Q1 2026 Pure Storage Inc Earnings Call
Good day and welcome to the pure storage first quarter fiscal 2026 financial results conference call today's.
Today's conference is being recorded.
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Speaker Change: At this time I'd like to turn the call over to Paul Diet, Vice President of Investor Relations. Please go ahead.
Speaker Change: Thank you good afternoon, everyone and welcome to <unk> first quarter fiscal year 2026 earnings conference call.
Speaker Change: On the call we have Charlie Giancarlo Chief Executive Officer, Kevin Chrysler, Chief Financial Officer, and Rob Lee Chief Technology Officer. Following Charlie's in Kevin's prepared remarks, we will take questions. Our press release was issued after close of market and is posted on our website, where this call is being simultaneously webcast slides that accompany this webcast can be downloaded at investor got pure.
Speaker Change: Storage Dot com on this call today, we will make forward looking statements, which are subject to various risks and uncertainties. These include statements regarding our financial outlook in operations, our strategy technology and its advantages are current and new product offerings and competitive industry and economic trends.
Speaker Change: Any forward looking statements. We make today are based on facts and assumptions as of today and we undertake no obligation to update them. Our actual results may differ materially from the results forecasted and reported results should not be considered as an indication of future performance.
Speaker Change: Some of the risks and uncertainties related to our business is contained in our filings with the SEC and we refer you to these public filings.
Speaker Change: During this call all financial metrics and associated growth rates are non-GAAP measures other than revenue remaining performance obligations or our Po and cash and investments reconciliations to the most directly comparable GAAP measures are provided in our earnings press release and slides.
Speaker Change: This call is being broadcast live on the pure storage Investor Relations website and is being recorded for playback purposes, an archive of the webcast will be available on the IR web site and is the property of pure storage.
Speaker Change: Our second quarter fiscal 2026 quiet period begins at the close of business Friday July 18, 2025 with that I'll turn it over to Charlie.
Charlie Giancarlo: Thank you Paul and good afternoon, everyone and welcome to our Q1 FY 'twenty six earnings call. Thank you for joining us today.
Speaker Change: <unk> delivered solid performance in Q1, delivering double digit growth within a dynamic macro environment.
Charlie Giancarlo: Our introduction of fusion to pointed out last quarter has received an outstanding reception.
Eddie: Eddie almost 100 customers are using or testing fusion to manage their data infrastructure.
Eddie: Customers are implementing their data management policies in software and applying their governance across their global data estate, ensuring consistent policy enforcement at scale and reducing human error.
Eddie: As I shared last quarter.
Eddie: Infusion the two software eliminates data silos, transforming fragmented storage into a unified enterprise data cloud.
Eddie: At our annual accelerate conference, we will unveil how our latest innovations enable our customers to create their own enterprise data cloud, allowing them to focus more on their business outcomes rather than their infrastructure.
Eddie: This past quarter, we launched our newest flash blade flashed blade Axa.
Eddie: Flash played out because it will be the industry's highest performing storage platform for AI and high performance computing when it is delivered later this quarter.
Eddie: Traditional H P. C storage was built for predictable workloads and demands ongoing tuning to deliver proper performance for different workloads.
Eddie: But modern AI environments require a wide variety of performance levels consistently delivered across tens of thousands of Gpus.
Eddie: Flashed blade exited delivers ultra fast data access with unmatched read and write bandwidth using a new disaggregated architecture, which scales effortlessly to support massive GPU clusters.
Charlie Giancarlo: And it provides the ease of installation operation management and upgrade ability that pure is known for.
Charlie Giancarlo: Q1 was a strong quarter in our breath of AI wins across customers and segments and across scale and use cases.
Charlie Giancarlo: First we deliver industry, leading high performance storage for public and private GPU farms supporting small medium and large machine learning and training workloads.
Charlie Giancarlo: As enterprises adopt inference engines, and retrieval augmented generation or rag to apply commercial large language models to proprietary data they need storage infrastructure that scales, non disruptive way and adapt to evolving AI demands.
Charlie Giancarlo: Third AI is accelerating the push to modernize by breaking down infrastructure and data silos, enabling faster broader access to real time information.
Speaker Change: Like other vendors requiring different products for different use cases tours unified platform handles the full range of AI workloads with simplicity and efficiency.
