Earnings Call: Q1 2019

May 21, 2018

Good afternoon. My name is Chris, and I will be your conference operator today. At this time, I would like to welcome everyone to the Pier Storage Q1 fiscal 2019 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer Thank you. Matt Danziger, Head of Investor Relations, you may begin your conference. Thank you, and good afternoon. Welcome to the Pure Storage Q1 fiscal 2019 earnings conference call. Joining me today are our CEO, Charlie Doncarlo, our CFO Tim Ritters, our President, David Hatfield, and our VP of Tech Strategy, Matt Kixmaller. Before we begin, I would like to remind you that during this call, management will make forward looking statements which are subject to various risks and uncertainties. These include statements regarding competitive industry and technology trends, our strategy, positioning and opportunity, our current and future products, business and operations, including our operating model, growth prospects, and revenue and margin guidance for future periods. Any forward looking statements that we make are based on assumptions as of today, and we undertake no obligation to update them. Our actual results may differ materially from the results predicted and reported results should not be considered as an indication of future performance. A discussion of risks and uncertainties relating to our business is contained in our filings with the SEC, and we refer you to these public filings. During this call, we will discuss non GAAP measures in talking about the company's performance and reconciliation to the most directly comparable GAAP measures are provided in our earnings press release and slides. Also beginning this quarter, we adopted the new revenue accounting standard ASC 606 and all of the current quarter financial results, our financial outlook, and historical results and comparisons to historical results are stated in accordance with this new standard. Please see our earnings slides for more information. This call is being broadcast live on the Pure Storage Investor Relations website and is being recorded for playback purposes. Archive of the webcast will be available on the IR website for at least 45 days and is the property of Pier Storage. With that, I'll turn the call over to our CEO, Charlie Chaucarlo. Thank you, Matt. Good afternoon, everyone, and thanks for joining us on today's earnings call. Q1 was a strong quarter for Pure and our fiscal year is off to a good start. I will begin the call with an overall summary of our first quarter results and provide the market context that is guiding our innovation strategy. Hat will then provide a go to market and partner update And finally, Tim will give a detailed review of our financials and our outlook. Revenue for the quarter was $156,000,000, up 40% when compared to the same period a year ago. Gross margins were 66.3% and operating margins were negative 6%. Not only did we exceed both our revenue and profit guidance ranges, We also achieved another quarter of positive free cash generation. At PURE, we are driven by our desire to help our customers achieve more with their data. This focus in combination with our industry leading evergreen business model, our product innovation and our focus on our customer success, is the foundation of everything we do. It has served us well enabling Pure to be a leader in the market adoption of important new technologies empowering us to shape new data center architectures. Over the last several decades, data centers were built around monolithic application stats, supporting large application environments and relatively small amounts of data. Think about your PC 15 years ago, where a third or more of your hard disk was consumed by the operating system and the applications and only a tiny amount by your data. The same was true in data centers. Virtualization freed the software from the hardware, but large specialized application stacks remain dominant. Today, the exact opposite is true. Modern distributed application environments are created scaled and reduced in VMs and containers on the fly across the data center and even between clouds. Datasets on the other hand have grown exponentially, making it extremely difficult to copy, move and safeguard them. This fundamental change in GTUs, flash storage and high speed networks are enabling new data centric architectures, that reduced complexity, increased performance and reliability, while decreasing costs. Public clouds already leveraged data centric architecture at massive scale. They have learned that optimized storage, compute and fast converged networks create ultimate flexibility to offer the range of services and NVMe so that private and hybrid clouds can do the same as public clouds. One example in Q1 that highlights the approach that customers are beginning to adopt is a leading SaaS company. Their systems built entirely on server based direct attached storage infrastructure ran headfirst into the challenges of this design. Expenses and isolated data islands high complexity and spiraling costs. They made a multimillion dollar first purchase from PURE to implement a data centric architecture moving off of direct attached storage. After evaluating multiple vendors, they chose PURE for our ease of use active cluster technology, container support, and the ability to provide 6 nines of uptime, allowing them to meet their service level agreements with their customer and free their engineers from time consuming capacity and growth planning. Our latest NVMe innovation allow us to supplant and improve upon traditional direct attach storage in both traditional and modern workloads. Something we'll talk more about at a direct attached storage market represents a significant opportunity for Pure. The scale out approach of shared storage is beginning to show early signs of adoption by enterprise and Pure's technology is helping customers to embrace the strategy. We continue to be a pioneer of innovation. We were ahead of the market on all flash, We were ahead of the market on NVMe, and we're doing it again with direct attached storage replacement and AI. We're looking forward to sharing even more of our innovations with our customers, partners and analysts at our user conference Accelerate. And with that, I'll turn the call over to Hat. Thanks, Charlie. Our first quarter indeed got off to a tremendous start. Q1 showcased the strength in our go to market strategy as our teams executed well across 3 key dimensions. First, and acquiring new and expanding our footprint with our customers on a global scale. 