Earnings Call: Q2 2018

Aug 24, 2017

Good afternoon. My name is Mike and I will be your conference operator today. At this time, I'd like to welcome everyone to the Pure Storage Q2 fiscal 2018 earnings call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there'll be a question and answer session. I will now turn the call over to Matt Dansinger, VP of Investor Relations. You may begin your conference. Thank you, and good afternoon. Welcome to the Pure Storage q22 fiscal 2018 earnings conference call. Joining me today are our CEO, Scott Theetson, our new CEO, Charlie Giancarlo our CFO, Tim Ritters, our President, David Hatfield, and our VP of Product Matt Kixmuller. 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, 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. Also, during this call, we will discuss non GAAP measures in talking about the company's performance. Reconciliations to the most directly comparable GAAP measure are provided in our earnings press release and slides. This call is being broadcast live on the Investor Relations website of Pure Storage and is being recorded for playback purposes. An archive of the webcast will be available on the IR website for approximately 45 days and is the property of Pure Storage. With that, I'll turn the call over to our CEO, Scott Peterson. Thanks, Danzig. Good afternoon, everyone, and thank you for joining today's call. Before we get into our results for the quarter, I want to briefly touch on our leadership announcement today. We've named Charlie Jim Carlo, the next CEO of Pure, effective immediately. I am enthusiastically staying involved with the company and will move into the chairman role. The board, leadership team and I are thrilled that Charlie has joined us as CEO. He has the operating experience, having run a tens of 1,000,000,000 of dollar multi product business. He has the product chops, having served as CTO, Annie has the entrepreneurial spirit having built startups as well as managed hyper growth at Cisco. We welcome Charlie and want to give him a chance to say a few words. Charlie? Thank you, Deets. I am thrilled to be here. PURE has an extraordinarily talented team that's driving deep technology and business innovation and doing so in a huge and ServiceNow where I've been fortunate enough to serve on their boards. In truth, I've considered many CEO opportunities over the past couple of years. What inspired me opportunity to become the global leader in data platforms. Few weeks months. And I plan to meet and speak with many of you soon. While I will not be taking questions on today's call, I look forward to sharing details about Thanks, Charlie. I am gratified to be handing the reins of the business in an extraordinarily strong position as reflected in our results. Q2 was another great quarter for Pure as we delivered strong operating results on both the top and bottom line. Revenues in the quarter were 225,000,000 up 38% year over year reaccelerating from Q1 and nicely above our guidance range. Strong top line growth complemented leverage in the business with non GAAP operating margin coming in 2 points ahead of our guidance at negative 11.8%. Improving more than 7 points year over year. Pure remains on target to deliver more than $1,000,000,000 in revenue this fiscal year as well as to reach sustained cash flow positive in this year's second half. As we outlined during last quarter's call and at our recent Investor Day, Pure is delivering the data platform for the cloud era. Our strategy is to focus on markets that matter, cloud Computing, next gen use cases like artificial intelligence and the Internet of Things, and the cloudification of enterprise IT. We are winning with our highly differentiated technology, business model, and customer service. First, momentum in the cloud is strong. PureNow serves more than 600 cloud companies across software as a service, infrastructure as a service, and consumer internet. Cloud continues to be our strongest segment at more than 25 percent of revenues and one that we believe we can increasingly take share in given our speed, our simplicity, our DevOps capable automation and our evergreen subscription model. 2nd, Pure uniquely provides the massively parallel performance demanded by next generation use cases, including machine learning and IoT. Pure Now counts 3 of the top autonomous driving car companies as customers, and our data platform is being used across medical diagnostics, image processing, genomics, risk assessment, manufacturing optimization, and service provider device management. 3rd, we continue to benefit from the modernization of on prem IT within enterprises, hospitals and government increasing our penetration in the Fortune 500 to over 25%. To highlight one key vertical, more than 1 third of the top 25 largest U. S. Healthcare organizations are pure customers. Across all three segments, we see interested in hybrid cloud architectures in which on prem and public cloud applications interoperate in real time. We demonstrated this approach together with Google at our annual Accelerate user conference, where we showcase a multi cloud application, streaming data between pure and the Google cloud. Marrying the performance of AI and real time analytics on the edge with native public cloud services for deeper processing. This is truly the best of both worlds. Most of all, Pure is winning because our data platform is helping our customers derive more value from their data. Through dramatically innovations, which have been recognized by market experts. For the 4th year running, Gardner has named PURE, a leader in the Magic Quad for solid state arrays, positioning Pure the furthest in the completeness of vision access. And based on the latest IDC data, Pure moved up to the number 6 position in global storage market share, continuing our remarkable growth at scale, while most of the mainframe in client server era storage designs we most often compete against declined. And with that, I'll turn the call over to President Dave Hatfield who can give you an update how Pure is driving the adoption of our platform in the market and helping our customers and partners. Pat? Thanks, Dietz, and congrats on the new role as Chairman. Building the business and the culture together over the past several years has been an extraordinary and fun experience. Know that I speak on behalf of all Puritan's customers and partners when I say a heartfelt thank you for all that you've given to