24 -Aug -2017 Pure Storage, Inc. · 8/24/2017 · Wamsi Mohan Analyst, Bank of America Merrill Lynch Erik L. Suppiger Analyst, JMP Securities LLC ... Pure Storage, Inc. (PSTG ) Q2

Corrected Transcript

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24-Aug-2017

Pure Storage, Inc. (PSTG)

Q2 2018 Earnings Call

Pure Storage, Inc. (PSTG) Q2 2018 Earnings Call

Corrected Transcript 24-Aug-2017


2 Copyright © 2001-2017 FactSet CallStreet, LLC

CORPORATE PARTICIPANTS

Matthew Danziger Vice President, Investor Relations, Pure Storage, Inc.

Scott Dietzen Chief Executive Officer & Director, Pure Storage, Inc.

Charles H. Giancarlo Chief Executive Officer, Pure Storage, Inc.

David M. Hatfield President, Pure Storage, Inc.

Tim Riitters Chief Financial Officer, Pure Storage, Inc.

Matt Kixmoeller Vice President, Marketing & Product Management, Pure Storage, Inc.

......................................................................................................................................................................................................................................................

OTHER PARTICIPANTS

Kathryn Lynn Huberty Analyst, Morgan Stanley & Co. LLC

Alex Kurtz Analyst, KeyBanc Capital Markets, Inc.

Eric Martinuzzi Analyst, Lake Street Capital Markets LLC

Steven Milunovich Analyst, UBS Securities LLC

James Kisner Analyst, Jefferies LLC

Victor W. Chiu Analyst, Raymond James & Associates, Inc.

Wamsi Mohan Analyst, Bank of America Merrill Lynch

Erik L. Suppiger Analyst, JMP Securities LLC

Mehdi Hosseini Analyst, Susquehanna Financial Group LLLP

Ittai Kidron Analyst, Oppenheimer & Company, Inc.

Rod Hall Analyst, JPMorgan Securities LLC

Nehal Sushil Chokshi Analyst, Maxim Group LLC

Steven Fox Analyst, Cross Research LLC

Jason N. Ader Analyst, William Blair & Co. LLC





MANAGEMENT DISCUSSION SECTION

Operator: Good afternoon. My name is Mike, and I will be your conference operator today. At this time, I would

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.

[Operator Instructions]

I will now turn the call over to Matt Danziger, VP of Investor Relations. You may begin your conference. ......................................................................................................................................................................................................................................................

Matthew Danziger Vice President, Investor Relations, Pure Storage, Inc.

Thank you and good afternoon. Welcome to the Pure Storage Q2 fiscal 2018 earnings conference call. Joining

me today are our CEO, Scott Dietzen; our new CEO, Charlie Giancarlo; our CFO, Tim Riitters; our President,

David Hatfield; and our VP of Products, Matt Kixmoeller.

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 measures 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 Dietzen. ......................................................................................................................................................................................................................................................


Thanks, Danzi. 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 Giancarlo 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 billions of dollar multi-product business. He has the product

chops having served as CTO and he 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? ......................................................................................................................................................................................................................................................





Charles H. Giancarlo Chief Executive Officer, Pure Storage, Inc.

Thank you, Dietz. 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 market. In Pure, I see a business that is poised to follow in the

footsteps of great organizations like Arista 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 about the Pure

vision was the opportunity to continue to build a great multi-billion dollar and independent public company which

has the opportunity to become the global leader in data platforms. I expect to do a great deal of listening in these

next few weeks and 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 my observations and priorities in the next

earnings call. Thank you.

And now, back to Dietz. ......................................................................................................................................................................................................................................................


Thanks, Charlie. I'm 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 million, 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 billion 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. Pure now 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% 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.

Second, Pure uniquely provides the massively parallel performance demanded by next-generation use cases

including machine learning and IoT. Pure now counts three 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.

