Ladies and gentlemen, thank you for standing by. Welcome to the Pure Storage Q1 fiscal 2021 earnings call. At this time, all participants are in a listen only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star one on your telephone. If you require any further assistance, please press star zero. I would now hand the conference over to your speaker today, Nicole Noutsios, 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 Nicole Noutsios, investor relations at Pure Storage. Joining me today are our CEO, Charlie Giancarlo, and our CFO, Kevan Krysler, and our VP of strategy, Matt Kixmoeller. I'd like to remind you that during this call, statements which are subject to various risks and uncertainties. These include statements regarding the COVID-19 pandemic and related disruptions, our growth and 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 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. Reported results should not be considered as an indication of future performance.
A discussion of some of the regard business is contained in our filings with the SEC filings. During the call, we will discuss non-GAAP measures in talking about the company's performance, and reconciliations of the most directly comparable GAAP measures are provided in our earnings press release and slides. This call is being broadcast live on the Pure Storage IR website and is being recorded for playback purposes. An archive of the webcast will be available on the IR website and is the property of Pure Storage. With that, I'll turn the call over to our CEO, Charlie Giancarlo.
Good 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, Matt Danziger, our head of investor relations, is no longer with us. Matt died unexpectedly last month from a non-COVID-related heart attack due to an undiagnosed genetic cardiovascular disease. Matt was healthy, vital, and intelligent, and spend time with. He touched the lives of everyone he met, and his passing has saddened us all and friends. I'd also like to take a moment to share my thoughts on the current health crisis that has affected everyone around the world. Some of you may know that I contracted COVID-19 in mid-March, and that experience has provided me with a deep personal appreciation for this virus and its impact.
The changes in people's lives and 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 Storage 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 have provided the services that have been critical to meeting our basic needs and tending to the well-being of others during this time. Within Pure Storage, every group has handled this crisis with courage and responsibility, steadfast in their mission to help our customers and our company. We continue to demonstrate that Pure Storage has best-in-class teams and that our products and services are simple, reliable, and trusted.
It is this potent combination that enables Pure Storage 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 or two rather than days. A major state government was hit with a ransomware attack in the early days of the crisis. Pure Storage was able to rapidly deliver our ransomware solution, providing protection against future attacks. A major collaboration network increased their Pure Storage footprint after a huge increase in traffic and demand from new customers due to COVID-19.
The customer chose Pure Storage because they experienced failures in their installed base of legacy solutions under the high load and were unable to obtain new product from those vendors to scale their systems. Pure Storage was able to deliver and install Pure Storage solutions into the customer's production network within 24 hours of our first call. A 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 function-based contract. In each case, Pure Storage was additionally 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 this scourge or tracing the spread of the virus, or in analyzing the structure and behavior of the disease.
We have donated our products to companies involved in the fight against COVID-19, including shipping FlashBlades to Folding@Home, an organization focused on simulating the dynamics of COVID-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 expectations to serve customers with critical needs. Pure Storage's global supply chain strategy and our now fully tested business continuity plan. Prepare.... 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 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 of Purity 3.0 on FlashBlade, which adds significant new features to the world's most performant file and object platform. In this latest release, we've added simple and efficient file and object replication for disaster recovery and hybrid cloud, as well as Kerberos and NFSv4.1 support. These features expand FlashBlade's broad range of use cases, including modern analytics, rapid restore, and ransomware.
Customers have rewarded our leadership and 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. Pure Storage's 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 Pure Storage's on-premise systems never grow old. After seven years, competitors are still playing catch up to Pure Storage's Evergreen program of continuous non-disruptive upgrades, providing customers a subscription to innovation rather than a contract for obsolescence. Pure Storage 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 Pure as-a-Service is the right option in this uncertain COVID-19 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 multi-million dollar commitment to Pure Storage's entire portfolio and specifically our Pure as-a-Service offering to transform their storage needs and move off of a legacy vendor's disruptive refresh storage model.
