Q4 2021 Pure Storage Inc Earnings Call

And they are older storage equipment, avoiding the rip and replace the required by legacy vendors and reducing waste and landfills.

Tours industry, leading storage density allows customers to save on data center space and power when compared to other flash storage vendors now with flash array see customers can fit one petabyte of effective storage into roughly one rack unit the size of the pizza box.

Paying for all the what one consumes is the right model for customers bottom line and right sizing energy use and physical infrastructure ensures that customers don't pay to cool and power excess equipment.

I am very pleased with both the internal investments we've made over the past fiscal year and our focus on operational discipline.

We made a commitment early and the COVID-19 pandemic that we would continue to make strategic investments and global talent focusing on innovation, including our acquisition of Port works customer support and scaling the company.

We dramatically reduced travel entertainment and other operating expenses, while increasing our investments in talent and critical growth initiatives and anticipation of increasing growth. This year, while continuing to deliver operating income and generating positive operating cash flows.

Our employees and our charitable foundation pure good also stepped up investments focused on COVID-19 response, food and housing and our local communities and and our workforce development initiatives.

Continuing our thoughtful approach to operating and this new normal we recently announced the the company that we plan to use a hybrid approach when we return to the office with most employees able to work from home part time.

We believe that the hybrid office model will deliver the best combination of individual and team productivity and allow us to continue to attract and retain the best employees and the industry.

I have never felt more fortunate to be at pure our dedicated Puritans, our loyal customers and our partners and suppliers all displayed incredible perseverance creativity and positivity during the past 12 months, despite the personal challenges they each faced.

The effect of the Covid economy on pure business has largely played out as we predicted over this past year.

First of short acceleration of the business as customers shifted to work at home and online business.

And then a sharp pullback as they took stock both of their business prospects and new plans for digital transformation, followed by a gradual stabilization based on the new normal.

Now we look forward to of returned to more significant economic growth as we expect the effects of Covid, we will begin to diminish during our fiscal Q2.

I have increasing confidence that this year will be far better than last on.

On a macro front I'm hopeful about the promise of increasingly plentiful and effective vaccines being distributed throughout the world.

And I believe that in this fiscal year, our customers will accelerate their investment and digital transformation with renewed confidence of economic recovery.

And they will be increasingly confident and their ability to deploy new vendors new systems and software into new use cases, and pure will be high on their list.

Thank you and now I will turn the meeting over to Kevin for details on our financials.

Thank you Charlie and good afternoon, we are very pleased with the strength of our Q4 performance was which was much stronger than we planned flash blade and flash array both achieved consecutive record sales and we continue to see strong demand with our enterprise customers, who recognize the value that we're delivering.

We completed a record number of deals of 10 million and also achieved record sales during the quarter to a fortune 500 customers.

Sales of our subscription and services continued to be strong consistent with what we have been saying throughout the year, including one of our top deals above $10 million being pure as a service.

Our sales growth excluding cancel the orders was slightly over 9% and Q4 compared to last year driven by strength both in the U S and international markets. We are also very pleased with new customer acquisitions during the quarter as 471, new customers chose one or more of our solutions.

Now turning to specific Q4 financial results.

Total revenue of approximately $503 million exceeded our expectations growing 2% year over year the.

Despite the strong compare as Q4 last year was not impacted by Covid headwinds.

Subscription services revenue grew approximately 32% year over year and represents approximately 30% of total revenue as.

As a reminder, subscription services revenue includes the evergreen subscriptions and our unified pure as a service subscription which includes cloud block store.

Total revenue both in the United States and international saw slight growth compared to a strong Q4 last year.

Our remaining performance obligations or RP O, which includes our committed and noncancelable future revenue grew approximately 24% year over year.

Non-GAAP total gross margins in Q4 was 69, 4% up 30 basis points sequentially compared to 72, 1% last year.

Product gross margins were $69 one per cent compared to 73, 3% last year as.

As you might recall of last year's product gross margin benefited from unprecedented pricing dynamics of NAND and <unk>.

Ascription services gross margins were strong at 72% compared to 68, 1% last year.

Non-GAAP operating profit during the quarter was approximately $36 7 million compared to $60 9 million last year.