2nd, we deepened our alliance and channel partnerships and third, We continue to demonstrate that we have a highly differentiated technology platform that provides competitive advantage to our customers in this data centric world. The combination of these factors drove continued momentum in the first quarter. Customer growth was strong. In the quarter, we added nearly 300 new customers, up approximately 45% from last year. As we've indicated in the past, Our focus is continuing to drive upmarket and we were very pleased with our growth in the Global 2000, largest government and healthcare organizations, and the top 1000 cloud companies. Repurchase rates remain steady and predictable with approximately 70% of our business coming from existing customers. And win rates against competitors remain strong year over year. We also saw notable contributions from both EMEA and APJ with each significantly outpacing the overall company growth rate. In conjunction with our solid sales execution, we strengthened and expanded key alliance and channel partnerships across our go to market ecosystem this quarter. First, we Our partnership with NVIDIA continues to thrive in the field and at a corporate level. In the quarter, we announced our joint offering, Aerie, industry's first AI ready converged infrastructure solution. Dairy enables customers to be up and running with AI and deep learning applications in hours compared to the weeks and months required to build and scale alternative solutions that have a 10x larger physical footprint and offer 1 10th the performance density. Ares delivers better performance and will save money compared to the public cloud. Let me share one customer example from the quarter that has taken this leap into AI and machine learning. Page AI, one of our first Aerie customers, is enabling pathologists to be more efficient, researchers to be more quantitative, and patients to be more confident with cancer diagnosis. Pathology is key to any cancer diagnosis and the majority of this work is typically done manually with methods developed more than a century ago. With access to 1 of the largest tumor data archives, page AI, turned to pure and Nvidia to deploy a deep learning infrastructure that remove the challenging bottleneck of ingesting and analyzing millions of images into the AI system. With the data bottleneck removed, the system's potential is furthered, facilitating more accurate and timely diagnosis and subsequent treatment. The market for AI is showing promise and interest from enterprises across industries. Recent analysis from IDC estimates that storage for ai were floats will be a $10,000,000,000 market by 2022, representing a 5 year CAGR of more than 35%. Gartner also estimates that 80 percent of enterprises will deploy AI by 2020. We are excited about the opportunities ahead in this area, with our highly differentiated capabilities enabling our customers to derive more insights from more of their data. In addition to NVIDIA, our partnership with Cisco continues to demonstrate outstanding momentum. Together, we believe that our FlashStack solution is the fastest growing converts infrastructure offering in the market. Activity with the Cisco sales teams and our joint partners continues to be robust and we were showcased at their annual partner connection conference last month. We demonstrated how FlashBlade enhances performance for Cisco and NVIDIA deep learning neural networks, as well as for Oracle Data Warehousing. These demonstrations in addition to some exciting announcements at Accelerate, illustrate how Cisco and Pure continue our commitment to create solutions for modernized multi cloud customer requirements. In summary, I have never been more thrilled about the momentum in our business. Since the first generation of FlashArray and the introduction of our unique software platform, we've offered a fundamentally different business model and customer experience with our evergreen storage subscription. Enterprises across the globe have taken advantage of Evergreen to protect and future proof their investments without having to perform disruptive and risky tech refreshes as their data continues to explode. We've already delivered multiple generations of performance improvement, storage density and software non disruptively. And in 2018, we will reset the bar for all others yet again. As we extend FlashArray X across our portfolio. This land and expand business model and subscription to innovation combined with our software platform makes it easy for customers to remain with Pure, which we've seen reflected in our highly predictable repeat purchase rates. Stay tuned as we will be making many new announcements that accelerate on our products and services. 2018 is shaping up to be our best year yet and we're only just getting started. With that, I'll now turn the call over to Tim. Thanks, Hat. Q1 was a great start the year for Pure as we exceeded both our revenue and operating margin guidance. Before I dive into the specifics, I'll make my usual note that the gross margin, operating margin, OpEx, net income, and free cash flow numbers I will use are non GAAP unless otherwise noted. Reconciliations of these non GAAP metrics to their GAAP comparables as well as our full Q1 results and presentation are available on our website at investor. Purestorage.com Additionally, As a reminder, our results and growth rates on this call are under the new revenue recognition standard ASC 606. For comparability, we have updated all historical periods in our investor deck and provided separate schedules and reconciliations in the appendix to help reconcile between 606 and 605 for historical periods. Total revenue in Q1 exceeded our guidance range and grew 40% year over year to $255,900,000. Product revenue grew 37 percent year over year to $195,400,000 and support subscription revenue grew 52% year over year to $60,500,000. Geographically, 72% of sales came from the United States, and 28% came from international markets. One of our objectives we highlighted at the beginning of the year was to grow our international presence, and we did that to quarter, increasing our international revenue to 28% from 21% in the year ago quarter. Q1 total gross margins were 66.3 percent, coming in at the high end of our guided range and stable with last quarter. We've now been operating within our target model range of between 63% 68% for 10 consecutive quarters. Product gross margins decreased 210ths of a point quarteronquarter@66.3percent driven by higher indirect costs as a percentage of revenue given Q1 seasonal dynamics. Support subscription gross margins were 66.3 percent, up 0.9% sequentially, driven by a continued increase in amortization of ongoing support contracts as a result of our larger installed base, continued solid execution in our support organizations, and timing of renewal bookings during the quarter. Turning to operating margins. Our operating loss in the quarter was negative 6%. Or negative $15,300,000 and compares favorably to the negative 13.9 percent or negative $25,300,000 in the year ago quarter. This represents an 8 point improvement from last year and a 5 point improvement over the midpoint of our guidance. This notable over performance was driven by a combination of factors, including: number 1, a strong performance on our top line, Number 2, better than expected product gross margins and number 3, modestly lower than expected operating expenses. While we have consistently driven both growth and