Charlie Giancarlo: Another topic on customers' minds as server virtualization.
Charlie Giancarlo: Two weeks ago, we announced a major agreement with new tactics.
Charlie Giancarlo: This solution will integrate the new <unk> cloud platform with the pure storage platform solving a major challenge in the current virtualization market.
Charlie Giancarlo: This joint solution provides a modern scalable virtualized environment, which is purpose built for high demand data center scale workloads.
Charlie Giancarlo: Our partnership will deliver a high performance virtualized environment, providing new tactics cloud infrastructure with pure enterprise data cloud using pure flash array storage.
Charlie Giancarlo: We expect the solution to be generally available later this year.
Charlie Giancarlo: Pure is helping customers solve their transition to modern virtualization in multiple ways first we are able to help customers reduce their costs of existing virtualization solutions through efficient CPU utilization and reduction of compute cores made possible with efficient pure <unk>.
Charlie Giancarlo: Ridge access.
Charlie Giancarlo: Second pure Port works supports a number of modern virtualization solutions, such as Red hat open shift and other kubernetes virtualization solutions popularly known as Hubert.
Charlie Giancarlo: Port works allows kubernetes to automate both VM and container data management in one integrated orchestration model.
Speaker Change: Finally, pure has also worked with Microsoft to integrate cloud block store with Azure Vmware service avs to enable customers to be able to easily lift and shift their vmware workloads and data to Azure under Microsoft Vmware license.
Speaker Change: We are expanding this cloud block store integration into a fully managed service available natively through avs, which is in public beta now and expected to become generally available later this year.
Speaker Change: Our broad strategy is working during the quarter, we signed multiple modern virtualization deals two of which I'd like to highlight.
Speaker Change: First a large modern virtualization win came from a global automotive manufacturer in a use case, where downtime is not an option.
Speaker Change: Manufacturer needed to reduce costs and increase reliability at a large number of manufacturing sites.
Speaker Change: Moving to our new modern virtualization solution was the strategic decision for them.
Speaker Change: They also needed to migrate from their legacy system without disrupting production or risking data loss and they wanted a platform that would scale in the future as they advance their software defined manufacturing initiatives.
Speaker Change: By using tours storage platform alongside Port works to unify both container based and virtual machine based workloads the customer reduce the complexity of managing diverse environments and attained the high availability needed to keep operations running without interruption.
Speaker Change: A second notable win was with a global health care company facing a significant increase in infrastructure costs.
Speaker Change: They needed an agile platform capable of supporting multiple applications.
Speaker Change: Using the pure storage platform and Port works with Q, Bert we unified their operations with a single workflow across the company's application landscape and reduce their total costs.
Speaker Change: Both wins reflect a broader enterprise trend customers are moving away from legacy systems in favor of modern flexible infrastructure.
Speaker Change: Pure is at the forefront of this shift helping enterprises redefine their data storage and management architectures.
Speaker Change: This strategic engagement drives deeper customer relationships and sets the stage for continued expansion across the business.
Speaker Change: Our hyperscale collaboration with meta continues to advance production validation testing is on schedule with strong progress in certifying our solutions across multiple performance tiers.
Speaker Change: We remain on track to deliver our anticipated wanted to exit bites of this solution in the second half of the year as planned.
Speaker Change: Earlier this month pure meta co presented at the at scale Conference.
Speaker Change: Lighting, how we are driving innovation and flash storage for Hyperscale environments.
Speaker Change: The presentation showcased why flash is becoming a compelling storage option for a wider range of Hyperscale datacenter workloads.
Speaker Change: I encourage you all to watch this session online to see the evidence firsthand.
Speaker Change: Yesterday, we announced a new collaboration with SK hynix to deliver flash storage optimized for the energy efficient demands of data intensive hyperscale environments.
Speaker Change: With strategic partnerships now in place across key OXEA Micron and SK Hynix pure is actively shaping this emerging market.
Speaker Change: We are driving NAND technology collaboration to develop the industry and stay ahead of growing hyperscale demand.
Speaker Change: As we assess the macro environment, our near term view for the year remains largely unchanged. Although we are navigating increased uncertainty.
Speaker Change: That said, our consistent performance and disciplined execution will continue to set pure apart as a leader in our industry.
Speaker Change: We remain confident in our ability to outpace the competition.
