Q1 2021 Earnings Call
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Okay and the conference over to your Speaker today, Nicola Chief Investor Relations for pure storage. Thank you. Please go ahead.
Thank you and good afternoon, welcome to pure storage first quarter fiscal.
2021 earnings call. My name is nickel on the T.S. Investor Relations a pure storage.
Joining me today, our CEO Charlie John Carlo.
And our CFO, Kevin Chrysler and our VP of strategy not kicks Miller.
Before we begin I like to remind you that during this call management will make forward looking statements, which are subject to various risks and uncertainties.
These include statements regarding the cobot 19 pandemic related disruptions or growth in sales prospects.
Competitive industry and technology trends.
Our strategy and its advantages.
Our current and future product offerings.
And business and operations, including our operating model 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 result forecasted reported result 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 S.C.C. I refer you to these public filings.
During the call we will discuss non-GAAP measures in kept talking about the company's performance and reconciliations of the most directly comparable GAAP measures are providing our earnings press release and slides.
This call is being broadcast live on a pure storage IR website is being recorded for playback purposes and archive. The webcast will be available on the IR website and is the property a pure storage.
With that I'll turn the call over their CEO.
Charlie John Carlo.
Afternoon, everyone. Thank you for joining us on today's earnings call I Hope you your family friends and colleagues are all healthy and staying well.
As you will have noted at the beginning of this call that Danziger, our head of Investor Relations is no longer with us.
That died unexpectedly last month from a non kobin related heart attack due to an undiagnosed genetic cardiovascular disease.
That was healthy vital and intelligent.
It always enjoyed a work with and spend time with.
He talks the lives of everyone. He met and his passing has said and that's all.
Our Hearts go out to his family and friends.
I'd also like to take a moment to share my thoughts on the current health crisis has affected everyone around the world.
Some of you may know that aren't constructed cobot 19 in mid March.
That experience has provided me with a deep personal appreciation for this virus and its impact.
The changes in People's lives in livelihoods are truly extraordinary and our expectations of what is or will be normal is forever changed.
Every day each new report on the crisis brings an uneasy mixture of anxiety uncertainty and hope about the future.
The global pure team has had the great fortune of being able to work virtually so we are inspired by and appreciative of the world's first responders and essential workers.
We thank all those who are provided the services that have been critical to beating our basic needs and tending to the well being of others. During this time.
Within pure every group is handled this crisis with courage and responsibility steadfast in their mission to help our customers and to our company.
We continue to demonstrate that pure has best in class teams and that our products and services are simple very viable and trusted.
It is this potent combination that enables pure to solve the critical and immediate needs of our current and new customers.
This past quarter, especially we were proud to be relied on to deliver products and services to critical infrastructure on the front lines, including hospitals labs governments schools banks communication systems research institutions and first responders.
Our highly automated systems enabled customers and our partners to remotely install and manage our products and solutions within an hour to rather than days a major state government was hit with a ransomware attack in the early days of the crisis pure was able to rapidly deliver our ransomware solution provider.
I think protection against future attacks.
A major collaboration network increased their pure footprint after a huge increase in traffic in demand from new customers due to cope with 19.
The customer chose pure because they experienced failures in their installed base of legacy solutions onto the high load and were unable to obtain new product from those vendors to scale their systems.
Sure was able to deliver and install pure solutions into the customers production network within 24 hours of our first call.
Our retail customer suddenly needed all of their employees to work from home. When previously few did rapidly increasing the load on their infrastructure. We made this a smooth transition with robust remote capabilities and pure as a service our true multi cloud consumption based contract.
In each case pure was able to deliver an install products expeditiously, enabling customers to be in full production within 72 hours and in some cases sooner from the first call.
Our technology is also enabling those in search of a cure for the scourge work tracing the spread of the virus or in analyzing the structure and behavior the disease.
We have donated our products to companies involved in the fight against covert 19, including shipping Flashblade is to folding at home.
An organization focused on simulating the dynamics of covert 19 proteins to find new therapeutic solutions through crowd computing I am proud of our supply chain and customer support performance and resiliency, which not only maintained the high level of service and support our customers demand, but went above those expectation.
To serve customers with critical needs.
Sure as global supply chain strategy and are now fully tested business continuity plan prepared us well for this crisis.
We continue to lead with innovation across all aspects of the business and our performance. This past quarter was another validation of our modern data experience strategy, helping customers transform their storage operations to be simple reliable fast and flexible.
I was very pleased with our financial performance for this past very unique quarter as year over year revenues grew 12% to 367 million.
Our revenue performance was broad based across all products and services, including the continuing strength in our flashblade offering and our subscription services.
Sales of our portfolio solutions, including both Flasharray and Flashblade together continue to grow and existing customers increased their footprint in the quarter.
Flashblade solution sales to both new and existing customers also grew year over year and now represent approximately 15% of our total sales.
Earlier this month, we announced the release a purity 3.01, Flashblade, which adds significant new features to the world's most performance file an object platform.