operating leverage in the business and we expect these trends to continue, we would not anticipate similar outperformance on operating margin next quarter. Our net loss for the quarter was negative $16,200,000, or negative $0.07 per share. This compared to negative $24,300,000 or negative $0.12 per share in the year ago in. The weighted average shares used for the per share calculations were $224,000,000 in Q1, and $206,000,000 for the year ago period. Total headcount at the end of the period was more than 2300 employees, compared to more than 2100 employees as of our prior quarter end and up more than 500 over the same time a year ago. Turning to the balance sheet, we ended an increase of $500,000,000, mainly driven by cash proceeds from our convertible debt issuance this quarter plus free cash flow generation from the business. Also note that we also repurchased $20,000,000 of our common stock in conjunction with this debt offering. Free cash of our employee stock purchase plan. We are pleased to deliver another quarter of positive free cash flow generation our first Q1 ever of positive free cash flow for Pure. Had we included the impact from ESPP, our free cash flow would have been negative 3 $700,000. As we've previously noted, Going into Q2, we will continue to observe seasonal dynamics both in our P and L and in our cash flow. On the P and L side, we expect a notable increase in revenue and continued investment in our business including our Accelerate User Conference. Secondly, as it relates to cash flow, we expect Q2 to be the lowest cash generation quarter in our business, consistent with prior years as cash collections tend to be seasonally low following our seasonally low Q1 revenue quarter. With that, let's turn to our guidance. For our second quarter, we expect revenues in the range of between 2 96 and $304,000,000, a $300,000,000 midpoint. Non GAAP gross margins in the range of between 63.5 and 66.5% and non GAAP operating margins in the range of between negative 7% and negative 3%. For the full year, we expect revenues in the range of between $1,320,000,000 $1,370,000,000, $1,345,000,000 at the midpoint, representing a $10,000,000 raise at the midpoint from the guide we provided during our last earnings call. Non GAAP gross margins in the range of between 63.5% and 66.5% and non GAAP operating margin in the range of and look forward to sharing more information on the road ahead including some exciting product developments with you at our Accelerate event later this week. With that, we'll now Your first question comes from the line of Wamsi Mohan with Bank of America Merrill Lynch. Your line is open. Yes, thank you. Good results in the quarter. I was wondering around the guidance you're Q2 guide at the midpoint implies 17 percent quarter on quarter growth. Last year, seasonality was quite a bit stronger. Just wondering how we should think of seasonality as we go through the course of this year? And I have a follow-up. Yes, Wamsi, this is Tim. In terms of growth, now that we're in this sort of nice solid 30% plus growing, we're looking more at the year on year compares. And so the midpoint that we offered up here in the guidance was 34% at the mid by my calculations. That's what I would be thinking about as you think about your modeling forward is sort of model it off a year on year basis, for the next several quarters, if that makes sense. Okay. Thanks. And so would you that like second half versus first half growth on a year on year basis to be relatively consistent? Relatively consistent, it'll be down a little bit on we just put up a 40% a very, very strong Q1 performance. And so just by math, Q2 will sorry, second half will be a little bit lower, but I think that's how I would think about modeling it. Okay. Thanks. And the other question I had was on the competitive side. Have you seen any changes on the competitive side, both from HPE from that app and from EMC. And Could you just comment on any impact that you have baked in from NAND price declines in your revenue guide? Thanks. Hey, Ramsey. This is Hat. So first, we haven't seen anything really discernible in terms of a difference in the competitive landscape. We're pleased with our performance. The recent IEC market share stats have us outpacing the market by 3x. So I think that's a great, great metric. Win rates continue to be strong across all the competitors And we believe that our innovation gap is widening. There's a bunch of announcements that we'll share this week that we feel just continues to expand the moat on the NAND. Do you want to add to that one? Yes. On the NAND, what we've historically said is that both a tight NAND supply and a sort of more loose NAND supply both help us from a differentiation perspective. Without going into all the details, it really is software at its core that allows us to mix and match and use a variety of different NAND types and get more benefits through data reduction and deduplication and compression. And so again, whether when a type of market or a loose market, we are always going to be able to drive better gross margins, which is what you saw in the results again today. Your next question comes from the line of Sherry Skibiner with Deutsche Bank. Your line is open. Hi. Thank you. You mentioned you outpaced the market by 3x this quarter based on, what you've seen. I assume that's not, 3x the all flash array market. What is your sense of the growth in the all flash array market and how much do you think you outgrew the all flash array market quarter? Well, look, I think the most interesting compare was the IDC Q4 numbers that came in and looking at the whole year for last year. And some interesting dynamics I think happened in Q4. You know, if you look in general, both NetApp, EMC and HPL struggled in Q4, and we turned in a very strong quarter. So I think the full year 2017 results are in and I think we're feeling very good about the competitive compares. Okay. And then Tim, I guess, if you look at the sales and marketing line, that number went down pretty significantly at least more than I would have thought it would, but it seems like your guidance is implying that that ticks back up again. Can you maybe talk about the dynamics there? And is that the right way to think about it? Yes, on the S and M line, so, the overall dollar amount did go down and really obviously we've continued to add sales reps, but the commission expense obviously follows the overall sequential decline in revenue. So Q4 tends to be a very high commission expense for us and then Q1 correspondingly lower. And then that'll start climbing up through the course of the year. And then we reminded folks in our prepared remarks, we have sort of big chunks of marketing spend throughout the year, most notably here coming up in this quarter are accelerating. And so that's why you see S and M being relatively low, but then climbing through the year again. Your next question comes from the line of Mark Moskowitz with Barclays. Your line is open. Yes, thanks. Good afternoon. Two