Third, we continue to benefit from the modernization of on-prem IT within enterprises, hospitals and governments,

increasing our penetration in the Fortune 500 to over 25%. To highlight one key vertical, more than one-third of

the top 25 largest U.S. healthcare organizations are Pure customers.





Across all three segments, we see interest 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 showcased the 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 greater performance, easier operations and lower total cost of ownership. These benefits are

the results of years of innovation by the best team in the industry, innovations which have been recognized by

market experts.

For the fourth year running, Gartner has named Pure a leader in the Magic Quadrant for Solid State Arrays,

positioning Pure the furthest in the completeness of vision axis. And based on the latest IDC data, Pure moved up

to the number six position in global storage market share, continuing our remarkable growth at scale while most of

the mainframe and 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 on how Pure is driving

the adoption of our platform in the market and helping our customers and partners. Hat? ......................................................................................................................................................................................................................................................

David M. Hatfield President, Pure Storage, Inc.

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, and I know that I speak on behalf of all

Puritans, 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 to become the multi-billion dollar profitable market leader in data platforms 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 a new milestone,

having sold over $100 million 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% 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 second 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 feel what many are

referring to as the fourth industrial revolution.





Last quarter, we highlighted that one of the top web scale 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 DGX-1 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 then 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% NVMe

All FlashArray, the 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

FlashArray//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 for FlashStack, our converged

infrastructure solution. Executives at Cisco recently shared at our user conference that we are their fastest-

growing CI platform and have over a thousand joint customers. We're thrilled with our progress and are continuing

to invest in this important relationship.

We cannot be more pleased with the progress made in our three 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? ......................................................................................................................................................................................................................................................

Tim Riitters Chief Financial Officer, Pure Storage, Inc.

Thanks, Hat. Q2 was a strong quarter of execution for Pure. I like to include its strong revenue performance

including a reacceleration of our year-on-year growth, improved operating leverage, and traction within each of

our three growth markets. We continue delivering on key growth drivers that we laid out at the beginning of the

year and are confident in achieving greater than $1 billion of revenue for fiscal 2018.

Before I dive into the specifics, I'll make my usual note that the gross margins, operating margins, OpEx, and free

cash flow numbers I will use are non-GAAP unless otherwise noted. Reconciliation of these non-GAAP metrics 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% year-on-year to $224.5 million or 3% above the midpoint of our guidance.

Product revenue grew 34% year-on-year to $175 million. 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 3,700, up

roughly 60% from last year's Q2. Support revenue in Q2 grew 53% year-on-year to $49.5 million, driven by

continued revenue recognition of ongoing support contracts.

Looking at Q2 fiscal 2008 (sic) [2018] 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% increased 0.7 points quarter-on-quarter. We continued to execute well, operating at the higher end of our

long-term target model of between 63% and 68%, continuing to deliver industry-leading gross margins.

Product gross margin of 67.5% improved 0.9 points 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 0.1 points 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% and 20%. Our operating loss was negative $26.4 million in Q2

or negative 11.8% of revenue compared to a loss of negative $31.4 million or negative 19.3% 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 $23.9 million or negative $0.11 per share. This compares to

the year ago period non-GAAP net loss of $31.5 million or negative $0.16 per share. The weighted average

shares used for the per share calculations were 209.2 million and 192.7 million 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 million shares.

Total head count at the end of Q2 was over 1,900, up from over 1,800 at the end of Q1 and up from over 1,600 a

year ago, largely reflecting ongoing hiring in both our sales and R&D organizations.

Moving on to the balance sheet and cash flow, we finished the July quarter with cash and investments of $523

million. Our free cash flow was negative $17.5 million or negative 8% of revenue compared to negative $33.3

million or negative 20% of revenue in the year ago quarter. This includes $5 million of cash impact related to our

employee stock purchase plan. Excluding this amount, free cash flow would have been negative $22.5 million or

negative 10% of revenue compared to negative $39.5 million or negative 24% of revenue in the year ago quarter.

Note that our free cash flow in Q2 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 turn sustain free cash flow positive during the second half of this calendar year.