In this latest release, we've added simple and efficient file an object replication for disaster recovery and hybrid cloud.
As well as Kirby gross and net NFS 4.1 support.
These features expand Flashblade is broad range of use cases, including modern analytics rapid to restore and ransomware.
Customers have rewarded our leadership in innovation with nearly 100 organizations to date, each spending more than $1 million in flashblade to consolidate their unstructured data for their growing list of modern high performance applications.
Cures subscription services had an outstanding quarter.
Subscription services include our non disruptive evergreen services pure as a service and cloud block store for multi cloud environments.
Evergreen reduces the risk and economics for customers by ensuring that pures on premise systems never grow old.
After seven years competitors are still playing catch up to pure is evergreen program of continuous non disruptive upgrades, providing customers a subscription to innovation rather than a contract for obsolescence.
But pure has leapfrogged, yet again with our pure as a service offering also reducing the risk and economics of storage in the multi cloud age.
Customers leveraging pure as a service have the flexibility to determine their cash and capital commitments in the short as well as the long term the flexibility to own or to subscribe and the flexibility to change where they place their data at any time.
They have the freedom of a multi cloud contract for storage and to only pay for what they use when they use it regardless of where they place their data.
Customer flexibility through cures a service is the right option in this uncertain cobot environment, particularly in a period, where it may be difficult to predict long term requirements.
In Q1, a large U.S. national bank as a net new logo made a multimillion dollar commitment to pure his entire portfolio and specifically our pure as a service offering to transform their storage needs and move off of a legacy vendors disruptive refresh storage model.
This pandemic has changed the way we work with the speed far beyond any pundits predictions for technology alone.
There was an increased and likely permanent customer demand for greater hands free management automation consolidation and flexible consumption models.
Pure has a great lead in these capabilities as I shared in the customer examples and demand and interest for pure as a service has increased dramatically.
Moving onto Q2.
It is now tried to state that there are uncertainties in the global economy and unpredictability in the market as customers focus on the urgent push out than merely important and reassess ongoing initiatives.
Customers are reevaluating their spending in all areas as they navigate their own challenging environments.
We have taken these dynamics and uncertainties into account with our measured Q2 expectations.
Looking beyond the quarter I'm confident that we can navigate the choppy waters of our market.
We remain committed to our long term priorities, while managing expenses prudently.
We will continue to take market share with our superior and differentiated technology services and customer first culture, and I am confident that will lead the market exiting the recession.
As we go forward and shelter in place orders are lifted around the world pure will continue to do its part to protect our people and guard against community spread of this virus.
Our dedicated crisis planning team meat daily to manage our global response to the pandemic.
We have regional phase plans based on local conditions to carefully reintegrate employees into the workplace, while planning for a large fraction to continue working from home for some time.
We will do what's right for pure our customers our teams around the world and each and every employee.
Lastly, I'd like to take a moment to thank our global employees executing as one virtual team.
Their tenacity focus and genuine enthusiasm to help our customers our partners there teammates and local communities throughout this crisis.
If anything our teams are more connected than ever.
Personally I have enjoyed our new routine of interacting with the entire company weekly through virtual all hands broadcasts.
Look forward to connecting with all of you end the broader pure community, our customers and partners at our accelerate digital and pure partner digital events on June 9th and 10th.
And with that I'll turn it over to Kevin.
Thank you Charlie financial performance during Q1 was solid despite significant economic disruption during a difficult and constantly changing environment.
Total revenue during Q1 was $367 million growing 12% year over year.
Product revenue was $247 million growing 3% year over year and subscription services revenue was $120 million growing 37% year over year, which includes revenues from our evergreen subscriptions pure as a service and cloud block store.
Subscription services revenue represented approximately 33% of total revenue during Q1.
Total revenue in the United States. During Q1 was 264 million growing at 15% year over year and total international revenue in Q1 was 103 million growing 5% year over year.
Given the current environment that we're navigating I will provide some additional color around our sales performance during the quarter total bookings or sales. During Q1 grew 24% year over year end is broadly diversified across industry verticals and customers.
Sales during Q1, two our enterprise and government customers in United States were solid and growing.
While we saw overall weakness in our commercial business.
We're pleased with our partnership and continued momentum from our channel partners worldwide.
Global Channel source sales continues to represent a growing and meaningful percentage of our total sales new customers acquired during Q1 were approximately 300 customers compared to approximately 350 customers during Q1 over the prior year.
Our business during Q1 benefited from increased demand of mission critical I T needs a rising in response to the unprecedented pandemic.
We fulfill these orders without significant delays and supply shortages based on the remarkable efforts and resilience of our global supply chain and manufacturing operations.
Partially offsetting this tailwind we saw an increase in opportunities and our pipeline there were expected to close during the quarter, but did not close.
Non-GAAP gross margins in the quarter for product and subscription services continue to be solid and are result of our product solution differentiation in the market.
Total non-GAAP gross margin in Q1 was 71.9% increasing 3.8 points year over year.
Non-GAAP product gross margin in Q1 was 73.3% increasing 4.6 points year over year.