the orange. And we're very glad to know that you're not going too far away in your new role. Charlie, welcome. You are the perfect fit to take the reins as CEO. The team and I are thrilled to work with you to continue to scale the company that we all know is in front of us. We are extremely excited about this next chapter. Q2 was another great quarter on that journey. In the quarter, we added more than 350 new customers. We continue to see strong repeat purchases with approximately 70% of total sales coming from our installed base and we delivered continued momentum across all three of our growth markets. We also crossed the new milestone, having sold over $100,000,000 in lifetime bookings to one of our favorite customers. We are thrilled with the adoption of our data platform into strategic accounts like this and we're only just getting started. Our first core growth market is selling into cloud native businesses, and we continue to deliver over 25 percent of our revenues into this segment. One great example in the quarter was the expansion of our data platform within ServiceNow, a long time FlashArray customer who is now taking advantage of FlashBlade. Flashblade's unique architecture dramatically improves both performance and density in their web scale environment. Reducing data migrations and other processes from days to minutes, while enabling them to easily and non disruptively scale at a much lower cost. The 2nd growth market is in driving the adoption of next generation data applications, like analytics, AI, machine and deep learning, which provide transformational benefits for our customers and fuel what many are referring to as the 4th industrial revolution. Last quarter, we highlighted that one of the top webscale AI platforms in the world was being built on pure and Nvidia. In Q2, we're happy to report that company doubled their footprint with us. Also Zenuity, A joint venture between Volvo and Autoliv chose pure and Nvidia to develop software for autonomous driving and driver assistance systems. Flashblade in conjunction with NVIDIA DGXone will be the foundation of Zenuity's deep and machine learning project to put the safest self driving cars on the road by 2021. And in the third key growth area, We continue to see strength in the cloudification of IT as enterprises, governments and healthcare organizations demand simplicity, agility and lower operating costs for their on prem solutions. In Q2, Airbus, NASA's Kennedy Space Center, and many other leading organizations selected PURE to help manage their multi cloud environments. Turning to specific product offerings, we are pleased with the momentum of our FlashArray, FlashStack, and FlashBlade portfolios. For FlashArray, we've led the charge to NVMe, delivering the first mainstream 100 percent NVMe all FlashArray to FlashArray X. We now count Delta Dental of Michigan, and COCC, a Connecticut based company delivering enterprise processing solutions to financial institutions as part of the growing list of X customers. For FlashBlade, we are seeing great wins across many customer segments for data and compute intensive workloads as this product is on track and continues to grow at 2x the rate of FlashArray during the same point in its evolution. Man AHL part of an active investment management firm, Man Group, deployed FlashBlade to provide developers quicker access to the data needed to work on investment strategies. Technical Software Company Mentor, a Siemens business focused on electronic design automation, is using FlashBlade to accelerate product development leveraging our best in class performance density. Finally, our relationship with Cisco is continuing to yield significant results flash stack, our converged infrastructure solution. Executives at Cisco recently shared at our user conference that we are their fastest growing CI platform, and have over 1000 joint customers. We're thrilled with our progress on our continuing to invest in this important relationship. We could not be more pleased with the progress made in our 3 primary growth markets and across all of our product lines. The platform selling motion is working, The innovation we are rolling out has extended our lead. Our partners and field teams are winning and the morale is at an all time high. We're excited about the overall momentum in the business and look forward to continue delivering on the goals we set out this year. And with that, I'll turn the call over to Tim to provide more details on the numbers. Tim? Thanks, Hat. Q2 was a strong quarter of execution for Pier. Highlights included strong revenue performance, including a reacceleration of our year key growth drivers that we laid out at the beginning of the year and are confident in achieving greater Before I dive into the specifics, I'll make my usual note that the gross margins, operating margins, OpEx and free cash flow to their GAAP comparables as well as our full Q2 results and presentation are available on our website at investor. Purestorage.com. Total revenue reaccelerated to 38 percent year on year to $224,500,000 or 3 percent above the midpoint of our guidance. Product revenue grew 34 percent year on year to $175,000,000. Performance was driven by strong repeat purchases with existing customers, continued momentum in our FlashArray business and strong FlashBlade traction. During the quarter, we saw steady new customer growth as well with total customers reaching over 3700, up roughly 60% from last year's Q2. Support revenue in Q2 grew 53 percent year on year to $49,500,000, driven by continued revenue recognition of ongoing support contracts. Looking at Q2 fiscal 2008 from a geographic perspective, 74% of our revenue came from the U. S, and 26% from international. We continue to observe notable growth across all our regions. Q2 total gross margin of 67.1 percent increased 7 10ths of a point quarter on quarter. We continue to execute well operating at the higher end of our long term target model of between 63% 68%, continuing to deliver industry leading gross margins. Product gross margin of 67.5 percent improved 9 10ths of a point quarter on quarter and was the result of solid performance in both our FlashArray and FlashBlade product portfolios, one time benefits of using lower cost components from previous quarter inventory purchases as well as seasonal scale benefits in logistics and related COGS support gross margins of 65.9% improved 1 10th of a point quarter on quarter, reflecting our