This pandemic has changed the way we work with a speed far beyond any pundit's predictions for technology alone. There is an increased, and likely permanent, customer demand for greater hands-free management, automation, consolidation, and flexible consumption models. Pure Storage 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 on to Q2. It is now trite to state that there are uncertainties in the global economy and unpredictability in the IT market as customers focus on the urgent, push out the merely important, and reassess ongoing IT 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 am 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. I am confident that we will lead the market exiting the recession. As we go forward and shelter-in-place orders are lifted around the world, Pure Storage will continue to do its part to protect our people and guard against community spread of this virus. Our dedicated crisis planning team meets daily to manage our global response to the pandemic. We have regional phased 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 Storage, 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, for their tenacity, focus, and genuine enthusiasm to help our customers, our partners, their 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. I look forward to connecting with all of you and the broader Pure Storage community, our customers and partners, at our Pure//Accelerate Digital and Pure//Partner Digital events on June 9th and 10th. With that, I'll turn it over to Kevan.
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. 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. Total international revenue in Q1 was $103 million, growing 5% year-over-year. Given the current environment that we are 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 and is broadly diversified across industry verticals and customers. Sales during Q1 to our enterprise and government customers in the United States were solid and growing, while we saw overall weakness in our commercial business. We are 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 of the prior year. Our business during Q1 benefited from increased demand of mission-critical IT needs arising in response to the unprecedented pandemic. We fulfilled 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 in our pipeline that 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 a 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. 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 $0.02. Non-GAAP net loss in Q1 of the prior year was $28 million, and non-GAAP net loss per share was $0.11. 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 and was $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 are 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 our share repurchase authorization. Total headcount at the end of the quarter was approximately 3,500 employees. Compared to approximately 3,400 employees at the end of fiscal 2020, and 3,150 employees at the end of Q1 of the prior year. Moving to annual guidance. The core fundamentals of our business remain 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 COVID-19. As we progress through the year, we expect to continue to see strength in sales and adoption of our subscription services. Our Pure as-a-Service and Cloud Block Store unified subscription offerings also continue 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 are also not providing guidance for Q2. We expect customers purchasing our solutions for their mission-critical IT infrastructure and digital transformation needs will continue to provide a tailwind. However, we expect this benefit to be more than offset during Q2 by customers who decide to pause IT infrastructure projects. Our diverse customer base and our 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 withdraw your question, press the pound or hash key. In order to allow everyone time for questions, we ask that you please limit your questions to one question and one follow-up. We'll pause for a moment to compile the Q&A roster. Your first question comes from Pinjalim Bora from JP Morgan. Your line is open.
Oh, hey. Thanks, guys, for taking my question, and congrats on the quarter. The booking number seems pretty good and seems like you're tracking above your, at least, annual goal that you had given us last quarter. Can you talk about maybe the mix of use cases driving that? Is that primarily VDI related? 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? Secondly, when I look into your DR, deferred revenue sequential add, the sequential add seems pretty low versus historicals. Where can we see this bookings number? Is that mainly going to be in the RPO? Where can we?
Pinjalim, thank you for the question. Again, for everybody, that I wish you all well, and I hope you're faring well during this crisis. We really saw, Pinjalim , a very balanced demand for product. Certainly VDI was one of the major use cases out there, but there were many others as well. We saw positive buying for all sorts of infrastructure needs because of not just work from home, but the higher levels of internet commerce that took place for many customers, not to mention greater service provider needs, et cetera. I'll tell you, it was a very balanced quarter overall. All products are doing very well. As we mentioned in our comments, we did see a 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.
For the second question, I think I'll pass it over to Kevan.
Thanks, Charlie. Specific to deferred revenue, 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. That's going to have some impact when you're looking at deferred revenue sequentially. You are correct as well that as we're growing our subscription offerings, there's an off-balance sheet component that's also growing that's included in RPO, and that's going to have an impact as well.
Your next question comes from George Iwanyc from Oppenheimer.