Let's turn now to our guidance. Consistent with prior years, we are now at the point in the year where we start to

reap the benefits of the investments that we made in the first half. 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 million and $275 million. This represents a 38% year-

on-year revenue growth at the midpoint, and it's 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 the 63.5% and 66.5%, 65% at the midpoint.

We have been operating within our long-term gross margin targets for seven 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 our 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, of between negative 5% and negative 1%, which represents a 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 improvement.

Turning to the full year, we have more visibility on and increased competency in our full-year guidance, which is

enabling us to increase both our top and bottom line guides which are revenues of between $985 million and

$1.025 billion, total gross margins of between 63.5% and 66.5%, and operating margins of between negative 7%

and negative 3%. Based on our performance to-date and our guidance, we expect Q4 to be Pure's first 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 2018.

With that, we will now open the call for questions. Operator?





QUESTION AND ANSWER SECTION

Operator: [Operator Instructions] Your first question is from Katy Huberty from Morgan Stanley. ......................................................................................................................................................................................................................................................

Kathryn Lynn Huberty Analyst, Morgan Stanley & Co. LLC Q Thank you. Good afternoon and congrats 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 on the balance sheet in terms

of sort of the basis point impact in 3Q? Thanks. ......................................................................................................................................................................................................................................................

Tim Riitters Chief Financial Officer, Pure Storage, Inc. A Yeah, Katy, so this is Tim. I'll take your second question first. 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 logistic business. And so again, as we saw a significant quarter-on-quarter increase in product

revenue, we can 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 at 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

we delivered here in the quarter in gross margins. I think I'll leave it at that in terms of our pricing dynamics. ......................................................................................................................................................................................................................................................

Kathryn Lynn Huberty Analyst, Morgan Stanley & Co. LLC Q Thank you. ......................................................................................................................................................................................................................................................

Operator: Your next question is from Alex Kurtz from KeyBanc Capital Markets. ......................................................................................................................................................................................................................................................

Alex Kurtz Analyst, KeyBanc Capital Markets, Inc. Q Thanks, guys. And Scott, best of luck. It was great working with you over the last couple of years here. I wanted to

zero in on this AI win. Our industry contacts would suggest that 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 it has in the market for these kinds of new kind of AI-based workloads? ......................................................................................................................................................................................................................................................

David M. Hatfield President, Pure Storage, Inc. A Yeah, Alex, this is Hat. I'll take the first part of that, 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, happened across multiple industries. So healthcare, financial services, telco,

EDA all have very similar characteristics to what the use case is in this large hyper-scaler, but we're seeing it be

very broad across a number of different industries.





Matt Kixmoeller Vice President, Marketing & Product Management, Pure Storage, Inc. A Yeah. 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 the environment is all around massive parallelization. If you look at 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 then 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 really

impressing us. ......................................................................................................................................................................................................................................................

Scott Dietzen Chief Executive Officer & Director, Pure Storage, Inc. A And Alex, I could add one more thought. 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 data ingest and transformation and even running

the models, but then using highly parallel compute for machine learning. And if you could have all of this data

coexisting in the same place and you could 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. ......................................................................................................................................................................................................................................................

Alex Kurtz Analyst, KeyBanc Capital Markets, Inc. Q Thanks, guys. ......................................................................................................................................................................................................................................................

Operator: Your next question is from Eric Martinuzzi from Lake Street Capital. ......................................................................................................................................................................................................................................................

Eric Martinuzzi Analyst, Lake Street Capital Markets LLC Q Yeah, I was wondering if you could revisit the whole HCI versus CI conversation. You talked a little bit about how

you feel like the relationship with Cisco was so key to your growth here and yet we hear from other quarters about

HCI taking share. ......................................................................................................................................................................................................................................................

Scott Dietzen Chief Executive Officer & Director, Pure Storage, Inc. A Yeah. So there's no question – I think HCI and Pure have been the two big disruptors 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 hyper-

converged 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 cost. In fact, there is a report up on our website that highlights

some of the cost savings.