Speaker Change: We saw very strong evergreen won an evergreen forever sales this past quarter.
Speaker Change: With tariffs top of mind for many companies pricing of our evergreen portfolio will remain unaffected by current tariff related changes.
Speaker Change: Pure storage as a service offering evergreen one delivers the full value of our platform with pure managing and maintaining the infrastructure with the industry's strongest service level agreements.
Speaker Change: In this uncertain tariff environment, our evergreen model provides customers with pricing predictability.
Speaker Change: Guaranteed SLA A's.
Speaker Change: Trusted partner committed to transparency.
Speaker Change: We are confident in our continued momentum to grow market share and strengthen our leadership in data storage and management.
Speaker Change: Before I turn it over to Kevin I wanted to take a moment to share some organizational news that we included in our press release.
Speaker Change: After more than five years at pure Kevin Chrysler will be leaving pure to pursue a new opportunity.
Speaker Change: Kevin will remain at pure until a new CFO is in place, ensuring a smooth and orderly transition.
Speaker Change: I would like to take this opportunity to thank him for his partnership and his dedicated and loyal service to pure <unk>.
Speaker Change: Since joining pure in 2019, Kevin has played a central role in pure as evolution.
Speaker Change: He developed and matured our finance organization and reporting led many strategic initiatives and partnered with our functional leaders to improve their businesses.
Speaker Change: Kevin was a great partner to me navigating the COVID-19 and supply chain crises, helping us to continually adapt to an extremely dynamic set of circumstances, while growing the business to over $3 billion in revenue.
Speaker Change: He also led our transition to subscriptions now roughly 50% of revenue.
Speaker Change: On a personal note Kevin has been a trusted and valued partner to me I am grateful for his thoughtful counsel steady hand, and deep commitment to <unk> mission and success, Kevin I wish you the very best in your new endeavors.
Speaker Change: With that over to you Kevin.
Kevin Chrysler: Thank you Charlie for your kind words, I am grateful for your partnership and working with such a talented team over the years. It is a highlight of my career to have been part appears growth journey, which I believe is only getting started.
Speaker Change: Okay, let's get into our results.
Speaker Change: It was a solid start to the year with Q1 revenue growing 12% driving $83 million of operating profit and achieving an operating margin of 10, 6%.
Speaker Change: This performance reflects sustained demand for our differentiated data storage portfolio in particular, our E family solutions.
Speaker Change: Our storage as a service solutions are also continuing to win in the market.
Speaker Change: Q1, <unk> sales for our storage as a service solutions jumped 70% to $95 million fueled by both large evergreen one deals defined as greater than $5 million as well as our higher velocity transactions.
Speaker Change: This momentum underscores customers drive to modernize their infrastructures and lock and predictable SLA based consumption models.
Speaker Change: Additionally, with our evergreen one storage as a service solution any incremental tariff costs, we incur will be absorbed in our continuously improving backend lifecycle economics.
Speaker Change: As a result customer subscription rates will not be subjected to higher tariff costs.
Speaker Change: Subscription and services revenue in Q1 reached $406 million up 17% and representing over half of total revenue.
Speaker Change: <unk> grew 18% to $1 7 billion, while total remaining performance obligations or RP O grew 17% to $2 7 billion.
Speaker Change: P O exiting Q1, encompassing our storage as a service offerings and renewals of our evergreen subscriptions across our install base grew 18%.
Speaker Change: This backlog reflects robust renewals and new storage as a service commitments.
Speaker Change: In Q1 U S revenue was 531 million growing 9% and international revenue was 248 million growing 21% year over year, we added 235, new customers, bringing our penetration to 62% of the fortune 500.
Speaker Change: Total gross margin improved sequentially to 79% in Q1 anchored by subscription services margin of 77, 2%.
Speaker Change: Aligned with our expectations product margin rose one one points sequentially to 64%.
Speaker Change: We continue to expect that product gross margin. This year it will settle in the mid sixties consistent with our remarks last quarter.
Speaker Change: Demand for our <unk> family solutions, including sales strength across our core offerings and moderation of TLC flash pricing are expected to be the key drivers of stronger product gross margin this year.
Speaker Change: This is also aligned with our long term expectation for product gross margin of 65% to 70%.
Speaker Change: Operating profit of $82 7 million and operating margin of 10, 6%. We're both aligned with our expectations, which is notable as foreign currency based operating expenses increased sequentially by approximately $8 million in Q1 due to the weaker U S dollar.