expanding customer base and the corresponding amortization of deferred revenue. As well as our continued efforts at driving operational efficiencies in our support business. Turning to operating margin, we are making excellent progress on both our march to profitability and achieving a long term operating margin target of between 15% 20%. Our operating loss was negative $26,400,000 in Q2 or negative 11.8 percent of revenue compared to a loss of negative $31,400,000 or negative 19.3 percent of revenue in the year ago quarter. This represents a 7.5 year on year improvement and a 2 point outperformance from the midpoint of our Q2 guidance. Our non GAAP net loss for the quarter was negative $23,900,000 or negative $0.11 per share. This compares to the year ago period non GAAP net loss of $31,500,000 or negative $0.16 per share. The weighted average shares used for the per share calculations were $209,200,000 $192,700,000 respectively. A quick note on share count. As we drive the profitability in the near future, I want to remind investors that our weighted average shares used for EPS will increase once we turn profitable as we move to a fully diluted calculation. For example, for Q2 had we been profitable the weighted average shares used for EPS would have been approximately 237,000,000 shares. Total headcount at the end of Q2 was over 1900 up from over 1800 at the end of Q1 and up from over 1600 a year ago, largely reflecting ongoing hiring in both our sales and R and D organization Moving onto the balance sheet and cash flow. We finished the July quarter with cash and investments of $523,000,000. Our free cash flow was negative $17,500,000 or negative 8 percent of revenue compared to negative 33,300,000 or negative 20 percent of revenue in the year ago quarter. This includes $5,000,000 of cash impact related to our employee stock purchase plan. Excluding this amount, free cash flow would have been negative $22,500,000 or negative 10 percent of revenue compared to negative 30 represents almost a 50% year on year improvement, demonstrating solid leverage in our cash generation capabilities alongside consistent improvements in operating leverage. We are on track to Consistent with prior years, we are now at the point in the year where we start to reap the benefits This results in strong top line growth, combined with notable improvements in our operating leverage as we enter the second half of the year. For the third quarter, we expect revenues of between $267,000,000 $275,000,000. This represents a 38% year on year revenue growth at the midpoint and is based on strong momentum in our FlashBlade business and solid growth in our current FlashArray portfolio. We expect Q3 gross margins non GAAP in the range of between 63.5% and 66.5%. As discussed above, we are very pleased with where gross margins came in for Q2. As we go forward, however, we will continue to focus on operating within the sweet spot of between this 63.5% and 66.5%, 65% at the midpoint. We have been operating within our long term gross margin targets for 7 quarters now and remain focused on driving industry leading gross margins. These industry leading gross margins allow us to make strategic investments in the business, especially are still new and ramping FlashBlade product. Our guided range also enables us to continue to prudently manage through the current component supply environment. We expect Q3 operating margins, non GAAP, up between negative 5% negative 1%, which represents 7 point year on year improvement and more than a 60% year on year improvement on a rate basis. We continue to march toward profitability with a guidance midpoint of only 3 points away from breakeven. The inherent leverage in the model is working and we continue to remain focused on both revenue growth and leverage improvements. Turning to the full year, we have more visibility on and increased confidence in our full year guidance. Which is enabling us to increase both our top and bottom line guides which are revenues of between 985,000,000 and $1,025,000,000,000. Total gross margins of between 63.5% and 66.5% and operating margins up between negative 7% negative 3%. Based on our performance to date and our guidance, we expect Q4 to be Pure's 1st profitable quarter, another significant milestone in Pure's journey. In summary, we've had a strong quarter on both the top and bottom line and are excited about the second half of fiscal twenty eighteen. With that, we will now open the call for questions. Operator, Your first question is from Katy Huberty from Morgan Stanley. Thank you. Good afternoon and congrats on on the quarter. Question on gross margins. Have you been able to pass through some of the higher memory prices? And is that helping gross margins? And then Can you just quantify the benefit that you saw in 3Q around, using some of the lower cost inventory that was that was on the balance sheet in terms of sort of the basis point impact in 3Q? Thanks. Yes, Katy. So this is Tim. I'll take your second question first. On in terms of quantification, I would say that really, it was a combination of both the inventory dynamic that we talked about, but also some scale efficiencies in our operation and logistics business. And so again, as we saw a significant quarter on quarter increase in product revenue, we didn't see the commensurate increase on an expense basis. We won't quantify either one of those, but I would say both of them were certainly play in terms of driving that quarter on quarter increase in gross margin. As it relates to your first question around passing on costs, we basically our real goal is to continue to hold our product mix and hold our ASP levels and we've done a very, very good job of that. As evidenced in terms of what what we deliver here in the quarter in gross margin. I think I'll leave it at that in terms of our pricing dynamics. Your next question is from Alex Kurtz from KeyBanc Capital Markets. Thanks guys. And Scott, best of luck. It was, great working with you over the last couple of years here. I wanted to 0 in on this AI win. Our industry contacts, which is it's with a major cloud titan platform with some really interesting use cases. So Are you replicating what you're doing with this account with some of the other competitors that has in the market for these kinds of new kind of AI based workloads? Yeah, Alex. This is Hat. I'll take the first part of that and maybe hand the second part to Kix. So the quick answer is