Thank you for taking my question. Charlie, can you give us a sense of how the monthly trends have proceeded from April into May?
Yeah. Well, May is very early. The quarters themselves build as we go along, month by month as we go along the quarter. 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. We did see, I will say, and we don't generally comment on this, but we did see very good linearity overall in Q1. Again, it's hard to predict what Q2 looks like from what we have so far in May.
All right. Just following up on that, can you give us a sense of how your sales motion is going from the disruption in moving to work from home? Have you been able to keep that pretty smooth through the transition?
George, that is actually a great question. If anything, we've seen higher productivity in sales from the work-in-home environment. I have to tell you that I'm probably communicating with twice the number of customer executives now that I'm working from home, the same is pretty much true with our sales team. It takes less than a week to get an 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 have the meeting and to convey everything you want to convey, probably get done in about 2/3 of the time, and the meetings themselves are, as I mentioned, it doesn't take much time to set up. We're seeing that across our sales base. That is to say, it's been easier to get access to higher levels in the customer base.
These have been very potent and very hard-hitting meetings. If anything, I expect that we're going to see sales in a B2B environment permanently take on more of a virtual digital technique to them.
Thank you.
Your next question comes from Wamsi Mohan from Bank of America.
Yes, thank you. Charlie, happy to hear of your recovery from COVID-19, and we all will miss Matt as well. Thoughts with his family. Can you give us some more color on your comment about, I know it's not explicit guidance, but your expectation around the flattish performance year-on-year. What sort of assumptions are backing that expectation? I mean, we're not holding that as guidance, we understand that, but what are the puts and takes that sort of get you there? Any color there would be helpful, and I will follow up.
Sure. The puts and takes are that, on the positive side, we do still expect some amount of the positive COVID influence that took place in Q1. That is some continued pull-in and finishing of the urgent issues that customers have either for work from home, school from home, higher web traffic, and transactions and so forth. We're expecting some increase in that. Let's not forget, in Q1, we had about a half a quarter of pre-COVID, which we are not going to have here. We're expecting on the takes, the full impact of a lower global economy start to kick in as well. The difficulty in projecting is the balance between those two things.
Yeah.
Yeah, please.
To add a couple other points on that. Obviously, we're staying really close to the field as we always do, their inputs are really weighted pretty heavily for us as we're thinking about Q2. When we think about the headwinds for Q2, really, it's around the increased risk of how the opportunities in Q2 will convert and the timing of those conversions is really the big question mark for us. 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. Those were factors that we were thinking about on the tailwind side. Really, on the headwind, we're also looking at 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 the question. Also extend my condolences on Matt, and Charlie, glad you're feeling better as well. Certainly crazy environment for sure. One of the things I wanted to see if you could help us understand is the trending between new and existing customers in that I would imagine it's harder to land new customers, and I think in the past you've talked about your revenue split typically around 25% new and 75% existing. If we could get a sense of what your thoughts are on that trend given the current circumstances.
Yeah, no, it's a great question, Simon, for a couple of reasons. It's a somewhat complex makeup. In our accompanying materials, you saw our new customer add this past quarter. Slightly lower than last year. It's made up of 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 that's taking place in the market, given COVID again. At the same time, we started transitioning, as you may know, more towards an enterprise orientation. We've been focusing our sales teams more and more on the quality of the net new logos again quite a bit. The lower number is a mix of those two things.
Thirdly, what I would say is that, yeah, there is a general risk aversion for new vendors. That's going to until, I think, the 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've settled the urgency, and they can then focus on the slightly longer term, we think that the ability to convert new customers again will come back.
I appreciate that.
Yeah, I'll just add two other notes to that in terms of the existing customers. Clearly, we're seeing an expanding footprint as new customer front is if we pull 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.
I don't think you mentioned anything about supply chain constraints, and that had been a recurring theme from reports earlier in the quarter. Did you confront any issues in terms of just getting components or factory capacity?