questions. First, beyond conservatism, can you help us understand what could be some of the puts and takes in terms of why current momentum is not lending to any sort of upside or rate guidance for the full year. Are there potentially new products or new go to market that could result in elongating sales cycles because of what's going to happen later this week to accelerate? Mark, this is Tim. First thing I would say is we did fact, raise our guidance for the year, $10,000,000 at the mid relative to what we offered up about 90 days ago. So I think it really does speak to the momentum that we're seeing in the go to market engine as well as the innovation, that we're seeing in the business as well. So again, I would suggest that what you saw with our results today actually suggest that we are seeing a nice confidence and nice growing in the business with that raise. Okay. And then as far as the cloud. It is a significant piece of the revenue pie for Pure currently. NetApp has made some pretty good inroads with both Azure and Amazon, we get other questions a lot from investors, how we should think about peer in terms of tactically, what are the opportunities ahead for peer in terms of incremental penetration so that you can also be offering powered by peer in the big cloud vendors? Or is it still an area where you got to make up ground? Yes, well, this is Charlie. I think the most exciting aspect of our cloud business is over 30% of our business now, is 2 cloud providers. Across the spectrum, SaaS, PaaS, And that's been growing for us. That's a very big market for us. We're very excited about it. So when the cloud vendors themselves are using QR, that signals a lot to, I think, our private data center customers as well. We are doing more and more to integrate with the cloud. You should come to accelerate to see what we're doing there, what we're announcing over the next over the next few days. But we feel very good about the cloud, cloud powering our business. Also just add on from a technical point of view, if you look at the all NVMe movement, going after DAS workloads and some of the wins that we highlighted in the overall earnings call today, we're just seeing a great uptick in some of the next gen use cases within cloud providers as well. So it's not only about going after those growing customers, but making sure we're aligned to the net new applications that are driving their Your next question comes from the line of Aaron Rakers with Wells Fargo. Your line is open. Okay. Great. Thank you very much. This is Joe Petrocky on for Aaron. I wanted to dive a little bit deeper into the NVIDIA alignment. So when NVIDIA reports, like, 550, DGX customers exiting 2017, how do you think about PURE's penetration into that customer base or also the opportunity, to, to, gain business customers? Hey, Joe, this is Hat. So we're super excited about AI in general. I mean, you can hear the enthusiasm, hopefully, and some of the successes that we outlined in the prepared comments with AI, and page AI. But we're seeing the expansion of it beyond self driving cars and social media. We're seeing it across retail and healthcare and finance as well. And so the momentum that Nvidia clearly has in their business, I think their data center grew from $800,000,000 to $1,900,000,000 over the last fiscal year. We see it as a great opportunity to work together in the field. And I think a lot of activities that we've had from a sales to sales perspective continue. But I think we augmented that with our launch at their user conference. I think there were six thousand people where we jointly launched the Ares solution. And Charlie was on the road with their GM as well. Maybe you can comment on that. Yes, I was on the road with, Jim McHugh from, NVIDIA is the GM for the DGX business as well as, Jayshree will all, CEO of Arista. And we went across the country. I have to say we, the number of Fortune 500 logos and the titles within those logos was really almost unprecedented for us. So very high level interest in a very high level of interest, in ai. I think we, we, sported a statistic or rather a study by Gartner that indicated that 80% of large of their customers are going to have AI projects by 2020 live AI projects. So it clearly is garnering a lot of attention. I don't know that we have fully accurate attach rates to DGX, what I can tell you is that the NVIDIA team believes that they get the best out of their product when it's attached to pure storage. And they are, and when we go into accounts, whether it's together or separately, that's generally what our customers see as well. So We're confident in that partnership, both with respect to the quality of the high level a touch point, but more importantly, the level of cooperation in the field. Okay, thank you. That's really helpful. And then just a follow-up. I was just kind of curious thinking this past few weeks, we've seen a couple of different NVMe based product launches most recently from NetApp. I know you guys put out kind of your thoughts on ENC. I was just curious, you know, what are your thoughts on on NetApp's, NVMe solution? Yes, this is Kix. I'll take that 1. Look, so many ways this kind of reminds me of all flash arrays in 2014. Pure was out early innovating a concept, but Once the big guys kind of finally came on board with their 1.0 offerings, it really told everyday mainstream customers it was time to jump into the new technology. And so it feels like that same movie all over again with NVMe, where we were out years ahead, innovating with NVMe and our products since FlashArray M and on, And now we've had the big guys come in and bring out their first gen retrofit solutions. And we think it's going to do a great service to us to just tell the whole market, it'd be crazy to buy an NFA in 20 18 that doesn't have NVMe built in. Your next question comes from the line of Katy Huberty with Morgan Stanley. Your line is open. Yes, thank you. Do you have any metrics around what percentage of customers or new shipments are going into AI type of workloads and where you would expect that metric to trend over time? Hey, Katy, this is Hat. So we don't have any specific metrics on attach. I would say that over the last several quarters, we've gotten really crisp, in the use cases that we have for FlashBlade. You know, AI is clearly 1 next generation analytics as well as the rapid restore. We saw really great momentum in that use case, particularly in the cloud segment, where we're displacing direct attach infrastructures as well. So no specific attach rates, but we think we have 3 or 4 really repeatable use cases for FlashBlade and starting to see some great traction on each clearly the other thing I would say, Katie, is clearly, AI is one of the bigger chunks of our FlashBlade business. And so you think about it in terms of this FlashBlade business being very successful, a lot of that's come from the AI side. Okay. And you made more comments today around for you or was that included in your long term guidance for 30% growth a year