We were pleased that as we were navigating COVID-19 related headwinds, we continue to invest and the business, while the only slightly increasing overall operating expenses.

Operating income for the year was 46 million as operating expenses for the year grew less than 3% non.

Non-GAAP net income during Q4 was $38 8 million and non-GAAP net income per share was <unk> 13 cents weighted average shares used for the Q4 non-GAAP net earnings per share calculation was approximately 297 million shares.

We ended the quarter with over 1.25 billion and cash and approximately 3800 employees cash flow from operations was $69 million and free cash flows was $48 million and the quarter.

During Q4, we repurchased a little over 1 million shares for approximately $23 6 million completing our 150 million planned share repurchase program we.

We have also announced a new share repurchase program of up to $200 million.

Now turning to guidance, where we will provide some color on how we're thinking about this year as well as Q1, we do not plan on updating our annual of you as we progress throughout the year.

For FY 'twenty, two we expect that total revenue growth would be and the range of 14% to 15% factory.

Factoring and continued growth of our subscription and service offerings that will be a significant contributor to our overall performance.

Capitalizing on the investments we made in FY 'twenty, one we expect to grow operating income of 10 year $90 million. This year now moving to our Q1 outlook as visibility continues to improve and with the strength of our enterprise business and momentum of our technology platform. We are forecasting total revenue will be.

$405 million growing approximately 10% from last year.

Consistent with our Q1 seasonality, we are forecasting and operating loss of $20 million for the quarter and expect to generate positive operating income during the remainder of the year.

In conclusion, we are very pleased to end the year on a high note as our Q4 performance surpassed our expectations in the midst of continued COVID-19 headwinds.

We have confidence and our investments and innovation that we believe will drive accelerated revenue growth and continued high levels of customer satisfaction, while increasing shareholder value.

We are excited to build on our momentum this year capitalizing on the tremendous opportunities that we have in front of us as we expect COVID-19 headwinds to lessen during our second quarter.

With that I will turn it over to the operator, so we can get to your questions.

Thank you ladies and gentlemen, if you have a question. Please press star one on your Touchtone telephone and the interest of time, we ask for the please limit yourself to one question and one follow up question. One of your questions have been answered please jump back into the question and answer.

For Q, both off for just a moment to compile the <unk> roster.

Your first question comes from Aaron Rakers of and Wells Fargo Immunoassay question.

Hi, This is Jake on for Aaron first of all and congrats on the great quarter.

And I was wondering if you could start out by talking a little bit about deferred revenue growth and reminding the what sits outside of the deferred and <unk>.

Yeah, Jake Thanks for the question and I mean, let me just start because I'd like to just start the the overall conversation.

With the fact that you know, we really did see and excellent.

Quarter across the board and you know given the the strength that we've had in our subscription revenues that we commented upon.

As you might expect we're seeing a good growth and even greater growth in.

And deferred than we see in actual revenues, which bodes well for the future of it gives us additional confidence overall going forward for Kevin Yeah. Jake Let me just add on in terms of you know, obviously <unk> or remaining performance obligations.

And you're seeing the growth sequentially and is really being driven.

And by the of momentum, we're seeing and our subscription services principally around the pure as a service.

And the unified subscription with C. B S, where we're seeing some strength as well on deferred revenue and that's really in part due to the momentum overall, we're seeing.

Both with our sales of our subscription services as well as increased momentum with the sales of our integrated solutions and appliances as well.

Great. Thanks for that and then on another note I was wondering if you could talk a little bit more about.

And what works and what Youre seeing and the competitive landscape there.

You bet right now of Port works actually is.

And almost the only game in town from what we can see with respect to to two areas.

One is a SaaS offering for container based out of storage systems that operates both on Prem and in the cloud and.

And the second is the kubernetes layer on top which allows for the orchestration and management of data services and in fact, we've.

Our recently provided additional information around what we call PX backup of Port works backup.

And that enables customers to automate bye bye policy.

The regular backup of the storage that they've created for their container based systems, so it and really.

It's the only capability of that combines those two elements.

And we're seeing very good traction, we're seeing good traction through our channels and were.