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 water, but of course, underneath the surface their feet were paddling like crazy. There was absolutely zero interruption of supply chain. As I mentioned in my prepared remarks, we were able to supply first call, and there were very few instances of delay, and if there was, it was a delay of a day or two. Really no supply chain interruptions, and that was true on the subscription service chain as well. Very proud of our supply chain and our operations and service people. It does reflect, by the way, it wasn't just pure dumb luck. It reflects partially the design of our product, which had very little dependence on China, just sub-assemblies.
It also reflected the global nature, distributed nature of our supply chain that didn't have a high concentration of supply in any one area.
Thank you very much.
Next question, please.
Your next question comes from Katy Huberty from Morgan Stanley.
Thank you. Good afternoon. We were devastated by the news of Matt's passing, but 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 the trough in demand, or is it just too early to tell? A follow-up for Kevan, what percentage of the subscription services today is Pure as-a-Service and Cloud Block Store versus traditional Evergreen maintenance?
Katy, thank you for all the support that you've provided to Matt or Matt's family. We really do very much appreciate that. It's very difficult to predict July because one might predict July if one feels that the effects of COVID are moving beyond us or moving past us at this point. If we've learned anything from these pandemics of the past is that they can come back, and they can come back as early as late summer. I would tend to agree that if we continue to see the slowdown of COVID, that July might be the watermark, but I don't think we can say that. There are some true unknowns that we want to make sure that we're prepared for, and one of those is we don't really know what this virus will do later in the year.
Katy, on your second question around breaking out Pure as-a-Service and Cloud Block Store, we aren't breaking out that specifically. A little bit of color, though, especially on Pure as-a-Service. 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 in Cloud Block Store. Such the fact that we had an enterprise customer commit to an $8-figure deal with us this quarter, which we're really excited to see. Look, our priority is really around 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 colo, which really all our subscription offerings are enabling. So we're pretty excited about the momentum overall of all our subscription offerings, including Pure as-a-Service and Cloud Block Store.
Thank you for the color.
Next question, please.
Your next question comes from Jason Ader from William Blair.
Yeah, thanks. Charlie, my question is on the whole potential acceleration of the shift to the cloud from COVID-19. Obviously, many people believe that's going to be happening here or has already happened. 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, how you're thinking about that.
Yeah, I think you very much summed up in the reasoning behind and the construction of our Pure as-a-Service offering. What I mean by that is our view is that, yes, there's 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 in Q1 was that the urgency was to beef up what they currently had, and that was largely on-prem. They wanted the option. They didn't want to sign on to five years of more on-prem or anything along those lines. They wanted the option of being able to move to the cloud at any 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. 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-prem, and that makes their ability to migrate their applications even easier. I think the answer is yes, but with our unified subscription, it's equal to us, and we're very glad to have not just our unified subscription offering, but an account plan for our account reps that's equal to them, regardless of what they sell. 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 PAS and to cloud data services.
We think that we're roughly in line with our customers in terms of the timing by which they'll do that.
Okay, thanks. Quick one for you, Kevan. Did you quantify the subscription impact on Q1 in terms of revenue growth?
Yeah, we laid out in our prepared remarks the subscription growth as well as what it represents in terms of total revenue, which is increasing. We have that in the prepared remarks.
Just to be clear, we did not convert that to what it would've been had it been a perpetual, had it been an equipment capital sale.
Right. That's correct. That's correct. Yep.
You had 12% revenue growth. Would that have been 14% or 15%? Did you say that in the prepared remarks? I didn't see that.
Did not. Did not, and that's what Charlie was inferring.
Yeah, we didn't make that conversion, and it turns out there's a lot of puts and takes, and any conversion would be inaccurate, and so we've decided not to do it.
All right. Thank you, guys.
Thank you.
Your next question comes from Tim Long from Barclays.