Speaker Change: Our head count modestly grew to over 6000 employees at the end of the quarter.
Speaker Change: Our balance sheet remains strong with $1 6 billion in cash and investments Q1, operating cash flow was $284 million and our capital investments of $72 million included evergreen one deployments scaling for the hyperscale opportunities and development for our fusion <unk> solution.
Speaker Change: We returned $120 million to shareholders through $2 5 million share repurchases and paid $61 million and employee award withholding taxes.
Speaker Change: Setting one 1 million shares and we currently have $152 million of buyback authorization remaining.
Speaker Change: Now turning to our guidance, we are reiterating our FY 'twenty six revenue and operating margin guidance. We are pleased with the solid start to the year and remain confident in the fundamental growth drivers of our business. While also recognizing elevated macroeconomic uncertainties that we expect to persist in the second half.
Speaker Change: Yeah.
Speaker Change: For Q2, we anticipate revenue of 845 million, representing a 10, 6% year over year increase we also expect operating profit of $125 million and operating margin of 14, 8%.
Speaker Change: Highlighting as well that Q2, FY 'twenty five operating expenses benefited from savings tied to our workforce realignment in Q4 FY 'twenty four.
Speaker Change: As a result year over year operating expense comparison will be against this benefit.
Speaker Change: In closing, we're proud to have delivered double digit revenue growth strengthened our margin profile and reinforced our leadership in data storage innovation.
Speaker Change: Our robust balance sheet and growing recurring revenue base sets. The stage for continued execution of our strategic priorities with that ill now turn the call back to Paul for Q&A.
Speaker Change: Thanks, Kevin before we begin the Q&A session I will ask you to please limit yourselves to one question consisting of one part so we can get to as many people as possible. If you have additional questions. We kindly ask that you. Please rejoin the queue and we will be happy to take those additional questions as time allows.
Speaker Change: Operator, let's get started.
Speaker Change: Thank you if you'd like to ask a question. Please press star followed by one on your telephone keypad.
Speaker Change: Any reason you would like to turn that question. Please press star followed by one again to ask a question press Star one.
Speaker Change: A reminder, if you are using a speaker phone. Please remember to pick up your handset before asking your question.
Speaker Change: Well pause here briefly ask questions are registered.
Speaker Change: Our first question comes from Amit <unk> from Evercore. Please go ahead. Your line is open.
Amit: Thanks, a lot good afternoon, everyone and Kevin it's been a pleasure working with you and best of luck in the future.
Speaker Change: Charlie I wanted to ask you about the Hyperscale opportunity metal, obviously, you published a white paper on how do you see this evolving from their end and they call that Peter I think explicitly as a DFM software module partner.
Amit: I guess from your perspective from <unk> perspective, just any update on how this opportunity is evolving as you go from pilot to test to production and how would you characterize your discussions with other hyperscale or as you go through this journey. Thank you.
Speaker Change: Thank you. Thank you Amit for the question.
Speaker Change: So as you might imagine.
Speaker Change: <unk> met unlike most of the Hyperscale or is it takes about a year and a half if not two years to design. Their next generation data center that goes well beyond just the storage portion of it goes to compute software networking.
Speaker Change: All of the.
Speaker Change: All of the services that they plan to provide on that all of that infrastructure as well and so the if you will the evaluation and testing of the storage part runs along that entire process.
Speaker Change: It's not a separate process, but it runs in that process.
Speaker Change: That process is just about on on time for.
Speaker Change: For meta and it's proceeding along the path that we that we imagined really almost a year ago, it's pretty much on target and as we go through that we get further and further first of all they get further and further evidence of how well we work inside that environment and we expect most of that.
Speaker Change: That to be to be done towards the.
Speaker Change: In the second half of this year that being said as I mentioned in our prepared remarks. We believe we are on track to deliver the 1% extra bytes that we identified during the during that timeframe overall.
Speaker Change: And I would say were also similar to last quarter's discussion about progress with other hyperscale.
Speaker Change: I think we're making steady progress there about the pace that we expected hard to predict when one of those would turn into what we would call a fully validated design win we are in some poc's.
Speaker Change: That should be an indicator, but we like to have certain.