Seeing good traction directly by customers and in particular, what is especially gratifying is the fact that of.

The we are of very high uptake by enterprise customers.

Large banks and other areas as well.

Just out of that earlier, the I think it's been really gratifying to see the different types of customers that are adopting and port works and kubernetes John.

And one hand, you have literally the largest wall street banks and the world transitioning all of the applications that group of thought is and using port works to build out very large shared container environments and on the other hand you of.

For example from the largest gaming customers and the world, but the my kids spend probably too much time, where the unfortunately, where every time, we log on globally. They are building more and more points of presence. The both of those gaming sessions totally and the cloud all powered by for works and sort of the diversity between large on prem as well as totally cloud native of use cases is amazing and it's still early days of of course.

But we're seeing good growth.

Great. Thank you.

Your next question comes from Jason and the Adder.

William Blair and Blair you May ask the question.

Yeah. Thank you.

Charlie can you can you talk about I guess, just generally enterprise demand, which of the strongest verticals for you right now and then what I guess, what surprised you and the quarter overall.

Yeah.

We are seeing as we mentioned and our remarks really good uptake by enterprise and as you know, it's a while we've sold into enterprise most of our.

Existence, we really didn't make a major focus on it from a sales standpoint until a couple of years ago and since that time, we've had a two two effects that we can really call out one is that the major.

And the strengthening of sales into existing enterprise customers, taking on more and more of their overall portfolio that we can fill and secondly, you know of faster uptake by new enterprise customers and in particular as we mentioned our 10-Q.

And the eight figures we've had several of this year that were brand new customers that contracted with us rate figures are one of whom was of pass wasn't.

Actually two of them.

Through the year of where we're past deals and so you know our reputation I think and in and enterprise has been very strong and we can expect we think this to continue as a as conditions around COVID-19 improve.

And just any comments on verticals and and and what surprised you during the quarter yeah.

The one vertical that where we had been struggling a bit as of now coming through for us and that is a big banks.

Big banks were.

And if you might say more conservative and in their use of of of new technology, and new and especially new vendors and we've seen and opening up of that segment for US were also strong in the service provider and health care and those have been and those have been good for us this year as well and obviously the cloud business continues.

Of course, we've talked about that before.

And you know, 30% plus of ourselves into cloud customers, we call it clouds for through for through N for through 1000.

And that includes companies that provide the only provide cloud service to their customers as well as the cloud service of more traditional companies such as epic, So you know where and the epic cloud and.

And federal and any quick one on the on that day.

The federal is still not and area of strength for us to be honest, that's an area, where we are making some changes and looking to make improvement.

Alright, thank you.

Your next question comes from Alex Kurtz of Keybanc, you May now ask your question.

Thanks, and congrats on the good quarter guys just on the on Arpino and thinking about what the right metrics of our for measuring the business given the move to.

Pure as a service and cloud block store is that really how we should be thinking about the.

The growth rate going forward I would just like to hear your thoughts on how you guys look at the growth of the business outside of reported revenue growth.

Yeah, Alex This is Kevin and I got a couple of things that we look at and and share of obviously the.

The bookings outpacing revenue is one metric that we look at and we were at 9% year over year of growth.

On sales, which is outpacing revenue really and large part given the continued momentum we're seeing and our subscription services.

That down a bit more when we're looking at the Unbilled component of our P O and.

And the strength, there and Thats, primarily driven by our pure as a service offering and.

And then deferred revenue is really supported by the the continued momentum we're seeing around our evergreen offering as well as the incremental momentum were seeing and sales of our appliances, which includes the evergreen support as well and subscription. So that's kind of how we're thinking about it and and seen.

Good strength and momentum across the board there.

Charlie would you would you add anything there because it's the future of the company is increasingly going to be pure of the survey.

And <unk> kind of of the center of the discussion around what the growth rate of the businesses.

On a longer term basis, they're gonna be other metrics RPI and certainly one of them such as <unk>.

C V and and and and net new.

We've talked about this and the past, we think we need to get to a certain critical mass before before we can.

Before we think it makes sense to start to identify those on a regular basis, but increasingly as subscription becomes a larger and larger part of what we do yes, we're going to need the two.

To release more information of along those lines the.