Thank you. Also and condolences to Matt's family, and thankfully you're feeling better, Charlie. Two questions from me. First, just give us an update on FlashArray//C. Sounds like FlashBlade is moving along well. Maybe just let us know how that rollout or the take for that has been. Second, on the gross margin, it's been a really strong performance. Wanted to ask about competition pricing, it doesn't seem like that's a problem. Maybe any comments on sustainability of that strength that we're seeing in the gross margin line, both product and overall? Thank you.
Absolutely. As far as color on C, we're very pleased with its continued performance in our revenue base and with the customer acceptance. We've had several very large deployments of C. We've also had a good uptake of C just individually by new customers. It's been nine months, roughly, since we introduced it. Of course, there's no competitive product out there that has been introduced or even comes close to C. It's an open field for us right now.
We're seeing the power of portfolio as well because it's really allowing us now to go into customers. I would say as of two years ago, we were pretty much still a unique product offering with a great but niche product. Now customers are saying, "Gee, we can use Pure Storage across a wide variety or even all of our storage needs." That's really been a great benefit to us as we've penetrated further and further into the enterprise.
Then I'll hit gross margin in terms of how we're thinking about gross margin. Really, our long-term view of gross margin remains unchanged. We're very pleased with the performance, both on product gross margin and on our subscription services gross margin. It really is the product of the design of our product solutions, in particular our software IP and development. We say that each and every quarter. That continues to be true. That's where the value is. That's where the customers are seeing the value. That's really where the competitive differentiation is. 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. Again, our long-range view on gross margin hasn't changed.
Okay, thank you.
Your next question comes from Karl Ackerman from Cowen.
Good afternoon. Thanks for taking my question. Charlie or Kevan, two questions if I may. While you're not enacting any restructuring actions like one of your peers, I'm just curious on how much room do you have to rein in on the OpEx side if demand were to remain subdued for the next few quarters? I guess on COGS, I understand that your software stack is the largest driver, but some component costs have risen in the first half of the year, really just both off-the-shelf SSDs, but also flash controllers with some of these extended lead times. Where are these component-- I have a quick follow-up.
Yep, terrific. Thank you so much, Karl . It's really my personal goal that we not have any layoffs or furloughs this year. Every Puritan in the company is dedicated to putting in the kind of performance that we need to make sure that's the case. To pick up market share, to drive the company, to support our customers. As we look at both the quarter and 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 furloughs. As I said, it's my personal mission to make sure that's the case. We believe that there are lots of activities that we can undertake to make the company both more productive but also more efficient. As you might imagine, we've been very busy identifying those and taking that.
Of course, we're saving a lot already on T&E and large events, which is very positive to the company at or near breakeven, and that we can do so this year. We will not need to have any restructuring. Perhaps a follow-up question, we did have a restructuring early in the year that was planned last year, even before any thoughts around COVID, but that was really a rebalancing action inside the company. Like any company, as you go forward, there are times when you deploy people and resources in areas, and over time you want them to really 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 people being displaced. That was not an economic consideration. It was a rebalancing.
Just real quick on your question on really in particular, probably NAND pricing is what you're getting at. We did see stabilization of pricing, including during Q1. In fact, we saw NAND pricing really rising modestly in Q1. As one might expect, the data is mixed for us when we're looking at the second half across the board. There are some indicators that pricing may decline later in the year. When we take a step back, we're looking at a much more normalized pricing environment throughout the year compared to what we saw in the second half of last year.
Yep, thanks for that.
Yep.
I know you're not providing a full-year quantitative given just some limited demand visibility, 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 RoCE and Fibre Channel network fabrics. Doesn't that eliminate one of the largest impediments to NVMe over Fabrics implementation? Given that you're more integrated than peers, how does that influence your view on the forward trajectory of your all-flash array hardware? Thank you.
Around VMware support for NVMe over Fabrics. Absolutely. We're very excited to see support for NVMe over Fabrics from VMware platform. We were obviously out very early in that game. We saw it already embrace that wholeheartedly, but we think this really opens it up to bullish on.