Another use case of AI and Internet of Things, again hyper-converged 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, 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. ......................................................................................................................................................................................................................................................





David M. Hatfield President, Pure Storage, Inc. A Eric, this is Hat. I'll just comment on Cisco part of that. They have a very successful offering with HyperFlex.

Obviously, they just extended the acquisition to Springpath. And it just complements what our FlashStack CI

solution provides. So in the field, they can provide a complete solution of best-of-breed technologies to their

customers. So it's very complementary, noncompetitive of overlapping and we've been doing this for better part

over the last 18 to 24 months together with them. The momentum with Cisco overall is super strong. So we're

going to continue to invest there and we're pleased with the output that we're getting so far. ......................................................................................................................................................................................................................................................

Eric Martinuzzi Analyst, Lake Street Capital Markets LLC Q Understood. Thank you. ......................................................................................................................................................................................................................................................

Scott Dietzen Chief Executive Officer & Director, Pure Storage, Inc. A And it's a $35 billion market, so there's plenty of room. ......................................................................................................................................................................................................................................................

Operator: The next question is from Steve Milunovich from UBS. ......................................................................................................................................................................................................................................................

Steven Milunovich Analyst, UBS Securities LLC Q Thank you. So your fourth quarter in particular still requires some revenue growth acceleration. Where you get the

confidence in that is do you see the pipeline yet, and maybe you talk about your sales productivity. I think about

60% of the sales force has still been there less than 18 months. So are they ramping as you expected? ......................................................................................................................................................................................................................................................

Matt Kixmoeller Vice President, Marketing & Product Management, Pure Storage, Inc. A Steve, I'll take that first part of the call. And I'll turn 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 competence indicator for us. It's obviously easier to sell to repeat customers than new

customers, but the trends are working very well. And FlashBlade as well. Q4 is the seasonally strong time and

this will be one of FlashBlade's first Q4s. And so, anticipating good things there as well. So a lot of things coming

together that give us that confidence to $1 billion and beyond. ......................................................................................................................................................................................................................................................

David M. Hatfield President, Pure Storage, Inc. A Yeah. Not much to add there, Steve, other than saying the platform selling motion is working. This portfolio of 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 and faster than any other previous cohorts. So lots of

great momentum in the field. ......................................................................................................................................................................................................................................................





Scott Dietzen Chief Executive Officer & Director, Pure Storage, Inc. A I guess the only thing I would add is, in the most recent quarter, we saw our win rate either hold strong or even

uptick across all of our core competitors. So once again, business continues to execute phenomenally well. ......................................................................................................................................................................................................................................................

Steven Milunovich Analyst, UBS Securities LLC

Q

Thanks. ......................................................................................................................................................................................................................................................

Operator: Your next question is from James Kisner from Jefferies. ......................................................................................................................................................................................................................................................

James Kisner Analyst, Jefferies LLC Q 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 decline sequentially in Q4 in gross margins below your model for that final quarter. Is there a reason

for that? ......................................................................................................................................................................................................................................................

Tim Riitters Chief Financial Officer, Pure Storage, Inc. A No, James. I don't think – I don't see that from my vantage point. I anticipate that sort of 63.5% to 66.5% number

that we've been quoting for this quarter in Q3 for the guidance to continue 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. ......................................................................................................................................................................................................................................................

James Kisner Analyst, Jefferies LLC Q Okay. And I just want to verify we're trying to look out here into next year. I mean the guidance also, I think,

implies positive earnings in Q4. I would assume that seasonality would probably mean you dip back below into

non-GAAP losses just at least for one quarter. Is that a fair assumption? ......................................................................................................................................................................................................................................................

Tim Riitters Chief Financial Officer, Pure Storage, Inc. A I think that's fair. Q4 is always the strongest quarter for us seasonally, so it's the first quarter to be profitable. So I

think you're thinking about that exactly from a modeling perspective. ......................................................................................................................................................................................................................................................

