCV is really being used both for our subscription services as well as our capital transactions. So you've got similarity there, but you're right you are going to have situations, where some of the subscription services.
We'll be outside of deferred revenue.
It should be picking up a big portion of that and ER and the remaining performance obligation that we disclosed as well.
Okay. Thank you.
And with that we'll turn the call back over to Charlie.
I want to thank you all for joining us on this call. Your as you might be able to tell we are very pleased not only with Q4, but with our performance.
Throughout if why 20, it was a fantastic product to your for US we announced our strategy for the next decade, which is to deliver a platform that allows customers really to realize the value of their data.
As a service and with cloud like efficiency and orchestration. We are very excited about the opportunities in front of us we understand what our customers want and we believe the combination of our subscription services, our product portfolio and frankly, the experienced that only pure offers enable us to really deliver the kind of data experience then.
Our customers are expecting and provide the solutions that are that are a company that our customers need to allow them to digitally transform I want to thank you for your time today and we look forward to speaking with you again next quarter.
Ladies and gentlemen, this concludes todays conference call. Thank you for participating you may now disconnect.
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