yes. I mean, we're seeing AI and deep learning, use cases that have similar compute and storage characteristics as this large web scale, example, happen across multiple industries. So healthcare, financial services, telco, EDA, all have very similar characteristics to what the use case is, in this large hyperscaler. But we're seeing it be very broad across a number of different industries. Yes, this is Kix. I'll just add a couple of points. First off, I think we're just finding that FlashBlade is the perfect fit for these use cases because getting into this environment is all around massive parallelization. You know, if you look at the, the, impact that NVIDIA has had on the market with the DGX line, It's all about bringing massive parallel compute to the problem. But until FlashBlade came along, there wasn't massive parallel storage to meet it. And so we feel like we just have, a huge win in this market that we're very eager to go out and replicate. And the second thing I'd say is that we've been, surprised about the breadth of industries that are interested in doing AI. And so It's still early days for a lot of these industries, but folks are jumping in quick. And the number of conversations are, are really impressing us. And, Alex, I could add one more, thought. You know, it's really a sweet spot for shared storage because in most of these use cases, they want to use standard Intel, compute for things like day ingest and transformation and even running, the models, but then using highly parallel compute for machine learning. And if you can have all of this data co existing in the same place and you can bring arbitrary amounts of CPU and GPU to bear on it. You can do your machine learning much faster. So we think, together with Nvidia, we've got a real sweet spot here. Thanks guys. Your next question is from Eric Martinuzzi from Lake Street Capital. Yeah. I was wondering if you could revisit the whole HCI versus CI conversation. Can you talk a little bit about how you feel like the relationship with Cisco is so key to your growth here and yet we hear from other quarters about, HCI taking share. Yes. So, there's no question. I think HCI and PURA had been the 2 big disrupt in the market. But I will say we're mostly operating in different segments, right? We're still seeing you add up all of our competition with hyperconverged infrastructure. We're seeing them in less than 5% of our engagement. So specifically, we don't see HCI in cloud, right. Cloud use cases tend to be multi tier because they can drive much higher efficiency, greater performance, greater density, as well as lower costs. In fact, there's a report up on our website that highlights some of the cost saving things. Another use case of AI and internet of things, again, hyperconverged is not seen as relevant because it doesn't allow you to mix and match GPUs and CPUs in the right ratio to exploit the insights inside of the data. So, where there is some overlap, but again, it's in that 5% range is in the more traditional enterprise market. But here again, at scale, you know, we're able to offer something that with converged infrastructure we're able to offer something that is similarly easier to use, but dramatically higher performance, lower cost, and much denser. Eric, this is Ed. I'll just comment on the Cisco part of that. They have a very successful offering with HyperFlex. Obviously, they just extended the acquisition of SpringPath and it just complements of what our FlashStack CI solution provides. So in the field, they can provide a complete solution, a best of breed, technologies to their customers. So it's very complimentary, non competitive of overlapping, and we've been doing this for, you know, better part of the last 18 to 24 months together with them. The momentum with Cisco overall is super strong. So, you know, we're going to continue to invest there And we're pleased with the output that we're getting so far. Understood. And then the $35,000,000,000 market. So there's plenty of room. The next question is from Steve Milunovich from UBS. So your fourth quarter in particular still requires some revenue growth acceleration. Where you get the confidence in that is, do you see pipeline yet. And maybe you could talk about your sales productivity. I think about 60% of the sales force has still been there less than 18 months. Are they ramping as you expected? So, Steve, I'll take that first part of the call and I'll turn it over to Hat on productivity. In terms of Q4, I think a couple of things. So, as you alluded to, absolutely, pipeline, we see the pipeline sort of building. So naturally, that gives us confidence. We continue to see very strong repeat patterns, if you recall, at the start of the year. We talked a lot about that being a key confidence indicator for us. It's obviously easier to repeat, to sell the repeat customers and new customers those trends are working very well. And FlashBlade as well. Q4 is a seasonally strong time and this will be one of the FlashBlade's 1st Q4s. And so anticipating good things there as well. So a lot of things coming together to give us that confidence to a $1,000,000,000 and beyond. Yes, not much to add there, Steve, other than saying, platform selling motion is working, this portfolio pull through where we can start with a FlashArray use case and pull through a FlashBlade Opportunity, like we did with ServiceNow and many other customers, is really working. And the double benefit we've got from the sales productivity is that we have our latest cohorts be the most productive, but it's also our biggest class. So we're bringing on a lot more capacity and it's performing, better, fast than any other previous cohorts. So, lots of great momentum in the field. I guess the only thing I would add is, you know, in the most recent quarter, we saw our our win rates either hold strong or even uptick across all of our core competitors. So, you know, once again, business continues to execute phenomenally well. Thanks. Your next question is from James Kinstner from Jefferies. Yes, I just want to clarify something, on the gross margin guidance for the full year. If our math is right, you're implying a pretty steep declined sequentially in Q4, in gross margins to blow your model, for the for that final quarter. Is there a reason for that? No, James. I don't think I don't see that from my vantage point. You know, I anticipate that sort of 63.5 to 65 66.5 number that we've been quoting for this quarter