ago? This is Kix. I'll take that 1. We included a small amount of DAS, when we, when we kind of our TAM, I guess, 2 years ago now. But as we start to CX become more mainstream and MU may take off, we think more and more of that DAS market is becoming in play. And so it's an opportunity we're increasingly excited about. Okay. And just finally, what about penetration of NVMe into FlashArray? I think last quarter, you talked about 20% Where was that in the April quarter? Right. So we were giving some as we will do occasionally, just some color on, as a statistic, and we did mention 20%, which, as of the end of the last fiscal year, We did say that time that we were it was going to be a majority of our product shipments by the end of the year and we are well on track to accomplish that. And it certainly was up quarter on quarter, Katie. So good momentum in the business. Okay, great. Thank you so much. Congrats on the quarter. Your next question comes from the line of Rod Hall with Goldman Sachs. Your line is open. Hi, this is Archie on behalf of fraud. Thanks for taking my question. I just wanted to follow-up on the preview on a previous question terms of the new NEME products released by our competitors. What do you see as your competitive advantage? Is it just performance or should we be thinking about something else Yes, this is Kix. I'll take that 1. I thought the messaging that EMC came out with PowerMax in particular was very indicative of the mindset. They called it a tier 0 array, and you saw NetApp follow suit and come out with a very high end 800 array. Both those vendors seem to be making the same mistake as flat first go around where it was viewed as its exotic niche, high end technology. And I think we've said all along, it's all about mainstreaming. For us, NVMe is just a wire. We've done a lot more with our direct Flash architecture to DN, interfacing our software directly with raw NAND, we can get dramatically higher performance, but also dramatically higher levels of efficiency. And I think that's going to be very interesting in this market over this year. Because there's still a pretty big premium to dual quarter NVMe's, drives out there. And so we obviously don't have to take advantage of those. We build all our own modules from scratch. As that puts us in a position to really help drive the mainstream adoption of this technology. Okay, great. Could you also comment on what kind of trends you're seeing in the Flash book for your FlashBlade business this quarter? Yeah, this is Hat. So I'll take that. You know, continued progress, like I said, on repeatable use cases, So we love to see the momentum there. I think more broadly, just the portfolio and platform selling motion that we've been working on over the last couple of years is really bearing fruit. We're seeing larger deals and more of them come through and we're seeing great insertion points into enterprises you know, where you don't have to go necessarily directly to IT, you can go to data scientists and dev ops, get a new use case and expand from there. So we're seeing nice traction and pull through on both the FlashArray business and the FlashBlade business. We're really trending ourselves to go find the opportunity that they get on the floor the quickest and then expand from there. And when we know when we look at things holistically, the repeat purchase rates really kick in. That's helpful. One final question from me. You give us any color on why you raised the $500,000,000 in convertible debt? Yes, I'll take that. You know, 1st of all, you know, an old old friend once told me when money's on sale, take it. And you know, good time to raise money. Convertible debt was a is a popular item, and it was a good time to raise. And so, of course, you always want to raise money. What you need it rather than when you need it. But secondly, we continue to invest in this business. You know, Rod, as last quarter, our growth rate was 40%. We still we foresee good growth ahead. And for that, we need to continue to invest in the business, both organically and inorganically. And our strategy is to build, partner, or buy. And so we wanted to be prepared for all of those different things, and it seemed to be a good time to raise money. Your next question comes from the line of Alex Kurtz with KeyBanc Capital Markets. Your line is open. Yes, thanks guys. Just two questions here. So on the U. S. Federal side of the business, I know that you guys made some investments last year to get that organization up and running. We're going to be in full swing in that net verticals spending patterns in a few months. So just how do you think about that vertical as far as contributing to growth this year? Is it really baked into the full year number or do you see as more of an upside. And then, Tim, on Evergreen, just maybe an update on how we should be thinking about how to model this as becomes obviously a very popular part of your overall program. You guys think services was down sequentially. So I just want to better understand how we should be modeling that going forward? Thanks, Alex. This is Ed. I'll take the first one. The investments that we made in the public sector and fit specifically are really starting to produce some really nice wins. In fact, we announced the Department of Energy win as a part of our press release today. And we'll see continued benefits and traction, I think, in that industry vertical. It is baked in to our assumptions. We have a very predictable model as sales reps ramp as pipelines build and what our close ratios are for those. So we see great momentum there and continued momentum, but it is baked into the guide. Okay. Hey, and then Alex on the question on Evergreen, you'd mentioned that support was down sequentially. Are you talking about you're talking about revenue, you're talking about margin. Maybe I didn't update it for the quarter yet, but I just maybe it looked flattish to me sequentially from January to April? Yes. On a revenue basis, you may want to take a look, you might be looking at historical 60 versions because remember, they all reset from your model. So, you know, 606 basis, it's still going up quarter on quarter very nicely. The business is performing very well as we continue amortize those ever green businesses into our P and L. Your next question comes from the line of Andrew Nowinski with Piper Jaffray. Your line is open. Hi, thanks. So sort of a follow-up, but I guess as it relates to your ability to support private and hybrid clouds, I was hoping you could elaborate on that and really your intentions for separating software from hardware, enabling customers to manage their data no matter where it resides, whether it's on premise or in the public cloud kind of similar to what NetApp did with our untapped solution? Yes, this is Kix. I'll take that one. So first off, goal number 1 for us is to make sure we have deep support for every cloud operating platform out there, delivery platform out there. And so, you know, we have deep integrations across all the