And non-GAAP subscription services margin in Q1 was 68.9% increasing 2.6 points year over year.
Total non-GAAP operating loss during Q1 was approximately 5 million.
Compared to a non-GAAP operating loss of approximately 31 million during Q1 of the prior year.
Reduced travel marketing and depreciation expenses as well as slower than planned hiring contributed to lower non-GAAP operating losses non-GAAP net loss. During Q1 was 4 million and non-GAAP net loss per share was two cents non-GAAP net loss in Q1 of the prior year was 28.
Million and non-GAAP net loss per share was 11 cents.
Weighted average shares used for the non-GAAP net loss per share calculation was 263 million shares in Q1.
And 245 million shares in Q1 of the prior year.
Operating cash flow for Q1 was 35 million into a 7 million in Q1 of the prior year.
Operating cash flows during Q1 benefited in part from strong collections of our receivables free cash flow for Q1 was 11 million and was a negative 18 million in the prior year.
Total cash and investments at the end of Q1 was 1.27 billion compared to 1.3 billion at the end of fiscal 2020.
We have a very strong balance sheet that provides us with flexibility to handle a wide range of scenarios.
Total deferred revenue for Q1 was 706 million compared to 697 million at the end of fiscal 2020, and 564 million at the end of Q1 of the prior year.
We're pleased to see the continued growth in our multiple subscription service offerings.
During Q1, we returned $70 million to shareholders through share repurchases of 5.96 million shares.
Approximately 65 million remains for share repurchase authorization.
Total head count at the end of the quarter was approximately 3500 employees compared to approximately 3400 employees at the end of fiscal 2020.
And 3150 employees at the end of Q1 of the prior year.
Now moving to annual guidance.
The core fundamentals of our business remains strong. However, we are withdrawing our annual guidance given significant uncertainty around demand for the remainder of the year due to the global economic contraction caused by Coven 19.
As we progress through the year, we expect to continue to see strength in sales and adoption of our subscription services.
Our peer as a service and cloud block story unified subscription offerings also continued to gain momentum offering increasing flexibility in how our technology is consumed providing customers with a cloud like business model.
Our pipeline generation for the second half of the year continues to grow but it is unclear how and when these opportunities will convert given the current economic environment.
Moving to investments, we continue to be disciplined on our spending levels and are focused on operating expense savings initiatives and tight capital spend oversight.
Our investments in areas of innovation and quota carrying capacity will continue in a prudent manner with ongoing monitoring of our business plan and conditions.
Now, let's move to the second quarter.
For similar reasons why we are pulling our annual guidance. We're also not providing guidance for Q2.
We expect customers purchasing our solutions for their mission critical infrastructure and digital transformation needs. We'll continue to provide a tailwind. However, we expect this benefit to be more than offset during Q2 by customers, who decide to pause I T infrastructure projects.
Our diverse customer base and we're growing recurring revenue derived from our subscription services will provide a level of mitigation.
However, the range of potential outcomes are many and widely distributed our current view of Q2 outcomes, which should not be viewed as guidance is that sales will be near flat year over year, and our operating profit will be near breakeven.
To summarize.
Our business priorities and long term growth objectives have not changed as we have delivered solid financial results, while navigating in a very challenging environment.
With that we'll now open the call for questions.
At this time I would like to remind everyone in order to ask a question you will need to press star one on your telephone to.
To withdraw your question press, the pound or hash key.
In order should allow everyone time for questions. We ask that you. Please limit your questions to one question and one follow up.
I'll pause for a moment to compile the acuity roster.
Your first question comes from each of them for up from JP Morgan. Your line is open.
Hey, Thanks, guys for taking my question.
That's on the corner the bookings number seems seems pretty good and seems like you're tracking above your at least annual goal that you had given us.
Quarter.
Could you talk about maybe the mix of use cases, driving that is that primarily VDI related and.
How do you feel that tailwind of VDI and end user computing kind of falls off for the next.
Part of the rest of the year and secondly, when I look into your D. R.
Deferred revenues sequential add the sequential add seems pretty low versus historicals, so where can we see this.
Have a this bookings number is that means you're going to be in the appeal.
You know where can we see that overall thank you.
Thank you for the question and again for everybody in the audience I just wanted to say that I I wish you all well and I Hope you are faring well during this during this crisis.
We really saw in July of a very balanced demand for product certainly VDI was one of the the major use cases out there, but there were many others as well we saw positive a buying.
For all sorts of infrastructure needs because of not just work from home, but the higher levels of of Internet Commerce that took place for many many customers.
Not to mention a greater service provider needs et cetera. So we I'll tell you. It was a very balanced quarter overall all products doing.
Very well.
As we as we mentioned in our comments we did see.
Good strong strength in U.S. enterprise, whereas we did see weakness in the commercial segment, which I don't think should surprise anybody on the call.
And for the second question I think I'll pass it over to Kevin Thanks, Charlie Yeah, and specific to deferred revenue you know, we're pleased with really both our sequential and year over year deferred revenue growth as a reminder, sequentially, we're coming off the seasonally highest quarter, which would be Q4. So that's going to have some impact when you're looking at deferred revenue.