James Kisner Analyst, Jefferies LLC Q And just last one on FlashBlade. I think you made some commentary there. How is 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. ......................................................................................................................................................................................................................................................

David M. Hatfield President, Pure Storage, Inc. A





Yeah. James, I'll take that one. This is Hat. Thank you. Yeah, it's tracking. So, what we said we're going to do 2x

the FlashArray growth in a similar point in time, absolutely tracking on that and tracking for the $80 million that we

talked about at the beginning of the year. So, great momentum across the board for FlashBlade. ......................................................................................................................................................................................................................................................

James Kisner Analyst, Jefferies LLC Q Thank you. ......................................................................................................................................................................................................................................................

Operator: Your next question is from Simon Leopold from Raymond James. ......................................................................................................................................................................................................................................................

Victor W. Chiu Analyst, Raymond James & Associates, Inc. Q Hi, guys. This is Victor Chiu in for Simon Leopold. I just wanted to circle back on the FlashBlade growth quickly. Is

AI and deep learning the primary driver behind that? And I guess what are some of the other specific applications

and use cases that's driving the growth there? ......................................................................................................................................................................................................................................................

Matt Kixmoeller Vice President, Marketing & Product Management, Pure Storage, Inc. A Yeah, this is Kix. I'll take this one. Look, I think why we're so excited about FlashBlade is it really represents a

whole new set of use cases for flash that traditionally FAs just weren't built to go after. And so when we built this

area, we were excited about going after not only AI and 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 an all-flash data hub they 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.

And then the final thing I'll highlight 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

the economics of a cloud provider. It takes all the kind of direct attached 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. ......................................................................................................................................................................................................................................................

Victor W. Chiu Analyst, Raymond James & Associates, Inc. Q Okay. Is it possible to quantify in general to what degree the cloud is driving that versus other applications? ......................................................................................................................................................................................................................................................

Scott Dietzen Chief Executive Officer & Director, Pure Storage, Inc. A So we're not going to break out the segments across the specific products, but certainly FlashBlade is factored

into that greater than 25% of cumulative revenues that are coming from cloud customers. ......................................................................................................................................................................................................................................................

Victor W. Chiu Analyst, Raymond James & Associates, Inc. Q Okay. Great. Thank you. ......................................................................................................................................................................................................................................................





Operator: Your next question is from Wamsi Mohan from Bank of America Merrill Lynch. ......................................................................................................................................................................................................................................................

Wamsi Mohan Analyst, Bank of America Merrill Lynch Q Yes, thank you. Scott, Charlie, congrats to both of you on your new roles. I was wondering if you could 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 the relative growth could change as the denser

FlashBlade product ramps? And I have a follow-up. ......................................................................................................................................................................................................................................................

Tim Riitters Chief Financial Officer, Pure Storage, Inc. A Well, Wamsi, this is Tim. And as it relates to your first part of the question, in terms of overall growth in terms of

where it's coming from, I alluded to an earlier question in terms of trying, continue to keep those ASPs kind of

where they've been. So I wouldn't say that it's ASP trends that are driving those increases. They're really organic,

new capacity installs and new customer acquisition, which candidly is the revenue that we like because it shows

that our footprint is getting out even further into the marketplace. And so, that's 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 other systems are bigger and so there is some potential there going forward in terms of

growth. ......................................................................................................................................................................................................................................................

Wamsi Mohan Analyst, Bank of America Merrill Lynch Q Okay. And for my follow-up, in 1Q, you saw the step up in inventory related to NAND purchases, clearly you saw

some benefit of that to margins here on the quarter. Did you make any such strategic purchases in 2Q? And if

not, does that mean that you are embedding an expectation that NAND pricing here is going to roll over? ......................................................................................................................................................................................................................................................