Speaker Change: If you will guarantees or knowledge in place that we are fundamentally part of our next generation design before we would say so.
Speaker Change: In a earnings calls such as this so we think we're on track, but there's still more work to be done before we can declare victory.
Speaker Change: Thank you Amit next question please.
Speaker Change: Our next question comes from Aaron Rakers from Wells Fargo. Please go ahead. Your line is open.
Speaker Change: Hi, guys. This is Michael on behalf of Darrin.
Speaker Change: I wanted to ask about your new newly announced X offering how should we just think about the opportunity in terms of size relative to the traditional enterprise market. There I assume that that's more of a niche product for obviously scale AI workloads and then.
Speaker Change: Tied to that what are the financial model implications or just the economics given that this is a disaggregated offering relative to kind of your traditional system sales.
Speaker Change: It's a great question and I think a little bit of a complex one.
Speaker Change: So we do believe that the opportunity here is in more niche markets that being said the niche markets are things like government.
Speaker Change: <unk> clouds large scale GPU clusters.
Speaker Change: For both training and cloud influence sites and so it can be a substantial.
Speaker Change: Substantial market, albeit probably not as large as the entire enterprise market for sure. It is a disaggregated infrastructure, where we charge for the.
Speaker Change: For the metadata node, you fully which is fully both our hardware and software and then the customer can bring their own data nodes or buy them separately, but we do charge for the software on those data nodes. So my expectation would be that the margins would be at or above our standard company margins on a long.
Speaker Change: Term base overtime.
Speaker Change: And Mike This is Rob I'll just jump in on that you know I think if we if we step back and when you look at phosphate Axa and where it sits in the overall portfolio and really our AI strategy.
Speaker Change: One important to realize this is really building off of the success that we have today with flash play to us and supporting hundreds of customers across our various sizes up to and including the largest scale enterprise AI now what we've done with Axa is.
Speaker Change: Built off of that core technology expanded it with this disaggregated architecture as Charles mentioned now going after and targeting.
Speaker Change: That that next level of scale typically found in those GPU clouds, new clouds sovereign cloud and tech tightened type territories.
Michael: Thank you Michael next question please.
Howard Ma: Our next question comes from Howard MA from Guggenheim Securities. Please go ahead. Your line is open.
Michael: Thank you and it's encouraging to see the solid start to the year.
Speaker Change: The uncertain macro and that's actually what I wanted to ask about it and the question is we've been trying to figure out during periods of macro uncertainty, especially this year are you seeing any changes in buyer behavior. For instance is there a halt on flash storage purchases in lieu of.
Michael: Less expensive options or are you're upping, our customers opting more for evergreen, one, which you kind of alluded to Charlie in your script, but I'm not sure. If there's a high correlation with macro or just anything else. That's interesting to note. Howard you know it's been a question that we've been asking ourselves and looking into our data.
Michael: Extensively.
Speaker Change: Obvious question are we seeing Poland in the market, we have to say from the Q1 results. We didn't see we didn't see that of course that was through <unk>.
Speaker Change: April.
Speaker Change: I would say that right now, it's really a de minimis amount if there's a pull in it's really a de minimis amount.
Speaker Change: Q2 might be a slightly different story, but I wouldn't.
Speaker Change: Again, I wouldn't say that it's going to be a substantial amount were much.
Speaker Change: It's the second half, where we have much less visibility just because of the dynamics.
Speaker Change: In the market with the with both with terrorists retaliatory tariffs and just the economy in general.
Speaker Change: There is less and less ability, we believe to predict the second half, but I would say for the first half or sorry for the first quarter and probably for the first half we're not seeing a significant change either in customer sentiment.
Speaker Change: Or in actual substantial pull ins.
Kevin Chrysler: And Howard this is Kevin I would I would affirm that with Charlie as well and I think when you look at the Q1 results, it's broad based strength.
Speaker Change: Cross the board in terms of our traditional sales as well as evergreen one so I don't think that we can specifically say evergreen one benefited because of the tariff for a potential tariff environment, but.
Speaker Change: But we do think that could be an opportunity for evergreen one over time, possibly.
Speaker Change: And that's because we're just not planning to increase our subscription rates are in the event, we incur a hair higher tariff costs and because we can actually absorb those costs in the operation of our service.
Howard: Thank you Howard next question please.