in Q3 for the guidance to continue to out to Q4 as well. So, I don't see any sort of change in both the Q4 number and it's right in line with our long term guidance. Okay. And I just want to verify, we're trying to look out here to next year. Mean, the guidance also, I think, implies positive earnings in in q 4. I would assume that seasonality would probably mean you dip back below into non GAAP losses, just at least for 1 quarter, is that a fair assumption? I think that's fair. Q4 is always the strongest quarter for our seasonally the first quarter to go profitable. So I think you're you're thinking about that exactly yet from a modeling perspective. And just last one on FlashBlade. I think commentary there. How's that tracking versus your original revenue goal? And is it fair to say that it's more back end loaded than the rest of your business within this fiscal year? Thanks. Yeah, James, I'll take that 1. This is Hat. Thank you. Yeah, it's tracking. So what we said, we're going to do, 2x the FlashArray growth at a similar point in time, absolutely tracking on and tracking for the $80,000,000 that we talked about at the beginning of the year. So, great momentum across the board for FlashBlade. Thank you. Your next question is from Simon Leopold from Raymond James. Hi guys. This is Victor Chiu in for Simon Leibold. I just wanted to circle back on the FlashBlade growth quickly. Is AI and deep learning the primary driver behind that? And, you know, I guess what are some of the other specific applications and use cases that's driving the growth there? Yes, this is Kix. I'll take this 1. You know, look, I think why we're so excited about FlashBlade is it really represents a whole new set of use cases for Flash that traditional AFAs just weren't built to go after. And so when we built this area, we were excited about going after not only AI Machine Learning that we've talked about, but just the broader scale of analytics. And there's an exciting transition now going from kind of the traditional 1.0 big data to people building modern data pipelines. And those modern data pipelines require all flash data hub that can kind of feed this wide range of tools. So we're seeing a lot of deployments in those areas across a lot of different industries. Then the final thing I'll highlight is is one of the wins we highlighted just around cloud where we're seeing cloud providers be very excited about what they can do with FlashBlade. And in particular, if you look at the combination of FlashBlade and FlashArray X with NVMe, you can really go and build a top of rack Flash solution that changes economic the cloud provider takes all the kind of direct attach flash out of those servers and centralizes it so that architecture can scale. So lots of different areas we can take FlashBlade super excited about where we're going with it. Okay. Is it possible to quantify in general to what degree cloud is driving that versus other applications? So we're not going to break out the segments across the specific product. But certainly FlashBlade is factored into that 25% greater than 25% of cumulative revenues that are coming from cloud customer. Great. Thank you. Your next question is from Lamsi Mohan from Bank of America Merrill Lynch. Yes. Thank you. Scott, Charlie. Congrats to both of you on your new roles. I was wondering if you can give us some sense on the relative growth of revenue? How much of that's really coming from capacity growth versus higher NAND pricing pass through? And any sense on how that relative growth could change as the denser flash blade product ramps? And I have a follow-up. Well, Wamsi, this is Tim. And as it relates to your first part of the question, you know, in terms of overall growth in terms of where it's coming from, I alluded to an earlier question in terms of trying to continue to keep those ASPs kind of where they've been. So I wouldn't say that I wouldn't say that it's trends that are driving those increases. They're really organic new capacity installed and new customer acquisition, which candidly is the good is the revenue that we like because it's shows that our footprint is getting out even further into the marketplace. And so that's absolutely absolutely what we like. On FlashBlade, those systems tend to be bigger. We haven't talked specifically about ASP between either one of the system types, but the systems are bigger. And so there's some potential there, going forward in terms of growth. Okay. And and for my follow-up, in in 1Q, you saw the step up in inventory related to NAND purchases. Clearly, you saw some benefit of that to margins here in the quarter. Did you make any such strategic purchases in 2Q? And if not, does that mean that you're embedding an expectation that non pricing gear is is going to roll over? We continue to make some purchases in inventory in Q2. Now again, on a net basis, the balance did go down quarter on quarter. So in other words, we use a little bit more than we purchased. But we're continuing to make smart investment decisions. We've got great relationships with the fabs. And when we get good sort of pricing on NAND in this environment, we absolutely will take advantage of it. You know, maybe I'll add, you know, we remain very confident. We have access to all the Flash we need to drive our growth targets going forward, right? We're working with the top fads, we're working with all of them directly. We're multi source, you know, with you have the ability to use consumer grade, NAND and mix and match demand from different suppliers. In the same product offering, long term product, sorry, long term contracts. And of course, we have the most efficient data reduction. So all of that comes together. To put us locations for FlashBlade are targeting different workloads here and it's still scaling. But can you talk about the relative margin profile currently versus FlashArray? And Do you have an expectation that these these will converge in the long run and and when might the 2 converge? Thanks. Yes. I guess what we've said in the past that we would reiterate that is that at this long term sweet spot in the mid-60s, we anticipate all of our product portfolio sit there. There will, but they'll all be within that certain ballpark and we'll kind of leave it at that. Let's also add demand suppliers are helping us, right, because they're working on TLC and then quad cell, quad level cell and all of that will help the the margin profiles going forward. Thank