To investors, yes, and Alex will take a look at that as we go through this year.

We do plan on having an analyst day this year and we'll land on a date and and obviously, we'll look at some other metrics. So I'll give you a good read in terms of our overall subscription business because it's for me it's far beyond just the tiers of service, which is great, but our evergreen and port works are layered nicely into that as well all of you.

Okay.

Yeah. Thank you.

Your next question comes from the line of Karl Ackerman with Cowen You May know ask the question.

Yes, good afternoon gentlemen.

And Kevin could you discuss the linearity of Opex leverage for fiscal 'twenty, two I asked because of the $20 million loss in Q1 appears a little bit larger than normal seasonality, but yet the full year outlook for operating margin of $90 million.

Implies for the best operating margin and a record. So I guess, maybe specifically could you discuss the investments you are making and port works that might explain the outlook for Q1, yes.

Yes, I think for you.

Yeah. Good question, Karl and then I think the first thing I'd start out with as you know with with Q1, you typically have the seasonality that is our seasonally lowest quarter in terms of revenue and that's pretty consistent and so you. We would benefit if you. If you look at the compare in Q1 of last year on a couple of different areas one was for.

Really around the fact that we did do some realignment with our workforce and took the benefit in Q1 last year. When I think about what we're looking at and Q1 that might be a little bit different on the Opex front.

Certainly some strength around our sales of of our subscription services. So we do have more comp coming through as a result over time because of the subscription services. So we're dealing with that a little bit in Q1, but to your point.

Seeing a lot of strength post Q1 in terms of what we see and returning to <unk>.

Operating profitability and and to your point are really happy with the fact that we're looking at almost $90 million of profitability for the year and really what we're doing is capitalizing on the investments. We made are really through this COVID-19 environment and data and we saw some early indicators of that returned in Q4.

And that to carry forward as we continue through the rest of the year.

So hopefully that and it helps you out Karl yes. It does Kevin Thank you.

And maybe a question for Charlie.

Earlier today Seagate's spoke about how data growth is going to double every three years.

And while it would appear that most of these data we will continue to be stored and on high capacity desk and the Aero density improvement shown for from HDD Roadmaps.

And your Flash Ray C addresses very well I think the demand for low cost fast storage across multi tenant environments and so first do you think flash for AC will remain the largest driver for you over the next two to three years second now that flash of IC appears to be more than 10 percentage of revenue is there a way to frame the tam or growth opportunity of your flash array offering.

Thank you.

Yeah, no. It's a great and it's a great question, we do think of it we had regularly given our Tam numbers before we think flash racy fits within the Tam numbers that we had identified previously and just opens up more of that market to us from a serviceable.

Portion, but you know flash array C continues to be first of all of the fastest new product we've ever introduced secondly, the only product of its classic and compete from a purely a price standpoint.

With the hybrid disk arrays, and third and to your point.

The price of of QL C and the price of of.

And what we're able to do with it for C shows that flash continues to decrease on a per bit basis faster than and magnetic and what that means is that sort of that the.

Did that as those as those costs converge we're go.

And to see more and more of the magnetic market move over to flash and opens up the opportunity for us given our first mover advantage in that the secondary tier of storage with the flash array see we think we are and the best position to continue to take advantage of that and the only thing I would add to that is there was some great analyst commentary just this last <unk>.

Order about how we're a couple of years off from that complete convergence, but that commentary misses the benefit of bit of reduction and so today, we actually deliver the value of that folks think are years away of being able to replace the disc and the data center completely with flush and I think it's the the crystal clarity of our founding vision of pure 10 years ago to look at flash of something that would.

Really be the dominant storage technology, and the data center and to deliver the all flash array. The centre it seem like a pipe dream 10 years ago, but those are the exact kind of deals we're doing today for customers, bringing together the strength of flash array of flash blade and flush for AC to go off for ever use case, and the data center and.

And just to.

To finish your question, which has to do with the flash array C versus everything else.

It's a great. It's a great new product and we expect great things are and I also expect great things from flash blade and from a port works there all in.

Large growth segments of the market, it's certainly true that the secondary tier market has been immune to the economics of flash up until now and it's equal in size.