Sequentially, but you are correct as well that a you know has we're growing our subscription offerings. There was an off balance sheet component. That's also growing that's included in our IPO and that's going to have an impact as well.
Understood. Thank you.
Your next question comes from Georgia mining from Oppenheimer.
Thank you for taking my question.
Charlie can you give us a sense of how core.
Monthly trends have proceeded from April and May.
Yeah, well may very early as you know we do have.
Quarters that oh, or sorry, the quarters themselves build as we go long month by month as we go along the quarter. So it's still relatively early in May and it's very hard I would say for us to be able to project the quarter on may alone, but we did see I will say and we don't generally comment on this but we did see very.
Very good linearity overall in Q1.
And you know I, it's again, it's hard to predict what what Q2 looks like from what we have so far in may.
All right and just following up on that can you give us a sense.
How are your sales motion is going from a you know the disruption and moving to work from home has.
Have you been able to keep that pretty smooth through that transition.
George that's our that's that is actually a great question, if anything we've seen higher productivity in sales from the worker in home environment.
To tell you that I'm, probably see I'm, probably communicating with twice the number of customer executives now that I'm a that I'm working from home in the same is a pretty much true with our sales team. It takes less than a week to getting appointment people are available the meetings themselves are very efficient.
Meetings that in person would take a month or two to set up and then take hours to you know to have the meeting and to convey everything you want to convey probably get done in about two thirds of the time and the meetings themselves are as I mentioned Darren.
Isn't take much time to set up and we're seeing that across our our sales base that has to say, it's been easier to get access to higher levels in the customer base.
And these have been very potent and oh very hard hitting meetings. So if anything I expect that we're going to see sales in a b to b environment.
Permit we take on more of a virtual digital oh technique to them.
Thank you.
Your next question comes from Wamsi Mohan from Bank of America.
Yes. Thank you Charlie happy to hear off your recovery from from code 19, and we all Loomis mismatched as well Pops with his family.
Can you give us some more color on your earlier comments.
About I.
I know, it's not explicit guidance, but your expectation around the flattish performance year on year.
What's sort of assumptions are backing that that expectation I mean, we're not holding not as guidance, we understand that but what are the puts and takes that that's sort of gets you. There any color there would be helpful and I'll follow up.
Sure the puts and takes our that on the positive side, we do still expect some amount of the positive cobot influence that took place in Q1 that is some continued Poland and finishing of the urgent issues that that customers have either for work from home school from home.
Higher web traffic.
And transactions and so forth. So we're expecting some increase in that but world, let's not forget in Q1, we had about half a quarter of a normal of a pre coated.
Which we are not going to have here and then we're expecting on the on that takes.
The you know the of the full impact of a lower global economy start to kick in as well and it's.
The difficulty in projecting is the balance between those two things.
I had a couple other points on that you know obviously, we're staying really close to the field as we always do and their inputs are really weighted pretty heavily for us as we're thinking about Q2 and when we think about the headwinds for Q2 really it's around the increased risk of how the.
The opportunities in Q2 will convert and the timing of those conversions is really the big question Mark for US and then looking at the commercial space in the middle market. Obviously, there was some softness there that we expect to be a continued headwind for us but those were factors that we were thinking about on the tailwind side and really.
On the headwind. We're also looking at you know increased recurring revenue that we would expect over time to be a larger portion of our total revenue.
Which will be a mitigating factor for us as well.
Your next question comes from Simon Leopold from Raymond James.
Thanks for taking your question.
Also extend my condolences on on Matt and Charlie glad glad you're.
Feeling better as well, so certainly crazy environment for sure.
One of the things I I wanted to see if you could could help us understand is the the trending between new and existing customers in that.
I would imagine it it's harder to land new customers and I think in the past Youve talked about your revenue split typically around 25%, new and 75% existing if if we could get a sense of what your thoughts are on that trend given the current circumstances.
No. It's it's a great question Simon for a couple of reasons and it's a it's a somewhat Oh complex makeup. So you saw or in our accompanying materials you saw our new customer add.
This past quarter, a slightly lower than last year, it's made up for two things one is yes. Indeed.
The commercial market slowing down and new customers, a little bit harder to come by.
Given the risk aversion thats, taking place in the market given Colgate again, but at the same time, we started transitioning as you may know more towards an enterprise orientation and so the quality of we've been focusing our sales teams more and more on the quality of the net new logo rather than just the number of net new logos and.
We feel that's starting to kick in quite a bit so the lower numbers a mix of those two things.
Thirdly, what I would say.
Is that there isn't general risk it version out there in the market, whether it's new products new features new new new vendors.
And that's going to be with us for a quarter or two until I think.
Customers have started.
Being able to feel comfortable in putting time into testing. It's really the fact that the urgency has been so high to do something that they've not wanted to take risk once they have time once they've settled the urgency and they can then focus on the slightly longer term, we think that the ability to convert new customers again, we'll come back.