you. The next question is from Eric Suppiger from GMP Securities. Yes, thanks. A quick question on the customer count. What, what is it that's driving the new customer growth that you had in the quarter? Thanks, Eric. This is Hat. You know, continued focus on new market adoption. You know, what we said about the platform selling motions is we can sell flash blade and FlashStack into our installed base. And that's a great way for growth. And so we're pleased with the repeat purchases. But the new customer adds are, you know, we were very important continue to fuel our growth. So to see new customers across all segments like mentor, to bring in man group, the largest hedge fund, I think, in the world, We're going to continue to focus on a blend of new customer acquisition and are getting 4 per day, which we think is right sweet spot of where we want to be going forward. So we're pleased with the 350. And then secondly, in terms of CEO transition. What prompted the timing on this? Ultimately, this was this was my call. I I took, the time to, you know, to discuss with the board, with cause, with hat. You know, I had a wonderful run, thanks to an extraordinarily gifted team, been in the job 7 years, and we've done some great things, right? Pre revenue to a $1,000,000,000, and growing from about 20 to, you know, approaching 2000 employees worldwide. And as I look to the road ahead for PURE, I felt we needed a different class of experience in operating at scale. We expected the search which we conducted quietly to frankly take a while. And we were really thrilled, when Charlie, came to the top quickly. You know, Charlie has phenomenal experience operating at at scale, having been part of Cisco when it went from a $1,000,000,000 to, you know, well over $40,000,000,000 in revenues overall. He's, he's a very strong engineering and product leader that I think helps that side of our, of our house, having been a CTO and a chief development officer. And he's an entrepreneur. Know, having build a startup, having participated in hyper growth at Cisco, having been on, the boards of great companies like ServiceNow and, Arista, through their growth phase. So I think he is exactly the right leader at the right time. Very good. Thank you. Thank you. The next The next question is from Mehdi Hosseini from SIG. Yes. Thanks for taking my question. Just as a follow-up, And in the context of the path to be a 1,000,000,000 revenue company, how do you see the landscape evolving? Do you see a step up in M And A opportunities? And how how does Pure fit into that? You're looking at it at 35,000,000,000 TAM. You had a run rate of 1,000,000,000. And I just want to see how you will see the company evolving either independently or through acquisition. And I have a follow-up. Hey, Benny. As we look at the market opportunity in this $35,000,000,000 total addressable market, we're playing in we're hugely excited about our organic prospects, right. FlashArray is, continues to take share in a very large market and we think we've built the future in FlashBlade. Each of these products that joins a multi year lead over the, you know, often twenty five year old architectures we compete against. And so we see phenomenal opportunity to continue to grow the business organically. And this was a key part of our recruiting, Charlie, right, is Charlie wants to be part of a company. He had other opportunities that he could have gone to, and in pure, he sees the chance to build this, very large multi $1,000,000,000 organic business. So I guess we have to wait for Charlie to think about the strategy and whether M and A would fit into that new strategy? I'm sure you can bring that question again, next quarter and we'll probably duck it there as well. Okay. Okay. Well, one quick follow-up regarding the FlashBlade, 80,000,000 run rate would it be fair to assume maybe 1 quarter of that is more of a front in the first half of the year and then the remainder 3 quarter in the second half? Is that how we should be modeling that? I think the simple thing to do is to go back and look at the historic revenue rates for FlashArray since we've quantified the FlashBlade ramp as, greater than, twice, the Flash, a FlashArray ramp, thus far. And then it's a streak we're looking forward to continuing. Great. Thanks so much and good luck with you, Tim, and nice working with you. The next question is from Itay Kidron from Oppenheimer. And thank you for your service. And Charlie, it's great to have you back on a public company. We missed you from Cisco. So glad to have you back with us. And good luck. As far as the my questions are concerned, first of all, can you give us a little bit more color on the X transition, how much traction have you had with that? How much of that was with existing customers Did it create some new opportunities with new customers? I would love to pick your brain on that. Yes, this is Kix. I'll take this one. So I think simply our thesis around kind of leading an NVMe, is really playing out. And, you know, we did that because we believed it was an opportunity for both FlashArray and for market expansion. And so on the differentiation side, you know, it's really showcasing our leadership around Evergreen, how we can go and take our existing customers forward to NVMe. And we're not just doing MME with FlashArray. Right? The whole point here is direct Flash, where we now take our software and interface it directly with the NAND That's something that something that no one else can do. And so we're finding that we have a very unique story. And it's been, fun to watch our competitors try to answer that or not answer it. On the market expansion side, we are indeed finding that we're able to both go after our existing use cases better with FlashArrayX, but also enter new use cases. And so on to go after our existing ones better case, it's all about higher performance, higher performance density. And so we have a new top of the king of the hill, if you will, product, and we can go out and really show some interesting performance gains. And so for those mission critical database type environments, it's key. But then the other exciting expansion is really all about going after DAS And so as I said earlier, especially in cloud provider environments, having discussions about how we can redefine the rack, redefine how they scale allow centralized storage and not have any of the performance compromises from, internal storage is totally a game changer