classic VMware, you know, Microsoft, Red Hat, etcetera, platforms so that we can easily tie in and automate within people's hybrid cloud environments. And then, you know, last year at our salary conference, we announced our cloud Snap integrations where we're working on integrating directly with the public cloud you can expect an update on that and a wide range of other stuff that accelerate this week. Alright. Thanks. And then I just another follow-up, I guess, on the convertible debt offering and your comments you made there, are there any areas within your portfolio, that you feel like you need to own, areas like backup or data management where you're currently partnering with, or is it something that you would look into a a completely new area that you don't currently have either a partnership established with? Let me add to that, but I'll do so a bit indirectly. If you write to me, I'll ship you a list of attended acquisition targets, on teething, of course. We have a variety of new opportunities that we're looking at. All of them are efficiencies. So close to what we do today, I believe very strongly in making sure that anything we acquire fits well with both our internal expertise as well as our external external selling capability and the customers that we interface to. And so that's what you can expect us to focus on those areas that make sense in that environment. And I'd just add, you know, again, back to Charlie's motto of Bill Partner and Buy. This has really been an ammo that we've been following for quite some time now. So nothing is unusual now versus any time in our history. We've always been taking a look at and scanning the environment. Your next question comes from the line of Steve Malunovich with UBS. Your line is open. Thank you. I wanted to return to the Dow's comments you made early on Charlie. Why do you think there's an opportunity there? Folks like Nutanix would argue the opposite that, hyper converged as much simpler to implement and is now able to take on enterprise workloads. And at least on the enterprise, side isn't the network world much bigger than DAS. So kind of where exactly do you think the DAS is used and why do you think you can replace that? Right. Well, I think there are a number of questions embedded in the question that you're asking. First of all, I would say that the hyperconverged world works well at a certain level of scale, but at very large scale, very large data center environments, we believe that a much more structured environment for, with a data centric environment on the storage and the ability to to instantiate spin off apps to scale them to reduce them all around the petabytes of data that customers are trying to analyze. Is the more efficient and effective way to go. And we'll be able to prove that, at our, at our Accelerate conference, that's coming up. Das is still the way that a lot of a lot of application environments work and we're going to be able to show that in fact having shared accelerated storage is just a a stronger, higher performance, lower cost, higher density solution set. And we already have customers going in that direction today. And the final thing I'll mention is that the major cloud companies have already gone to shared accelerated storage. They've already separated storage from compute specializing in both, creating more efficient and effective environments. And so we're enabling the same for our customers. Okay. And I think you've suggested that obviously you want to make the company profitable, but once you've shown that you can do that, you're going to continue to invest in a pre aggressive rate. And the market seems very forgiving of that right now. The investors seem to want growth over profit, if you will. If we go into a different environment where profits of something much more important, which is something that kind of tripped nimble up a few years ago. Would you change your view of things, or would you say, no, we've still got huge market opportunity. And Dan, the torpedoes we're going to really go through investing. I think the important thing, which was something that we were not giving credit for year is to know that we can be profitable if we want to be, right? And I think we've shown that, I think we've already shown that, but this year we're forecast profitability. We always believe on delivering, on our promises. That being said, we do think, I think, for a company of our scale, that growth is the most important thing. And we'll follow the rule of 40, but on a we're not going to be buffeted by short term swings and mood we're going to really focus on growing this company to the scale that we believe we can take it to. Your next question comes from the line of Jason Nolan with Baird. Your line is open. Okay, great. I wanted to ask on net new hires first, plus $200,000,000 is the strongest we've seen for six or seven quarters. Was that by design or just a function of timing? Yes, Jason, by design, obviously, we're much larger company now. So on a percentage basis, that's still a nicer growth rate for us. And remember that Q1 is the time that we really do like bring in a lot of our go to market professionals. They're coming off of good quarters at other companies and we want to have them have great quarters here at our years and we don't want to have them have great years here at pure and that's just been a natural cadence in the business. So nothing unusual has planned. Okay. Thanks, Tim. And then a follow-up on international 28 percent of revenue. That's really good. Clearly incremental investment there has helped. Any additional color you would add? Yes, I think our march is to continue to have a hard higher and higher contribution from outside of North America. We're pleased with the year over year compares. It'll be up and down quarter in, quarter out, but on a full year basis, we feel we feel like the investments that were made are really starting to bear fruit. Are there specific countries that have been strong or just broad based? We've been really focused on the largest GDP. I mean, that correlates pretty closely to us and annual storage spend. So rather than really diluting ourselves across too many countries. We focus on the largest. And so we've seen nice contributions across EMEA, across APJ, as well. So, I think that we're going to continue to stay focused versus really distributed. Your next question comes from the line of ittai Kidron with Oppenheimer. Your line is open. Maybe I'm overanalyzing here, but I'm when I'm looking at your US growth, which was in the mid mid 20s team, correct me if I'm wrong. Assuming that your SaaS business is growing faster than that, it kind of implies that the rest of your U. S. Business is growing somewhere in the low 20s, maybe upper teens. I'm just kind of wondering with the challenges that the L EMC is going through and with the technology that you bring to the table, should we not be expecting more out of that U. S. Business? Yes. So, we feel great about the progress in our international business, but also feel good about the Americas business as well. It's got a big TAM our focus up market is bearing fruit as well. And so, you know, we're going to keep investing here. One of the things that we look at very focus a very focused manner is the cohort analysis for our sales productivity. And as we continue to hire U. S.