Yeah, I understand that Apple other yeah, I'll just had a couple of the notes to that in terms of the existing customers clearly, we're seeing an expanding footprint as Charlie mentioned in what is interesting on the new customer front is if we pull out the new customers from commercial or mid market. We actually had an increase year over year in sales, which was a significant positive really.
Going back to the strength, we're seeing elsewhere, including enterprise.
Even for new customers.
And I don't think you mentioned anything about supply chain constraints and that had been a recurring theme from from reports earlier in the quarter did you confront any issues in terms of just getting getting components or.
Factory capacity.
Thank you need to look at it from two sides as I've told my supply chain team.
They looked as smooth as a duck on to on water, but of course underneath the surface their feet were probably like crazy.
From a from a customer standpoint, there was absolutely zero interest Oh interruption of supply chain.
As I mentioned in my prepared remarks, we were able to supply product within 24 hours of first call.
And there were very fuse.
Instances of delayed and if there was it was a delay of a day or two so really no supply chain interruptions and that was true on the subscription service chain as well so very very proud of our supply chain and service our operations in service people.
Does reflect by the way.
It wasn't just pure dumb luck it reflects partially the.
The design of our product, which had very little dependence on on China.
Just some subassemblies, but it also reflected the global nature distributed nature of our supply chain that didnt have a high concentration of supply in any one area.
Thank you very much.
Next question please.
Our next question comes from Katy Huberty from Morgan Stanley.
Thank you. Good afternoon, we were devastated by the the news of that passing that I know he'd be really proud of the operational execution this quarter.
I had a couple of questions first.
Charlie do you have a view at this point as to whether July will be that trough in demand or is it just.
Early to tell and then a follow up for Kevin what percentage of of the subscription services today, it's pure as a service and cloud block store versus traditional evergreen maintenance.
Katie. Thank thank you for all the support that Youve provided a you know to to to madness and and Ormats family.
You know, we really do are very much appreciate that.
The it's very difficult to predict July because you one might predict July if one feels that the that the effects of Colgate are are you know moving beyond us or moving past us at this point, but if we've learned anything from these pandemics of the past is that they can come back.
They can come back you know as early as as late summer. So I would tend to agree that if we continued to see a the slowdown of coded that July might be the watermark, but I don't think we can say that theres a lot of unknown. There. There are some true unknowns a that we want to make sure that were prepay.
Paired for and one of those is we don't really know what this virus will do later in the year.
And then Kt on your second question around breaking out a pure as a service in cloud block store, we are breaking out that specifically a little bit of color though.
Especially on pure as a service so very happy with the results and the momentum and the interest we're seeing.
Really around the unified subscription both of pure as a service and cloud block store.
As such the fact that we had a customer enterprise customer commit to to any figure deal with us this quarter, which we're really excited to see but look our priority is really around to providing customers with flexibility in how and where they're choosing to consume our technology, whether that's on prem, whether that's a multi cloud environment or co.
Low, which really all our subscription offerings are enabling and so we're pretty excited about the momentum overall of all our subscription offerings, including a passing a block store.
Thank you for the color.
Next question. Please your next question comes from Jason Ader from William Blair.
Yes. Thanks.
Charlie My question is on on the.
The whole potential acceleration of the shift to the cloud from Cobot 19.
See many people believe that is gonna be happening here or has already happened.
Hi, how do you think that affects your business does that create more headwinds for the on Prem storage.
Part of your business in the near to medium term, just maybe walk us through that I, just how you're thinking about that.
Yeah, I think it's very much summed up in the reasoning behind and that the construction of our pure as a service offering and what I mean by that is our view is that yes, theres going to be and there is increased demand for cloud based solutions, but customers have to migrate from being on prem to the cloud what we saw.
We saw in Q1 was that the urgency was to beef up what they currently had a in and that was largely on prem, but they wanted to the option. They didn't want to sign on to five years of more on Prem or anything along those lines. They wanted a the option to being able to move to the cloud at any.
The point in time, and that's exactly what our pure as a service is designed to do in several respects not only economically that is to say, it's a single unified contract a single unified subscription that allows them to place their data wherever they want but also in the sense that it's the same exact software and same interface to the.
Application environment.
In the cloud.
As it is on premise that makes their ability to migrate.
Our applications even easier.
And so I think the answer is yes, but with our unified subscription. It's a it's equal to us and were very glad to have not just our a unified subscription offering but you know when account plan for our account reps, that's equal to them, regardless of which way or what they sell.
And so yeah. You know we are we're optimistic with respect to the offerings that we have out there. We're hopeful that in fact more of it will move to pass and to a you know cloud cloud data services.
And we think that you know were roughly in line with our customers in terms of the timing by which they will do that.
Okay, Thanks, and well quick one for you Kevin.
Did you quantify the subscription impact on Q1 in terms of a revenue growth.
Yeah, we kind of laid out in our prepared remarks, the subscription growth as well as what it represents in terms of a total revenue which is increasing.