And opportunity to the primary care market that we've already.

Taken advantage of so yes, we think it's going to be of a great opportunity for us, but not the only one.

Yeah.

Thank you for your next question comes from Rod Hall.

Of Goldman Sachs. You May know asked the question.

Oh, great. Thank you.

Wanted to ask you from going to go back to these eight large enterprise deals that you guys called out called out and maybe you could talk a little bit about the competitive situation. There and was there any particular competitor and you were displacing there any particular use case, that's resonating with people.

Just wondering if you could dig into those deals a little bit more and help us understand how you won and you'll have kind.

The follow up.

Absolutely well it was the mixture of new and existing customers, mostly existing customers certainly a mixture of portfolio of the verticals.

Banks.

<unk> and and traditional.

You know more and more traditional enterprise and enterprise companies.

I would say that on average as I as I think across all eight of them.

And it shook out pretty similarly to our average competitive.

The portfolio that is to say, mostly Dell, but certainly net app very big win.

For in.

Up against the net App.

And the primarily those two vendors I would say.

Okay, Great and then I.

And the follow up on the supply shortages that are out there and.

Ex expectations and NAND pricing is going to go up later in the year and I Wonder if you and maybe you could.

The.

Those two questions into one answer.

Do you expect supply shortages to be of problem and are you factoring that into your thinking and how you are factoring it in and then what is the man due to your.

And your economics later in the year.

You bet. So as you may recall, we are we have a very strong supply chain. We were unaffected and of course are our supply chain team was very busy but we our customers were completely unaffected at the beginning of last year.

When COVID-19 hit.

We have some of the best.

Lead times are in the business overall as we look going forward, yes, we do expect NAND pricing to stabilize if not to get a bit stronger that is a bit higher.

And the next couple of quarters.

We think demand has picked up and supplies are a bit constrained, but we don't expect any shortages. There has there have also been reports of course of other semiconductor shortages. We're on top of that we don't expect to see any although certainly lead times are starting to lengthen, but you know we're taking appropriate action there.

And overall.

It was in other parts of the question was the I.

I think that was it.

On the end of the margin impact just to remind us.

And then you kind of I don't we don't expect much of a of a.

Change in margins due to the net is fairly well behaved from the way we look at things right now and therefore, we don't really expect much change and.

And margin due to NAND pricing.

Great. Okay. Thank you.

Your next question comes from the team long of.

Barclays You May now ask your question.

Thank you and <unk>.

Just two if I could just following on those the big deals could you just talk a little bit about obviously was a great quarter and talk a little bit about how the pipeline for the large deals looks and any anything on the complexion. There and then second can you Charlie can you touch a little bit on the commercial.

Vertical obviously cloud and enterprise recall of strong so.

Maybe just walk us through what's going on there and I'm sure. It's a lot of macro but kind of the outlook for some recovery and in that vertical. Thanks, Let me take that second part then I'll hand, it over to Kevin.

So we continue to see weakness and in commercial although I will say, we saw of serial strengthening of that.

Our sequential I should say strengthening of commercial but you'll frankly, it's still suffering and it's one of the areas that as.

As Covid subsides, we hope to see improve the there are some early signs that that might be the case, but but.

But clearly the the mid market has suffered much more than the large enterprise overall.

On average our expectation of what we've built into our planning is that we should see because of the both the summer months and hopefully some effect of the vaccine we should see a dissipation of the COVID-19 effects in the middle or somewhere in our Q2.

And that's the.

Our forecast the sort of is based on a less of a lessening of of Covid effect, both in the commercial market as well as you know in enterprise the generally, but yeah, no commercial and mid market still suffering but we're seeing some of.

Some light at the end of the tunnel and we're hoping that the as Covid subsides and see that improve.

And then just just adding a little bit of light in terms of around our guide for for Q1 and annual and correlation with the big deals that we were really pleased to see in the Q4.

And we've got plenty of opportunities that we're looking at and working with customers on that we're hopeful will continue the pace as we progress through next year and.

Including in these large deals we saw in Q4 and building on that but when we think about the opportunity set it's really broader as.