Yeah, I'll just double the enthusiasm, especially among our cloud customers and just a reminder, our cloud customers are now over a third of our sales. A lot of enthusiasm for the NVMe over Fabrics as a way to really consolidate, to improve their rack structure, because it brings the ability to have stateless servers into play and to consolidate all of their state into a one device that has been designed to maintain state. It actually lowers the cost, it increases the density, and increases the reliability of large-scale infrastructure. The more NVMe over Fabrics support that we see out there, the better, frankly, that it is for us. I believe that 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 previous quarters when Tim was still the CFO. We had all this discussion about the disconnect in market pricing and what was in your models, and we had that kind of revenue reset last year around that. What actions have been taken to get a better to the model for Kevan that all that's being relayed back and forth between the teams?
Yeah. No, thanks Alex. What really knocked us off our ability to project last year in an accurate way was not so much that NAND prices were falling, because we're used to NAND like any commodity, NAND memory, et cetera, we expect a decline over time. It was the precipitous rate that they declined over a two to three-quarter period, which was two to three times normal. How that dropped to the market, largely because of some disruptions on the demand side, how it dropped to the market so rapidly. It was something that we didn't predict. One could argue as to how one can predict that.
Certainly, I now get weekly updates on NAND pricing. What I'm looking for is not so much the 3%-5% quarter-over-quarter drops that one expects. Of course it's not steady, it'll go up and down in any one quarter. What I'm looking for are the sudden changes. Which are usually partially supply and partially demand, that are well beyond what we normally see. We're keeping our eyes out for that. If we will flag it, we will address it earlier the next time around. That's the way we're dealing with it now. It just had not been in our model before because it had always stayed within the normal range.
Okay. Just to follow up on bookings for Kevan, I'm a little bit late to the call here, so I just want to make sure I didn't miss this in the prepared remarks, but just the delta between bookings and revenue growth, what drove that?
Well, the primary driver really will be around our subscription offerings, Alex. Is really what that's coming down to in terms of either our Evergreen model or what we're doing on Pure as-a-Service or Cloud Block Store. Those would be the main drivers of that difference.
Your next question comes from Rod Hall from Goldman Sachs.
Hi, this is RK on behalf of Rod. Thanks for taking my question. Congrats on the nice quarter, guys, and my deepest condolences to Matt's family. Could you contrast your Pure as-a-Service offering with other competitive as a service offerings? I'll follow up.
Let me start that. The first is that we really are an as a service offering, because an as a service offering is not just an economic model. It's not just a warmed-over lease. First of all, in terms of the way you buy our product, you buy it as a cloud-based procurement model based on an SLA. It's not based on the hardware that gets put into place. 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 refactoring for that to be done. We charge the customer on the drip based on what they actually use. Some of our competitors try to put together an economic model, which is effectively a lease, but it doesn't contain any of those other components.
Your next question comes from Amit Daryanani from Evercore.
This is Michael Fischer on for Amit. Appreciate the qualitative expectations for the July quarter. Just wondering what's embedded as far as product revenue expectation. Should we be thinking down low single digits year-over-year in July?
We're not giving specific guidance on that, but look, you saw how product revenue came out. Again, product revenue of the product portion of our capital on our subscription offerings that include our product solutions will be in script. Think about Q2. Obviously, we see the growth and the momentum in subscription services. We see overall, potentially at this point, sales in total to be flattish year-over-year. That'll be a headwind on product revenue.
Your next question comes from Mehdi Hosseini from SIG.
Yes, thanks for squeezing me in. I have a couple of follow-ups. I want to thank you for providing the mix of the FlashBlade, I think it would put it in a better context if we could provide some comparative, like on a Q- over- Q or year-over-year, how should we compare this $55 million to prior quarters? I have a follow-up.