And so we have that in the prepared remarks, but we did not just to be clear, we did not convert that to what to.
What it would have been had been a perpetuals had been a and equipments capital settlement. That's correct. That's correct, yeah, but you do you a 12% revenue growth would that have been.
14, or 15% did you say that in the preferred much tendency that did not did not and that's what Charlie was Oh, yeah, we didn't make that conversion and we're not.
It turns out there's a lot of puts and takes in any conversion would be inaccurate and so we've decided not to do it.
Alright, Thank you guys.
Thank you.
Your next question comes from Tim long from Barclays.
Thank you also and condolences to match family and.
Thanks, Lee are you feeling better Charlie.
Two questions for me first just give us an update on on Flasharray see sounds like Flashblade is moving along well maybe just just let us know how.
That that rollout or that the take for that has been and then second.
On the gross margins been a really strong performance wanted to kind of ask about competition pricing, but that doesn't seem like that's a problem. So maybe any comments on kind of sustainability of that strength that we're seeing in the gross margin line both product and overall thank you.
Yes, absolutely as far as color on C., we're very pleased with its continued performance in our.
You know in <unk> in our revenue base and with a with a customer acceptance.
We've had several very large deployments have seen we've also had a good uptake of see you're just individually.
By new customers.
And you don't spend nine months roughly since we introduced it.
And of course, there's no competitive product out there that even that has been introduced or even comes close to see so it's a it's an open fueled oh for us right now.
And we're seeing the power portfolio as well, because it's really allowing US now to go into customers and you know I would say as of two years ago, we were pretty much still a a unique product offering with a great button each product and our customers are saying Gee, we can use pure across a wide variety or even all of our storage needs.
And that that's really been a great benefit to us as we've penetrated further and further into the enterprise.
And then and then I'll hit to gross margin in terms of you know how we're thinking about gross margin and really our long term view of gross margin remains unchanged. We're very pleased with the performance both on product gross margin and on a ours or subscription services gross.
Margin and it really is the product of the design of our product solutions in particular, our software IP and development and we say that you know each and every quarter and that continues to be true and that's where the value is that's where the customers are seeing the value and that's really where the competitive differentiation is and and while we're competing head.
To head on cost the value of the software is really driving the results of what you're seeing on gross margin, but again, our long range view on on gross margin hasn't changed.
Okay. Thank you.
Your next question comes from Carl increment from Cowen.
Good afternoon.
Thanks for taking my question, Charlie or Kevin two questions if I may.
First you know what you're not enacting any restructuring actions like one of your peers I'm, just kind of curious and how much room do you have to rein in on the Opex side, if demand were to remain subdued. So next few quarters.
And I guess on Cogs I understand that your software stack is the largest driver.
But some component costs have raising in the first half the year, you really just kind of both off the shelf ssds, but also flash controllers with some of these extended lead times.
But do you expect that to reverse where are these commodity cost can actually be a tailwind in the second half of a quick follow up.
Terrific. Thank you so much Carl.
Look I, it's really my personal goal that we not have any layoffs or furloughs. This year and every Puritan in the company is dedicated to put in the kind of performance that we need to make sure. That's the case to pick up market share.
Drive the company to support our customers, but <unk> as we look at the at both the quarter in the year and as we look going forward. We believe we're going to be able to perform in such a way.
That we will not have layoffs or or furloughs and as I said, it's my personal mission to make sure. That's the case.
We believe that we're going there are lots of activities that we can and undertake the make to the company.
More both more productive, but also more efficient.
And we have a as you might imagine we've been very busy identifying those and taking that of course, we're saving a lot already on t. any and large and large events, which is very positive, but I feel that as long as we can operate the company.
At or near breakeven that and that we can do so this year.
We will not need a need to have any restructuring actions associated with it now I do.
To.
Preempt a.
Perhaps a follow up question, we did have a restructuring early in the year that was planned last year, even before any thoughts around coded but that was really a rebalancing action inside the company because as like any company as you go forward.
There are times when you deploy.
People and resources in areas and overtime, you you want them to really to be in other areas that are more productive and that's what we went through early in the year that resulted in a small number of Ah of people being displaced.
But that was not an economic consideration it was a it was a rebalancing.
And then just real quick on your question on on <unk> really in particular, probably NAND pricing is what you're getting at you know we did see stabilization of pricing, including during Q1. In fact, we we saw Nam pricing I really rising modestly in Q1.
As as one might expect the data is mix for us when we're looking at the second half across the board. There are some indicators that that pricing may decline a later in the year, but when we take a step back we're looking at a much more normalized pricing environment throughout the year compared to what we saw a in the second half of last.
Yes.
Yes, thanks for that just yet.
You know you're not providing a full year quantitative outlook.
Which makes sense given just some limited demand visibility, but could you speak qualitatively of how you see the growth trajectory of your hardware business I ask because since you last reported Vmware added support of Rocky in publishing on network fabrics.
In doesn't that eliminate one of the largest impedance to you and the me over fabric implementation and given that you're more integrated than peers. How does that influence your view on the forward trajectory of your all fluctuate Ray hardware. Thank you.