As we think about next year subscription services continues to have great momentum and that's building for US and then obviously that helps out with a little bit more certainty in terms of how that rolls out into revenue and so that's great for us to see you know as we see a build of our opportunities we see some nice bill.

And the out further.

Beyond Q1, which is nice in terms of our guide for the annual year. So we've got some good confidence on that but it's broad based and and not completely focused if you will on the big deals, which we're always pleased to get.

Thank you. Your next question comes from Eric <unk> of JMP Securities Hino asked the question.

Yeah, and staying the course.

And and stuff.

And so I'd just be interested the here.

And look out to the Tam.

And then make.

Dissipating.

How do you think that will materialize.

And what will change.

For.

Being able to.

Personally with the customer of a word.

Do you think.

Notable changes will take place.

Yeah, we thought about this a lot of I think the most noticeable change will actually be customers.

And being willing to start to reenter the office and why is that well we depend a lot on as a company on two things one is commercial as we talked about but the second one is.

Is the customers willing to take on new products or <unk>.

Put products into new use cases, and we're largely still and on prem vendor and their willingness to do so is enhanced tremendously when they can go into the office. So you might imagine that using a new product and a new and a new workload.

And it's something that that customers are but it can be concerned about and when theyre able to go into the office and address things.

Something goes wrong, they feel much more comfortable.

And being able to do that so our dependence on both commercial and net new logos depends on customers feeling more comfortable to go into the office. So that's really what we're gonna be looking at now it doesn't require the.

90% of their team to be able to go and the office just their techniques and technology team to be to feel comfortable going to the office trying new things.

That's what we'll be looking at.

Okay, that's very helpful.

You you don't break the south but can you talk a little bit about the.

Portion of your customer base by across the different product categories last played a lots of array.

Maybe the.

And at your cross sell metrics the.

Share on that but we do look at cross sell metrics and it's quite interesting.

We look at Flash Blade for instance, it's roughly.

The 50% of our sales will go into an existing flash array of customer and existing customer and half will go into a brand new new customer as well I would say port works is a bit too early.

Flash array see tends to be majority of new customer I'm, sorry of existing customer, but we do have new cost of brand new customers for flash array C. As well so it's a good balance.

If I had to put and overall percentage on it would be about 50 50, but it depends on the on the product.

What about the platform.

Pure of this.

Service.

That's a very interesting we've had a very high percentage of net new customers on pure as a service and it really has allowed us to enter new customers with the unique value proposition, where we might not have been given a chance before.

Okay very good thank you.

Your next question comes from and Janine Barbara.

J P. Morgan you May now ask your question.

Great Hey, Thank you guys and congrats on the quarter.

Charlie given that this is the first fiscal year for Dominic to produce and especially on the sales org and its processes could you talk about any material changes debt that you're thinking of or you have already put in place going into the new Cisco and in terms of the changes and some disruptions changes.

Absolutely what we've consolidated our overlay sales operations now and to a single a single overlay and.

And that's going to allow us to really treat.

And which is going to be a highly technical sales and NSC operation.

And that really allows us to balance if you will new products, while at the same time transitioning the the more mature and new products into the core sales the mainstream sales operation. So that's been out of <unk>.

Significant change.

Of course, we've made as we do every year.

Made changes to the compensation program, not not and I want to be clear not major changes, but balancing all of our balancing all of the products and the intentions that we have for this year, making sure that we have.

Incentives as we talked about before as I talked about my my prepared remarks for pure as a service, but also for port works going forward.

Dominic's understanding of how to sell and enterprise and how to sell.

And in particular of software and service offerings has really modified the way we've thought about that and therefore allowed us to change and then.

And many ways simplify our compensation program to really focus on the elements that are important while at the same time.

Making everything else mainstream and.

And to make sure that our sales force really has the.

The the the training the knowledge and the skills to sell our entire portfolio and.

And I'd just add just in terms of Charlie on the field compensation and what Dom and yourself for doing it really extends to evergreen gold subscription, we're really trying to make sure that the the field is promoting that and given the value proposition. There appears of service cloud block store and port work.

And as well as flash played so we've continued to highlight the flash play we've got and wonderful momentum.

And with with Flash blade and that offering and use cases and that will continue as we look at the next year.