discussion. And so it's one that we think will be expansionary for us. Got it. And then, on FlashBlade, lastly for me, I clearly had a very big win over there. I'm just trying to gauge when you talk about the multiple of growth relative to Array, is a lot of the growth here concentrated with a single customer, help me think about how broadly based is the blade adoption? Yes, this is Ed. So I'll take that. We're very pleased with how broad It is. We increased the number of new customers more than double that quarter on quarter out. And the adoption as we talked about, really only required, if 10% of our entire customer base purchased 1 or 2 flash blades. And we're just seeing great across multiple industries and multiple geographies. We're thrilled with the big wins too. I mean, it shows that it's providing real business outcomes and real business value, but it's a nice distributed curve Very good. Good luck guys. The next question is from Rod Hall from JP Morgan. Yes, hi guys. Thanks for the questions. I just wanted to ask back on the Have you can you talk a little bit about who you're seeing competing for that business? Who else out there is showing up in those bids? Just interested in that. And then on FlashStack, I know you talked about how pleased you are with the growth. Is there any way you could quantify how much of the growth maybe on a year over year basis is associated with FlashStack. It sounds like it could be quite a bit of it, but just curious what that looks like. And then lastly, other people are getting quite a bit of action with software only products. And I just wonder, do you guys have that on your roadmap? Do you think it would ever make any sense to go out with a software only product, or does it make more do things the way you're doing them? Thanks. So, this is Kix. I'll start with the first question maybe then Hackettig on FlashStack. So in terms of who we encounter storage wise, these large AI environments. It's not at all your typical storage providers. Typically people when they get into AI, they actually start relatively small and they'll start with internal storage. But then as they really start to to wrap their operation, they need to basically have a centralized data store that feeds, a big scale out tier of compute. And so that's when a shared storage device like FlashBlade becomes obvious. And the choice is either, to go to something like FlashBlade or try to build something internally with open source software. And so we're finding that as a result, not only is our performance game changing, but we have a real simplicity ROI there where they look at the pain of trying to do something open source versus betting on a product that can be not only game changing, but simple in FlashBlade and it's no brainer. How do you want to make FlashStack? Yes. So from a FlashStack, perspective, you know, converged infrastructure, you know, mirrors cloud like simplicity and that's what customers want. They don't want to worry about structure. They want to be able to set it and forget it across their entire deck. And, our FlashStack together with Cisco provides that. So we're seeing great momentum because there's a real need there. And we're significantly outpacing the growth of the overall market because we think FlashStack is differentiated. On the ways to quantify it, we're not breaking out the specific FlashStack numbers, but we're pleased with the results and their head of expectations. And I think we're still in the early days of our relationship with Cisco. So I think there's a lot more that we can do together. And maybe I'll chime in on the software defined, question. You know, everyone should keep in mind Pure is 1st and foremost a software company. You know, it's order 90 percent of our engineers that that write code in order to deliver the product. But a pure software packaging, it is hard to achieve today because there's still a great amount of variability in the underlying Flash. Each new generation, a flash, even from a single fab, changes in behavior pretty significantly. And so we are constantly tuning our software to take best advantage of each generation, of of the flash technology. I would cite the fact, you know, the public cloud is not software defined. It's rather software driven and hardware accelerated. Those are the same innovations that we're bringing, to market. And we believe we can offer greater performance for a lower total cost of ownership, higher reliability and ease of use, with the packaging that we have today. Your next question is from Nehal Chokshi from Maxim Group. Congratulations, Charlie, for joining. And, Scott, you will undoubtedly be missing. Pure is not gonna be pure without you at the helm, but I guess you will be at the helm and The first question here is, how much time are you going to be spending, now with Pure and your chairman role? So I I think this is something we're, we're still working on, together with with Charlie, and and Hat. I I do see opportunity to help Charlie, ramp up the business. And I'm looking forward to spending, you know, time with with the team, in in helping them, you know, understand all the nuances of the transition. I, at the same time, I want to be clear, Charlie's in charge, right? We are passing to baton. He is the new CEO of the company. And, you know, my job as chairman is to help ensure he's successful. And this is this is Tad. I'll just comment on it because I can't resist You know, pure is pure because we've got 2000 wonderful people out with the shared vision and shared values. Clearly, you know, deep offset that direction. And we've loved every minute of it. Your second point is absolutely valid too, which is not going anywhere. He's the chairman of the board. And we're going to, we're going to pull on them as need be. But we're, we've got a foundation in place that with a $1,000,000,000 in revenue, a couple of 1000 employees, almost 4000 customers, that is pure. And we're going to keep evolving it to become that multibillion dollar profitable business that we set out to do many years ago. So We love Deets. He's still going to be around. But, in in spending time with Charlie over the last, several periods of time, you know, he's an absolute period and he's going to help take this to the next Maybe I should reinforce. I'm not taking another job, right? My my position is to help, Charlie, Pat, cause, and the entire team. You know, I'm here to support their success. All right. And then you mentioned