Speaker Change: Our next question comes from pendulum Boral from J P. Morgan. Please go ahead. Your line is open.
Speaker Change: Oh, great. Thank you for taking the questions Kevin.
Speaker Change: Good to see you go but.
Speaker Change: It's across again all the best.
Speaker Change: One question and might sound like two parts, but there's actually one barn.
Speaker Change: It seems like do you see the evergreen bookings.
Speaker Change: Is doing quite well our <unk> seen seems are fine.
Speaker Change: Seems like it's bouncing back so wanted to ask you is the Q1 results on the evergreen is that above your expectations and are you assuming a bit more headwind to full year revenue.
Speaker Change: Or are you changing your expectation with DCP bookings for the year that might impact revenue for the year.
Speaker Change: Thank you pendulum, yes. This is Kevin look where we're certainly pleased with what we saw in the T. C V sales performance of Evergreen one in Q1.
Speaker Change: Frankly, we were expecting growth of evergreen one coming into the year.
Speaker Change: Following a frankly, a record Q4 and evergreen one T. C V sales last quarter, we did close a larger evergreen one deal this quarter that was a little bit earlier than expected, which creates some variability quarter to quarter.
Speaker Change: But I would say that that doesn't change really our expectations for the year. So when your second part question of expecting a headwind.
Speaker Change: On revenue for the year.
Speaker Change: And again, while certainly pleased with with the sales performance, we would not expect at this point to see a significant headwind to our annual plan and guidance.
Speaker Change: Thank you pendulum next question please.
Speaker Change: Our next question comes from Mike <unk> from Needham <unk> Company. Please go ahead. Your line is open.
Mike: Hey, Thanks for taking the question here guys.
Speaker Change: To hear some of the statistics regarding the.
Speaker Change: Uptake, whether it's for <unk> or.
Speaker Change: Fusion to Dot O here can you help us think about.
Speaker Change: What do you.
Speaker Change: Diagram would look like if I'm thinking about the customers that are taking evergreen one.
Speaker Change: Versus the customers that are adopting.
Speaker Change: Fusion and Port works.
Speaker Change: Those relatively windup or is it a little bit more disparate or still too early to call and I'm just interested in what the adoption looks like for those evergreen what customers specifically.
Speaker Change: Well in the case of fusion, let me answer it start with fusion in the case of fusion's available and just as a part of the software that operates on our products. So it's available both to evergreen one subscribers as well as two customers who have purchased our arrays in the case of evergreen one.
Speaker Change: We do a lot of the operations.
Speaker Change: For the.
Speaker Change: Of those because there are in evergreen one there are a raise on our customer's premise, but we take responsibility for managing them, we will be managing them via fusion. So it's almost automatic in the case of evergreen one in the case, where the customer operates their own arrays owns and operates their own arrays.
Speaker Change: That's where as we mentioned we have a very large number that in just five months since we released the second version of it.
Speaker Change: There are a large number of customers, both either testing or using our fusion and so we think that what it does is create an environment that makes it easier for them to manage and allows them to manage their data by software rather than through manual processes. So there's a high overlap I would say there in the case of port work.
Speaker Change: Port works as a separate license from evergreen one so.
Speaker Change: Customers may be the same or they may they may be different.
Speaker Change: Yes.
Speaker Change: Mike This is Rob just to add onto that you know I think if we step back from it when I think about evergreen one when I think about fusion when I think about port works at the end of the day. All of these offerings are really geared towards delivering elements of the cloud operating model the customers in the case of evergreen one.
Speaker Change: This is about delivering a far.
Speaker Change: More are far more agile high optionality.
Speaker Change: <unk> of consumption and risk reduction and risk offloading to customers. When you think about fusion and port works those are really offering customers a more cloud based management and automation model. We do expect over time, a greater degrees of integration between infusion in Port works as we bring those together across both the traditional.
Speaker Change: Workload sets with backend back.
Speaker Change: And back office business applications as well as the more modern cloud native content.
Speaker Change: Container based application sets.
Mike: Thank you Mike next question please.
Speaker Change: Our next question comes from Jason Ader from William Blair. Please go ahead. Your line is open.
Speaker Change: Yes, Thanks, and good luck to you Kevin we're going to Miss you on the question on.
Speaker Change: On the revenue contract. The question is the revenue contribution from the one to two months of bites for meta in the second half.