Understood helpful and just a follow up maybe Charlie Okay, and then and you anyone of you can take this debt.

When I look at the guidance seems it seems pretty solid but when I look at the range, maybe maybe it's a little bit wider than usual so trying to understand how would you peg the environment going forward would you say is it goes back to normal is there and is there I mean, the shape of the year would it be more of the towards the second half ramp versus.

The first half helped us understand that yeah, and I'll I'll I'll start with that tactically and let the Charlie add onto it but I, but I think you're thinking about that right right. So where we're looking at probably in the Q2 timeframe really to start to see noticeable diminishing effects. If you will of of Covid and.

And we've built that in to how we're thinking about the entire year.

And so that the is playing into it. So obviously the second half we are looking for some incremental momentum in terms of how we're thinking about all of our annual outlook. Charlie you have anything else you want to add on that yeah. No I think that's correct.

The only on the uncertainty we face as you know it was at the beginning of Q2 is at the end of Q2 and and what does the end of what is the fall of of of the year look like from a from a.

The Covid standpoint, but our belief is that it will continue to improve throughout the year second half.

And obviously the comparison that the next day this coming year, we're gonna be wonky as well given.

Given COVID-19 last year, but that being said you know we feel fairly good about the about the guide that we've you know about the the forecast of what you have yeah I would just add on a little bit more in terms of you know obviously the momentum that we've seen this year and expect to continue.

Next year in terms of outperformance on our subscription services and that gives us a little bit more predictability in terms of how things will fall. We've got really solid growth drivers is as we've talked about with the flash blade and flash array C. We do expect continued momentum with enterprise and as Charlie mentioned, it's really looking at the <unk>.

Herschel and mid market recovery really second half post the post Covid if you will.

Got it thank you very much.

Your next question comes from Simon Leopold with.

Raymond James and then I'll ask the question.

Thanks for taking the question.

Charlie I think my question really goes back to the your comment about the trend being a little bit wonky in that we've got a relatively very easy comparison to the pandemic.

I'm wondering if you could give us some idea of what you see is the maybe normalized growth rate on a year over year basis, and if there was some way to adjust for what the.

<unk> of the pandemic has been and what you think your growth should be.

Yeah, well definitely safely within the double digits range.

Certainly as you might recall this time last year, we were projecting of 20% growth rate.

Yeah I have no reason to believe why that wouldn't have been the growth rate going forward, but.

And as it is you know we're gonna be facing the at least four to five months of this calendar year.

Still with a strong COVID-19 effect and it's hard to hard to say exactly how long.

That will be so I hope that gives you some some semblance of where we would expect to be yeah and I.

Yes for the I wouldn't.

Add on to that for the quarter for for Q1 of last year that that would be of strong compare obviously when when COVID-19 set and for US that was later in the quarter and.

So we had a strong start to last quarter as well as the fact that we had some tailwind as folks were working through some technical debt to respond to COVID-19. So I'd actually view of Q1 last year as the strong compare but its a fair statement for the full year.

Great and then in lines of sort of the day the idea that this recovery and some return to normal.

What is your thinking in terms of your your operating expense budget, where you might be introducing or reintroducing travel expenses and things like that and he made some assumption for the.

And the timing and impact and is that incorporated into this.

Operating income for the full year that you've considered or do you think that happens later thanks John.

Youre thinking about this exactly right, we're going to feather that in and it's incorporated into our guide clear.

Clearly we've taken.

<unk> taken this past year, we've taken TNA and put it into.

Put it into a head count of you want to put it that way into investments.

As we go forward you know travels I'll kind of start up like a light switch it's going to take time to build up customers will have their own pace by which they will want to physically meet and get together. So we're gonna be cautious I don't I don't even want to travel and entertainment to get up to the same level. It was the pre COVID-19.

But at the same time, you know our expectation is that expenses will grow slower than revenue.

And that sort of total basis, so by definition since we've.

And since we've pre invested if you're willing to head count it'll mean and even slower growth in the area of of travel and entertainment.

Yeah.

Thank you. Your next question comes from Katy Huberty of Morgan Stanley's Murdo ask your question.

All right Katy Huberty of Morgan Stanley. Your line is now open and you may ask your question.