one of the, I guess, drivers of this decision is that, Pure is and will become an even more multi product company. And, you know, Charlie has managed very well a multi product company. But right now, it's like Pure Storage is a 2 product company. FlashBlade and FlashArray. Yes, sir, or deviations of those, but these are 2 primary products. So to me, this is an indication that you are going to be bringing in new Distinct products. And can you give us an indication as to what are directions you're looking at as you do that? So I would add FlashStack to that mix, right? Our converged infrastructure offering in joint that is something that is a key part of our selling cadence. We see tremendous opportunity around the segment of data platforms that we're playing in. Data is such a core value to the market today. But I'm afraid we're not going to tip our hand on future products. You're going to have to wait and see. All right. Thank you. The next question is from Steven Fox from Cross Research. Hi, good afternoon. Just one question from me. You talked about the growth in cloud, during the quarter and how it increased to 25% or more of your sales. And you provided some details. I just want to just if you could just be clear on the specific drivers in the quarter around the shipments, what would you rank as being the number 1, 2, 3, say drivers And then how concentrated was that growth in cloud during the quarter? Thanks. Yes, I'll take that. I think the first two drivers that are most relevant are net new mer adds, you know, we've talked about, having 600, cloud native customers, that are combining, you know, that are leveraging our technology The second is just expansion of multi products. The ServiceNow example was representative of what we're seeing across the rest of our cloud customers. Which is FlashArray, you know, and moving to FlashArrayX for top of rack and FlashBlade to be able to open up a whole new set of use cases within their environments much more efficiently, low much lower cost, and easier to adapt and scale as they move forward. So a combination of expansion from a product perspective and new customer acquisition. And in terms of concentration, I guess you would say there wasn't much in terms of the growth? Yes. No, we had some great wins that were multimillion dollars and we had lots of net new customers that would come in at our standard new customer acquisition. So, great distribution. Combination. I don't know. Do you want to hit that one too? Yeah. Steve, this is Tim. No 10% customer. We haven't had a 10% customer, I think, in ever and, same, same trends hold true. So a really nice diverse portfolio of customers both by geo as well as, by vertical. Great. That's really helpful. Appreciate the color. The last question is from Jason Ader from William Blair. Great. Thank you. And I also wanted to extend my congrats to Deets on getting peer to a $1,000,000,000 quite an accomplishment and, great hire in Charlie. So I got a clarification for Tim, just on a diluted share count. You said it was 2 37 if you were profitable in Q2. I thought you had said for Q1, it was 2 79. So could you Yes. So, Jason, our fully, fully diluted share count is 279,000,000 shares. It actually didn't change from quarter on quarter, maybe circa about a 1,000,000 shares or even less. But when you do an EPS calculation, you've got to do the TSM adjustment as well treasury stock method. Now that adjustment varies based on the trailing 90 day stock price. So you have to take 279,000,000 shares and then you back off and assume share buyback So that's why we want to start talking about what that number is for EPS purposes, as we talk to Wall Street. Okay, great. And then my question for the team is, I don't think anyone would deny that you guys have shown tremendous innovation on the platform side. But just to play devil's advocate, we haven't seen much from you guys on hybrid cloud, specifically the ability to connect your platforms into the various public clouds. So I just wanted to know, is this something that you think is important and something we should think is on your roadmap? Yeah, this is Kix. I'll take this 1. So, you know, this is an area where, you know, if you'll get a 3rd growth opportunity, we're all about trying to help a large enterprise modify their IT environment, which as you say, is increasingly hybrid. And so we've, for almost over a year now, had solutions in hybrid cloud where you can have our storage within a colo environment and, use Direct Connect type technology to use hybrid compute from the cloud, from AWS and from Azure. We announced at our Accelerate Conference a desire to, begin, you know, a shipping set of features that allow us do data transport to the cloud and take snapshots and then kind of move them seamlessly to the cloud to power, backup Doctor, archive and migration type use cases. And so that's, active development that's underway, and, insulated to ship this year. And then finally, you know, I think you saw it accelerate, if you pull up our news there. You know, we think the end game in this space is less about things moving between clouds. And more about people building composite applications to take advantage of multiple clouds through APIs. And so if you look at the demo, we did it accelerate directly with Google, That's exactly what that was. That was a hybrid AI application that was running on prem with the real time performance you needed at the edge, but leveraging Google to do deeper analytics through a standard API, back in the cloud. And so we think that's the future that over time folks will build to. That's what we're excited about, particularly pioneering overtime. I will now turn the call back over to Scott Dietson for closing remarks. Thank you. Peter had a great Q2 data is becoming the most valuable asset for companies and Pure is uniquely positioned to help customers derive insights from that data. Our profoundly differentiated technology, business model and customer service has enabled us to become the number 6 worldwide storage provider. We remain hugely excited company's history later this year. In closing, I could not be more thrilled to be passing the Orange baton to Charlie. Pure is in an outstanding position and he's the right leader at the right time. Charlie, Hat, Tim, Kix and team We'll see you all next quarter, and I will join the rest of you in critiquing their performance. This concludes today's conference call. You may now disconnect