-based sales professionals, They continue to ramp as faster, faster than the most productive cohorts out there. And so provided those folks crossover the magic line we're going to keep investing there. So we feel very good about the Americas business and the overall top line growth of 40% we think is something that we're very pleased with. Yes. But let me dig into that a little bit. I understand the productivity seems to be going very well for you according to your metrics, but maybe it's just a reflection of the fact that Do do you feel like you have enough people in the field or you feel like you're short relative to what you really want to be here in the US? Well, it's a $35,000,000,000 market. So what we've been trying to do is maximize for the top line growth while delivering the profitability. And we think we have a nice balance there. And so, as Charlie mentioned earlier, we're going to keep investing and optimizing for that. And we think that we've got in a very good position to do so. And we're always it's high. We're always balancing that dynamic. And so every quarter, we kind of look at it and get a feel of where the business is headed. How that productivity is shaping up, just step out of gas a little bit more, or kind of stay steady. And so we, you know, we monitor that all the time as you'd expect. Well, you had a chance to step on the gas this quarter. You had a very nice beat on the bottom line. Is it just a reflection of bandwidth? You just don't have enough bandwidth to higher even more than than you've done this quarter, which is a good number. Don't get me wrong, but it feels like maybe another 10, 20 people in there could have been We'll push in. We've still good delivering very good numbers. Yes. I guess I would say a couple of things on the bottom line. Obviously, we need to make sure that who we bring in our top A plus talent, right? So we're not going to sort of lower our bar there. But I think on the OpEx side, the OpEx beat, this quarter was more about some timing things in other parts of the business than necessarily sort of a lower sales marketing headcount add that we would like. So I wouldn't read too much into that on the F and M line. Okay. And then lastly for me for Charlie. I'll just say that we agree with you. Yes. Okay. Very good. Charlie, just you've been in the company for two quarters now. I guess, help me think about three quarters. There are time flies when you're having fun, I guess. Help me help me understand what is it that you've changed, since you've come here? I mean, they've brought you to clearly scale the business what are some of the changes that you have implemented already in the organization that came from your initiative? All right. Well, we've changed the structure of the organization internally, gone to a business unit orientation. We are going to be rolling out some new channel programs starting tomorrow at Accelerate as well as some new product programs associated, which I I don't want to ruin the announcement, so I won't give it up, but some new product programs that will be going out tomorrow, all of which I think we've started since I've come on board. And I feel that from an organizational and communication structure across the company, we've become a bit simpler to navigate. I'd probably highlight those 3 things. Very good. All right. Congratulations. Good luck guys. Your next question comes from the line of Tim Long with BMO Capital Markets. Your line is open. Thank you. Just two quick ones, if I could. Just talk a little bit about visibility into the second half of the year. Obviously, a lot of lot of things moving in the right direction here. If you could just give us a sense if you feel, the visibility has improved over the last 3 or 6 months, And then back to the gross margin, just I hear the comments on Flash. It's kind of a positive either way. On the top line and the business and market share. Just talk a little bit about, the gross margin impact of rationalization of prices there. And any other levers that there are to turn on that, the gross margin line? Thank you. Yes, so this is Tim. Tim, I'll take both of questions. First one off, from a pipeline perspective, I would say that the visibility that we have and remember, we look at 3 or 4 or 5 different measures in terms of how we instrument that business. That visibility continues to be roughly the same in terms of that we've seen in the past. And as you heard us guiding up for the year, and that gives you confidence in terms of what we're seeing building both in Q2 and obviously beyond. So that's what I would say as it relates to pipeline. As it relates to gross margin, you know, we've been very pleased with operating within our long term guidance for quite some time now. From my vantage point, we were actually stable, from a gross margin perspective quarter on quarter. We've got you down about 2 10ths, but really a lot of that was or all of that was really the fixed cost on a seasonally lower revenue number than in Q4. So if you sort of normalize that, our gross margins are stable, if not increasing, which obviously is a good thing and speaks to the differentiation of our product. Thank you. Your next question comes from the line of Simon Leopold with Raymond James. Your line is open. Hi, guys. This is Victor Chu in for Sun And Leopold. I wanted to circle back on your, AI partnership with Nvidia. You know, I guess I understand the role, you know, the GPU and that they're ideal for performing, you know, the matrix calculations required for deep learning, but can you maybe help us understand what specifically that Pure's platform makes it, you know, optimized for AI applications and, you know, workloads or is it just flash in general that benefits in pure kind of indirectly benefits, because of your strong market position there? This is Kix. I'll take that 1. Look, it turns out that AI is probably one of the most massively paralyzable applications out there, which is why GPUs and the thousands of cores they can bring to bear have been so dramatic in that market. And based on the name of the game when you go buy expensive GPU compute is you've got to keep it fed with data. And so FlashBlade turns out to be a perfect fit for that with its kind of, you know, perfectly scale out nature, it can scale to a massive amount of bandwidth to be able to feed data to those GPUs. And, you know, the question was asked earlier a little bit about the synergy with Nvidia's DGX business. When you start to scale beyond 1 DGX and multiple DGX systems, just can't use the storage inside the DGX anymore. You have to break it out externally into a shared pool that all the GPUs can start to share. And so that's when we see this energy really