Thank you for the for the question the $10 million from scratch subscription deal was particularly impressive in the quarter can you just talk about what you think is driving underlying adoption of pure as a service is kind of at a factor and its companies focused on cash preservation or is this much more of the sustained shift and how come.

So thinking about buying product on time, and I never thought of a lot.

Yes, Katy I think it's more of the latter of sustained shift I think what they are it's more of a it's less about cash flow per se for the customer and more about uncertainty of where they want their data on a going forward basis, and so with tours of the service, they're able to fulfill their needs which tend to be.

On Prem today, and know that whether it's a year or two years or for 30 months that they can then shift to the cloud without having ongoing obligation on prem.

Having a reduced the obligation or whatever.

And whatever balance that they're looking for so it gives them extreme flexibility so it saves them.

It allows them to make a decision today without worrying about the long term effects.

That makes sense.

I would also just out of the real quickly that we really view this as the product innovation strategy as much of the business model and its one that I think when you. When you look of what we're offering compared to the kind of financing options. Many of our competitors offer it really allows us to differentiate our experience with customers and we're delivering a cloud like experience the bridges on Prem and.

Actual deployment and the cloud that's a unified subscription and another interesting thing. We did this last quarter was open up the services catalog. So we're providing transparent pricing where customer and go in and see exactly what storage costs and subscribe to it and we've seen the first transactions come through that and an automated fashion.

Great and Charlie I want to come back to an earlier question somebody asked about large deal pipeline can you just talk about the broader pipeline exiting January what that look like versus October and have you already started to see improved conversion and close rates even in the commercial market.

We've seen and the commercial market as I've mentioned is improving somewhat but still far below where we had exited last year for instance.

We're seeing better conversions on the enterprise side of things and so that's you know gives us a.

Hope and in general I'd say, certainly compared to a year ago.

Increased amount of enterprise and large enterprise much larger fraction of large deal activity.

I hope that gives you some color.

Alright. Your next question comes from Amit <unk> of Evercore. Your line is open and you may ask your question.

Hi, This is irvin Liu dialing in for Amit.

I jumped on the call a bit late so forgive me if this was addressed.

Can you help us better understand some of the assumptions that are embedded in your flow.

<unk> per se.

Net revenue growth outlook for fiscal 'twenty two.

Any thoughts on product versus support revenue trajectories would be helpful and just trying to parts of itself. Thanks.

Yeah, I'll start and then I'll, let Charlie jump in but obviously, what we've been chatting about is <unk>.

Terrific momentum with subscription services that we've seen really throughout.

And the entire year, we fully expect to build on that as we look out to next year and and that's really being driven by our evergreen subscription by pure as a service a unified subscription with cloud block store and Port work, So again and I'd say business as usual with continued momentum there I think on the.

The product side, what you've seen and some modest improvement in Q4.

In terms of where we're where we're landing from that perspective, we expect to build on that you'll.

And you'll see some improvement in terms of how we look at that for for Q1, and then obviously, we would expect to get back to growth on product revenue as well.

As we go throughout the year in terms of how we're thinking about the growth drivers really will continue to be enterprise as well as flash blade for.

<unk> C. And then we we fully expect it to Charlie's point.

After or as Covid diminishes the to get further recovery from from our commercial business and building upon our strength that we saw in Q4 on net new logo Charlie would you add in the out there I think Kevin you handle most of it I would just say that we do expect product.

Growth that is the traditional capex product growth to increase, albeit we expect subscription growth to outpace.

And the capital the cash.

Equipment growth going on of going forward basis.

Alright. This concludes the question and answer session. At this time I will turn the call back over to Charlie Giancarlo for closing remarks.

In closing I'd like to thank you all and thank all of our employees, our customers and our partners of <unk>.

For all of their support through this past year. Despite it all pure has accomplished a great deal both in terms of the innovation and our products as well as our market penetration and even with all of the uncertainty around the exact timing of the recovery from this pandemic, we're confident and our vision our strategy.

And our team's ability to grow and to scale pure I want to thank you all for joining us today.

Bye.

This concludes today's conference call and key now disconnect.

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The name.

Okay.