Okay.
Around VM or support from maybe over fabric absolutely. So we're very excited to see support from maybe ever fabric from from Vmware also from Cisco as part of you see us platform and so we see we were obviously out very very early in that game and we've seen some of the largest cloud providers. We sold two already embraced that wholeheartedly, but we think this the opens it up to a more.
<unk> enterprise usage, so if something were quite bullish on yeah ill just double down on that yeah. We've seen a lot of enthusiasm, especially among arc our cloud customers and are just a reminder, our cloud customers are now over a third of ourselves.
But a lot of enthusiasm for the envy me over fabric.
As a way to really or consolidate to.
Improve.
They are rack structure, because it brings a the ability to have stateless servers into play and to consolidate all of their state you know into a single device that has been designed to maintain a state. So it actually it lowers the cost it increases the density and increase.
It is the reliability of large scale infrastructure, so the more and via me support over fabric support that we see out there the better frankly that it that it is for US you know I believe that you'll being the first we still support probably more use cases than almost any other vendor out there and overall I think it's good for us.
Your next question comes from Alex Kurtz from Keybanc capital markets.
Thanks for taking the question.
Charlie I just want to go back in time to a couple of previous quarters. When Tim was still CFO. We had all this discussion about the disconnect and in pricing market pricing and kind of what was your models and we.
We had that kind of revenue reset last year around that.
As NAND pricing kind of stabilize here and maybe goes up.
What actions have been taken to kind of get a better.
Street view to the to the model for Kevin that you guys feel more confident in kind of how that's being relate back and forth between the teams.
Yes, no. Thanks. Thanks, Alex So you know what was what what really knocked us off our ability to project last year on you know in a in an accurate way was not so much that NAND prices were falling because we're used to nan like any commodity NAND products.
And memory et cetera, we expect a decline over time it was the precipitous rate that they declined over a two to three year or two to three quarter period, which was a two to three times a normal.
Now I'll get weekly updates.
On on NAND pricing and I'm, what I'm looking for is not so much the.
3% to 5% quarter over quarter drops that one expects and of course, it's not steady it'll go up and down in any one quarter, but what I'm looking for our the sudden changes.
Which are usually partially supply and partially demand.
That are well beyond what we normally normally see so we're keeping our eyes out for that it we will flag it and we will.
Address it earlier the next time around so that's that's the way we're we're dealing with it now it just had not been in our model before because it always stayed within the normal range.
Okay, and just a follow up on on bookings for for Kevin little bit late to the call here. So I just want to make sure I Didnt Miss this in the prepared remarks, but I'm just.
Just the delta between bookings and revenue growth like what drove that.
Well, that's really going to be the primary driver really will be around our subscription offerings. Alex I was really what that's coming down to a in terms of either our evergreen model or what were doing a pure as a service or club blocks are those would be the main drivers of that difference.
Your next question comes from Rod Hall from Goldman Sachs.
Hi, This is archaeology up a fraud. Thanks for taking my question Congrats on the nice quarter guys from me deepens condolences to.
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Could you contrast, your PURA suneet suffering with other companies to service offerings.
No problem.
Yeah, Let me let me start that the first is that we really are as <unk> and as a service offering because and as a service offering is not just an economic model, it's not just a warmed over lease.
First of all you know in terms of the way you buy our product you buy it as a.
It's a it's a cloud based procurement model based on you know NFL law. So it's not not based on on the hardware that gets put into place a we have a cloud operating and utility model that is true across clouds that is it's a unified subscription.
That works, regardless of where you place your data whether you place it in the cloud or on the on premise equipment. It's a common platform. It's the same software operating in both environments managed by the same management system. So that your applications can easily.
Be.
Placed either on prem or in the cloud with minimal.
The minimal refactoring, oh for that for that to be done and we charge.
The customer basically on you know on the drip based on what they actually use so not not what they have to reserve, but rather what they actually use. So you know some some of our competitors.
How put try to put together a economic model, which is effectively a lease.
But it doesn't contain any of those other components.
Your next question comes from it very nice from Evercore.
And this is Michael Fisher Entre Ahmed.
So I appreciate the the qualitative expectations for the July quarter, just wondering if you could maybe touch on what's embedded as far as product revenue expectation.
Should we be thinking down low single digits year over year in July.
Yes, so we're not giving specific guidance on that but look you saw how how product revenue came out and again product revenue is just a derivation of that product portion of our capital sales. So anything we're selling honor subscription offerings that include our product solutions will be and subscription services and so when I think about Q.
Two obviously, we see the growth and the momentum in subscription services.
And we see overall potentially at this point sales and total to be flattish year over year, so that will be a headwind on on product revenue.
Your next question comes from Mehdi Hosseini from S&P.
Yes, Thanks for squeezing me and I have a couple of follow ups.
Well, thank you for providing the mix for Flashblade, but I think he would put it in the context, if you could provide some competitive.
Q1, Q on a yield of how should we.
Compared to 65 million two quarters and Uh huh.