Yes. Thank you, Mehdi. Well, as you know, we don't want to be in a habit of providing product breakouts on a quarter-by-quarter basis. We want to provide you color every now and then. I believe it was in our September Accelerate when we said we believed that we would be passing the $500 million cumulative sales mark for FlashBlade by the end of the year. We usually don't make those projections without certainty that we'll achieve them. We provided you this color, which is 15% of total sales. That should give you another indication. We don't want to be in the habit of doing it quarter by quarter. Appreciate it.
As you can see, we're so pleased with the growth of FlashBlade, Purity 3.0 in particular is just going to 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 where they desperately need the Kerberos capability to get into government, for example. It's going to open up new market opportunities. We expect continued growth.
Your next question comes from Erik Suppiger from JMP Securities.
Thanks. I do pass family as well as to the team there. Most of my questions were asked. On FlashArray//C, any comment as to whether that's still the fastest-growing?
Yes. Quite simply, yes.
Your next question comes from Nehal Chokshi from Northland Capital.
Yes. Thank you, and my condolences to Matt's family as well. Can you talk about what you see as the potential Achilles heels and the PowerStore EMC, Dell mid-range array, and then also maybe also talk about win rates, was that affected at all, or did you actually see that improve now that it's out? Color there would be great.
Thank you. Let me just answer the second part of the question first, which is we really didn't see it very much so far. It's very new out there. Obviously, there's a lot of buzz about it and so forth. Frankly, our view, very simply, is it opens up opportunity to replace four products. Whenever there's a disruptive upgrade, and God love them, PowerStore is another disruptive upgrade. Whenever there's a disruptive upgrade, it opens up the opportunity to all vendors, all new vendors, because if the customer's going to go through that trouble, it's basically a brand-new product. In this case, it's a brand-new 1.0 product. We've just introduced X R3, which is our seventh generation of non-disruptive upgrades on a very mature product with very high reliability, and we've proven that we could do this over and over.
Here we are seven years later from our first introduction, our competitors are still trying to catch up on an Evergreen type of program with non-disruptive upgrades. What they've done is they've effectively validated our program of seven years ago, now we're on to Pure as-a-Service. Which, 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. PowerStore does nothing for that. Lastly, I'll just say that this is a terrible time to come out with a new 1.0 product. Customers are risk-averse. We really see this as a great opportunity for us.
Your last question comes from Aaron Rakers from Wells Fargo.
Thanks for squeezing me in, and also my condolences to you guys and Matt's family. He was great to work with. I guess most of my questions have been asked and answered. I wanted to go back to the channel engagement a little bit. Several quarters ago, you guys announced a partnership with a global systems integrator. Just curious of how you would characterize the current channel motion expansion, and whether or not you've seen additional GSIs come to Pure Storage as clear opportunities. Thank you.
Yes. We have. What's been very interesting, I would say over the last nine months to a year, but accelerated, frankly, in this last quarter, is the degree to which both national and global VARs, as well as system integrators, have really embraced Pure Storage more and more. I think part of that were the aggressive growth programs that we put in place for these integrators. Frankly, the expansion of our product line, our ability now to address cloud needs, and the fact that the product 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 Pure Storage. We've seen a significant increase in 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 they brought to us rather than us bringing collectively to them, and we expect this to continue to grow. We're very pleased with what we're seeing from partner scale, both in terms of partner source generally, but in particular, the growth in what we're seeing in large enterprise partner activity. I think we're at the end of the hour. I really appreciate very much all of the time and attention that you've provided us. While our projections for the near future are highly uncertain, we are extraordinarily optimistic about the opportunities ahead of us. 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, make Pure actually at this time. Customers, and I thank you again for joining us. Oh, by the way, please join us virtually for our upcoming Accelerate Digital event that we're going to have on June 9th and 10th. We really look forward to seeing you there. There's going to be a lot of information, new information that we'll be providing. Please stay well. Shelter in place is serious. It's a serious virus. We want you all safe and healthy next quarter. Look forward to speaking to you then. Take care.
Today's conference call, thank you for participating. You may now disconnect.