Speaker Change: Does the Rev. Rec work for that is it just a.
Speaker Change: Kind of a pilot and therefore, you're not recognizing revenue or have you baked in any revenue contribution.
Speaker Change: Yes. Thank you Jason that there is going to be some de minimis revenue contribution that we've already contemplated in our annual guide and so we'll see that come through.
Speaker Change: In the second half and again, our view would be that that would be a licensing fee model. So you wouldn't see the full gross value coming through but we certainly have considered that in our guide that we currently have communicated to you.
Speaker Change: Yes.
Speaker Change: Thank you Jason next question please.
Speaker Change: Our next question comes from meta Marshall from Morgan Stanley. Please go ahead. Your line is open.
Meta Marshall: Great. Thanks.
Speaker Change: Great success with the evergreen one portfolio this quarter and you noted a large deal closing earlier than expected, but just wanted to see if there was an update on kind of some of the larger deals from last year that had slipped and whether those are kind of contributing to the pipeline this year or just.
Speaker Change: Kind of what Youre seeing maybe with some of these larger deals and just kind of overall time to close yeah.
Speaker Change: I appreciate that and look at two quarters doesn't represent a trend for us, but certainly pleased with the strength we've seen both in Q4 and now in Q1 and I would say it's business as usual in terms of what we've been saying over the last two quarters with Q4 and Q1, both with the larger deals, which we define as.
Speaker Change: Over a greater than $5 million tracking as we would be expecting as well as our higher velocity traction continues to be quite solid for us.
Speaker Change: So hopefully we can continue that momentum as we progress through the year.
Speaker Change: Great. Thanks.
Speaker Change: Thank you Amanda next question please.
Speaker Change: Our next question comes from Simon Leopold from Raymond James. Please go ahead. Your line is open.
Simon Leopold: Thanks for taking the question.
Speaker Change: Wanted to see if maybe you could could walk us through sort.
Simon Leopold: A compare and contrast of a project like what Youre doing with meta.
Simon Leopold: Relative to other projects in other words I'm trying to understand why it takes so long is it a matter of customization on your part or is it around long test cycles or is it things like modifying their own network management systems.
Simon Leopold: A little bit more detail. So we can understand the timeline better. Thank you.
Speaker Change: You bet Simon why is it taking so long is the question I keep asking cause and Rob.
Simon Leopold: No all kidding aside the reason is because it's not the testing of our products specifically, that's taking long time. It is their design cycle of their next generation data center, which goes well beyond.
Simon Leopold: Just the storage components of it. So we had this is why we had indicated the sort of the overall time and by the way. This will be the same for all or any of the Hyperscale is that we serve we will have to fit into their design cycle.
Simon Leopold: For when they are.
Simon Leopold: Designing their next generation design, which might be including us.
Simon Leopold: So <unk>.
Simon Leopold: Generally takes us somewhere between 18 months and two years to design a new product here at pure it's the same for these hyperscale as we're designing their next generation data center and so we may be using a chip that already exists, but it doesn't matter, we're not gonna be buying those until the full product is designed the same for these <unk>.
Simon Leopold: Large scale data centers as well, yes. Simon this is Rob just to add onto that I think I think Charlie said it well. This goes back to how we originally framed our engagement with meta in the early days. It was really a co engineering exercise and engineering to engineering as opposed to a more traditional sales process and I think the other.
Simon Leopold: Short of that is with our typical sales process and our customer is expecting a pretty much ready to go product that theyre going to go figure out how to how to use integrate into their management processes, but pretty much figuring that theyre going to hit the ground running alright, with a co engineering process as Charlie mentioned.
Simon Leopold: We are one element of their broader data center architecture and data center design inclusive of other hardware components inclusive of their software et cetera.
Simon Leopold: These are very typical engineering processes and timelines as Charlie mentioned and it's playing out as we expected and you know if you look at the language.
Simon Leopold: These phases, we've progressed from proof of concept to really production validation testing when we think about production validation testing. This is considered production ready equipment that they are bringing together the full design in the full solution set really validating that this is going to work and ultimately we see this as a really the principal good to the anti.
Simon Leopold: Supported one to two extra bytes of shipments of the solution, we're expecting in the second half.
Simon Leopold: Thank you Shannon.
Speaker Change: Next question please.