happening with FlashBlade once the customer has gotten their their kind of basics going with AI and they're really ready to scale their project, shared storage with FlashBlade can come in and allow them to start to scale linearly as they add more and more DGXs. So it's a win win from the customer point of view, and it's a win win and synergistic between ourselves and NVIDIA's business. Think the only thing that I would add is that sorry about that, but the only thing I would add is that it's beyond just AI too. It's the overall data pipelines. An explosion of unstructured data that's really feeding this. And so, I think AI is a great technique and a great tool that's going to be, we're seeing terrific traction on both. It's much bigger than that. You know, you're really literally replacing 50 racks of legacy technologies with less than half a rack. Of DGX-one's and pure flash blades. And so the ability to be able to quickly stamp those out and scale them is orders of magnitude better than anything else on the marketplace. So we think there's a number of trends that are feeding this, but AI being the lead. That makes perfect sense. I guess maybe Is there something that differentiates FlashBlade from other unstructured? I'll add this is Charlie. I'll add two things. One is the Digixes don't do a lot when they're sitting idle. And if you're not feeding the data fast enough, you wasted a lot of money on a lot of cores that are just sitting there waiting for data And the second thing is that, as Hat said, we fit all of this together, between them and us in half Iraq, You can't fit in half a rack, if it takes a year rack and a half of equipment of our competitors' products to do it. So we're differentiated both in physical soft as well as next question comes from the line of Mehdi Hosseini with Susquehanna Financial Group. Your line is open. Hi, thanks. This is David Ryzhik for Mehdi Hosseini. So in the past, you've talked about AI as a key application for flashblade. But what about backup and rapid restore? You touched on it today. And it seems like a pretty sizable opportunity. We'd love to get any metrics around that or maybe dive into the example of a deployment for that? And I have a follow-up. Yeah, David, this is, this is Hat. So I'll give you a quote that was shared with me earlier. In a world of moving stagnant data to the cloud, why wouldn't I buy solution that can be repurposed for analytics and AI. So this is a very large enterprise customer that had a number of backup options that they were evaluating in the quarter. And chose FlashBlade to do it. So there's a phenomenon where there's a lot of the stagnant data that they're just trying to push off into the cloud. And so they want to have something that they can use to rapidly restore data and solve that immediate pain point problem, but then also have that same platform be leveraged for analytics and AI as well. So we're seeing great traction there. I think the other thing that I would say is that the backup use case is something that our traditional IT buyer has money for. And so if we can deliver something that is much more efficient and much faster for those mission critical workloads that they need to be able to restore, leveraging the same budget. We can use that as a bridge to be able to introduce, capabilities in the data scientists and dev ops, which are different personas. And so Our sales team and our channel partners and our existing customers all really know and understand the backup use case. So it's an easy thing from a selling motion for us to attach to. Got it. And relative to your fiscal 2019 guide, what type of NAND flash pricing trends are embedded into that guidance for the balance of the year? Yes, this is Tim. So, we've said for several quarters now that we anticipate the latter half of this year that we're in, the NAND prices to start sort of coming down a bit. And we're already starting to see signs of that. And that's sort of how we thought about modeling the year. And it's really playing out kind of as we thought it would like I say, 3, 4 quarters ago. And lastly, so Mike Ron announced that they're already shifting QLC SSDs. Do you see this incorporated in both FlashArray and FlashBlade? And as a follow-up to that, you've talked about one of your core competencies is optimizing consumer grade NAND. Can you optimize consumer grade QLC for enterprise performance use cases? Thanks. Look, that's a great question. I love where you're going with it. You know, we've said all along that we've been building this kind of unique capability compared to our competitors really understand how to interface our software directly with Ronan. And I guess only more exciting as you get into QLC because the challenges of making QLC reliable and performing at scale or even harder. And so, yeah, we're excited about QLC and its ability to, you know, further drive down cost and and thus get to, you know, different and and unique new use cases, for solid state within the data center. So not at the point right now, we're ready to announce times for shipping or anything like that, but it's definitely something that we're excited about on and working on. Okay. Thanks so much. Your last question comes from the line of Jason Ader with William Blair. Your line is open. Thank you. Yeah, I'd like to drill down on the DAS replacement opportunity. Is this the top of rackarchitecture that you referenced a few few quarters ago. And can you provide any more details on the bake off, the chat with the SaaS customer and why you guys won? Yes, I'll take that one on. When we look at this opportunity, it's really about going after tomorrow's applications. And so if you look at the wide range of, of, quote, unquote, web scale applications ranging from scale out databases to modern analytics on through frankly AI. We're increasingly seeing them be scale out container centric and their 1.org picture ran on DAS. But we're finding customers as that DAS environment scale, see all the inefficiency of DAS and they also start to realize they don't just run one application. They run 15. And so consolidating an architecture, they're gonna allow them to truly run their classic apps and their next gen apps on one architecture, is a great opportunity. And so that's why we're all talking so much about it. You know, within that particular SaaS customer buyer we mentioned, one of the really exciting things was it was for their DevOps use case. And so, you know, folks think that, you know, you have to go to the public cloud to get the agility for DevOps. But in this case, we're able to actually show that by investing in an architecture for, for shared Flash, they can get the flexibility of that on demand and really empower a modern DevOps CICD pipeline. Thank you, Kicks. And with that ladies and gentlemen, I want to thank you all very much for, for joining us today. And we look very much forward to seeing some of you tomorrow and Wednesday at our Accelerate User Conference. This concludes today's conference call. You may now disconnect.