Yes. Thank you immediately as you know, we don't want to being a habit of Ah of providing.
Product breakouts on a quarter by quarter basis, but we do we want to provide you color every now and then I believe it was in our September.
Accelerate when we said, we we believed that we would be passing the 500 million cumulative sales mark for Flashblade.
By the end of the year and you know, we usually don't make those projections without a certainty that will achieve them.
Then we provided you. This this color which is 50, 15% of total sales. So that should give you. Another another indication, but we don't want to be in the habit of I'm doing it quarter by quarter appreciated, but as you can see we're so pleased with the growth of Flashblade and.
Purity 3.0 in particular, it just can open up a significant new market opportunity for that product both in existing accounts, where they've been waiting for replication, but also in new accounts.
Were they desperately need to the curves capability.
Get into government for example.
So it's going to open up new market opportunity. So we're very excited about the product going forward and expect continued growth.
Your next question comes from Erik Suppiger from JMP Securities.
Yeah. Thanks.
I do pass along my condolences to family as well as to concede there.
Most of my questions were asked but on Flasharray C.
Can you comment as to whether that's still the fastest growing product in viewers history.
Yes quite simply yes.
Your next question comes from Niihau Chokshi from Northland capital.
Yes, Thank you and my condolences and that's pending as well.
So no UBS.
Hello can you talk about what you see as a potential Chili's hills and power store in Seitel midrange rate and then also maybe also talked about when rates that was that affected at all or did you actually see that improved now that's out the color there would be great.
Thank you.
Let me just answer the second part of the question first which is we really didnt see it very much so far it's a very new out there obviously, there's a lot of buzz about it and so forth.
But frankly, our view very simply as it opens up opportunity to replace for products.
Whenever there's a disruptive upgrade and.
No.
God Love them.
Power sore is another disruptive upgrade whenever there's a disruptive upgrade it opens up the opportunity to all vendors all new vendors because of the customer's going to go through that trouble they might it it's basically a brand new product and in this case, it's a brand new 1.0 product. So you know, we've just introduced XR three which.
As our seventh generation of non disruptive upgrades on a very mature product with very high reliability and we've proven that we can do this over and over and here. We are seven years later from our first introduction and our competitors are still trying to catch up on an evergreen type of program.
With Nondisruptive upgrades. So it actually you know what the what they've done is they've effectively validated our program and net of seven years ago, and now were onto pure as a service, which you know if evergreen was about protecting the economics and lowering the risk of on Prem storage pure as a service is about.
Improving the economics and lowering the risk of a migration to the cloud.
And there's no when no one else and power store does nothing for that so you know and lastly, I'll just say that this is a terrible time to come out with a new 1.0 product.
Customers our risk adverse so we really see this is a great opportunity for us.
Your last question comes from Aaron Rakers from Wells Fargo.
Yeah. Thanks for squeezing me in and also my condolences to you guys and mass family you, it's great to work with.
I guess most of my questions have been asked and answered, but I wanted to go back to kind of the channel engagement a little bit several quarters ago are you guys announced a partnership with a global systems integrator.
Just curious on how you would characterize the current channel motion expansion.
And whether or not you've seen additional GSI kind of come to pure as clear opportunity. Thank you.
Yes.
We have what's been very interesting over the last I would say over the last nine months to a year, but but accelerated frankly in this last quarter is the degree to which you know both national and global Vars as well as system integrators have really embrace pure more and more.
Now we've I.
I think part part of that were the aggressive growth programs that we put in place of for these integrators, but frankly the expansion of our product line the.
Our ability now to address cloud needs.
And the fact that the product not lot line now really addresses a much wider variety of enterprise storage needs has really convinced these integrators to throw in more and more of their lot.
With a with pure.
We've seen a significant increase in a partner what we call partner sourced which is opportunities that are truly sourced by the partner. They may still require us to help them close but these were opportunities that we that they brought to us rather than us bringing collectively to them.
And we expect this to continue to grow <unk>, we're very pleased with the with what we're seeing from a partner scale. Both in terms of partner sourced generally but in particular.
The growth in what we're seeing at large enterprise partner activity.
Well I think we're closing it.
At the end of the via our I really appreciate very much Oh, all of the time and attention that Youve provided us.
While our projections for the near future are highly uncertain. We are extraordinarily optimum optimistic about the opportunities ahead of us and I have to say we are confident in our ability to continue to increase our market share.
Quarter after quarter.
The combination of our differentiation with our unmatched simplicity, the reliability or make this time of.
Make pure actually at this time, the safe in easy choice for our customers and I.
Thank you again for for joining us and look Oh by the way please join us virtually for our upcoming accelerating digital event that we're going to have on June 9th and 10th we really look forward to seeing you. There a there's going be a lot of information on new things that will be a new information that will be providing our please state.
Well.
Shelter in places serious it's a serious virus, we want you all safe and healthy or next quarter and look forward. Just speaking to you then take care.
Ladies and gentlemen, this concludes todays conference call. Thank you for participating you may now disconnect.
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