Speaker Change: Our next question comes from ASEAN merchant from Citigroup. Please go ahead. Your line is open.
Mike: Hi, Good afternoon. This is Mike can be is for us a merchant at city. So my one question is would you be able to give us further clarification.
Speaker Change: And how to think about subscription margins and given the expected absorption now.
Speaker Change: Possible higher tariff costs. Thanks.
Speaker Change: What was the last part of that question subscription margins in the event of higher tariff costs Oh, yes.
Speaker Change: Absolutely and you know we've talked about this right so in terms of.
Speaker Change: Effectively absorbing these costs in the operations of our business and an operating evergreen one.
Speaker Change: Look we're just very efficient.
Speaker Change: With leveraging the technology and purity as well as peer one I've evergreen one.
Speaker Change: At the same time.
Speaker Change: We're gonna do based on what we're seeing right now be able to manage tariffs effectively given the agility of our manufacturing footprint and supply chain. So as we sit here today I would not see a significant a burden or impact on our subscription gross margins.
Speaker Change: Thank you Mike. Thank you Mike next question. Please.
Speaker Change: Our next question comes from Max Michaelis from Lake Street Capital Markets. Please go ahead. Your line is open.
Max Michaelis: Hey, guys. Thanks for taking my question just kind of wanted to go back to the ramping of the investment on the Hyperscale win just when we think about future Hyperscale wins, I mean should we expect a substantial investment going forward for each win or is there. Some of your points are some areas that you've seen where you can find savings.
Speaker Change: Yes. Thank you for the question Max we expect to see.
Speaker Change: Leverage if you will in the design in our design and investment requirements as we add.
Speaker Change: If assuming we add more hyperscale I always knock on wood until they actually come in right.
Speaker Change: And the reason for that is that there are certain capabilities that are quite fundamental.
Speaker Change: Where is.
Speaker Change: As the first and once but once we have design those capabilities the elements that will need to change for most of the other hyperscale ours will be a fraction of to add on to that mostly in the areas of management some form fitting function, but not some of the more fundamental capability is one example.
Speaker Change: As you saw we're expanding the number of suppliers that we have on the flash side, we have to do testing for each one of those.
Speaker Change: Suppliers as well as for each different form of chips that we use from those suppliers. We won't have to do that again, that's a very expensive area for us. When we're building 150 300, eventually 600 terabyte drives each one of them cost a lot of money and we have to buy and burn.
Speaker Change: A lot of them in our testing process.
Speaker Change: That'll be leveraged or that's just one example, but that'll be leveraged across all of the hyperscale.
Matt: Thank you Matt.
Speaker Change: The last question is up next.
Speaker Change: Our last question will come from James Fish from Piper Sandler. Please go ahead. Your line is open.
Speaker Change: Hi, This is Katie on for Jim.
Speaker Change: Just a quick one what did you see linearity wise throughout the quarter and through May.
Speaker Change: Alright. Thanks, It was a very typical linearity.
Speaker Change: We're actually so we.
Charlie Giancarlo: Yeah, we were pleased with it started off strong stayed strong through the through the quarter nothing out of the ordinary I would say probably more to the positive Charley.
Speaker Change: Revenue linearity and Thats why were actually seeing.
Speaker Change: Some stronger free cash flows and operating cash flow.
Speaker Change: Why I also we didn't get impacted.
Speaker Change: Impacted as much from an FX standpoint, so I would say that our it it's out of the ordinary just into the positive in terms of what we saw in revenue linearity for this quarter.
Speaker Change: Okay before we wrap up I think Charlie is final.
Charlie Giancarlo: Few comments, yes. Thank you Paul and thank you all for joining US today on today's earnings call. The platform strategy. As you see is really redefining what is possible in the data storage and management environment, We're breaking down data silos, we're unifying fragmented storage environments.
Charlie Giancarlo: <unk> software defined storage management, and we're leading the shift to modern virtualization, we'd like to share all of this with you in greater detail at our accelerate conference coming up just next month and look forward to seeing you. There we want to thank all of our customers our partners our employees and our investors we very much appreciate it.
Speaker Change: Your continued support and thank you Kevin.
Speaker Change: That concludes the pure storage first quarter fiscal 2026 financial results Conference call. Thank you for your participation you may now disconnect your lines.
Speaker Change: Okay.
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Speaker Change: Yeah.