Tim Riitters Chief Financial Officer, Pure Storage, Inc. A We continue to make some purchases of inventory in Q2. Now, again, on a net basis, the inventory balance did

go down quarter-on-quarter. So in other words, we use a little bit more than we purchase, but we're continuing to

make smart investment decisions. So 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. ......................................................................................................................................................................................................................................................

Scott Dietzen Chief Executive Officer & Director, Pure Storage, Inc. A Maybe, I'll add. 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 fabs. We're working with all of them directly. We're multi-sourced.

We have the ability to use consumer grade NAND, and mix and match NAND from different suppliers in the same

product offering, long-term contracts. And of course, we have the most efficient data reductions. So all of that

comes together to put us in a better position than we think any of our competitors find themselves in. ......................................................................................................................................................................................................................................................

Wamsi Mohan Analyst, Bank of America Merrill Lynch Q





Okay. Great. If I could, one last one. I know the applications 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 will converge in the long run and when might the two converge? Thanks. ......................................................................................................................................................................................................................................................

Tim Riitters Chief Financial Officer, Pure Storage, Inc. A Yeah. I guess what we've said in the past and I would reiterate that is that at this long-term sweet spot in the mid

60s%, we anticipate all of our product portfolios sit there. There will be differences, but they'll all be within that

certain ballpark and we'll kind of leave it at that. ......................................................................................................................................................................................................................................................

Scott Dietzen Chief Executive Officer & Director, Pure Storage, Inc. A Let's also add, the NAND suppliers are helping us, right, because they're working on TLC and then quad-level

cell, and all of that will help the margin profiles going forward. ......................................................................................................................................................................................................................................................

Wamsi Mohan Analyst, Bank of America Merrill Lynch Q Thank you. ......................................................................................................................................................................................................................................................

Operator: The next question is from Erik Suppiger from JMP Securities. ......................................................................................................................................................................................................................................................

Erik L. Suppiger Analyst, JMP Securities LLC Q Yes. Thanks. Quick question on the customer count. What is it that's driving the new customer growth that you

had in the quarter? ......................................................................................................................................................................................................................................................

David M. Hatfield President, Pure Storage, Inc. A Thanks, Erik. This is Hat. Continued focus on a new market adoption. We said about the platform selling motion

as we can sell FlashBlade 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 very important to 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 four per day

which we think is right at the sweet spot of where we want to be going forward. So we're pleased with the 350. ......................................................................................................................................................................................................................................................

Erik L. Suppiger Analyst, JMP Securities LLC Q And then secondly, in terms of the CEO transition, what prompted the timing on this? ......................................................................................................................................................................................................................................................

Scott Dietzen Chief Executive Officer & Director, Pure Storage, Inc. A So ultimately, this was my call. I took the time to discuss with the board, with Coz, with Hat. I had a wonderful run,

thanks to an extraordinarily gifted team. I've been in the job seven years and we've done some great things, right,

pre-revenue to $1 billion and growing from about 20 to approaching 2,000 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.

Charlie has phenomenal experience operating at scale, having been part of Cisco when it went from $1 billion to

well over $40 billion in revenues overall. He's a very strong engineering and product leader that I think helps that

side of our house, having been a CTO and a Chief Development Officer, and he's an entrepreneur, having built 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's exactly the right leader at the right time. ......................................................................................................................................................................................................................................................

Erik L. Suppiger Analyst, JMP Securities LLC Q Very good. Thank you. ......................................................................................................................................................................................................................................................

Scott Dietzen Chief Executive Officer & Director, Pure Storage, Inc. A Thank you. ......................................................................................................................................................................................................................................................

Operator: The next question is from Mehdi Hosseini from SIG. ......................................................................................................................................................................................................................................................

Mehdi Hosseini Analyst, Susquehanna Financial Group LLLP Q Yes. Thanks for taking my question. Just as a follow-up and in the context of the path to be a $1 billion revenue

company, how do you see the landscape evolving? Do you see a step up in M&A opportunities and how does

Pure [ph] stack (38:32) into that? You're looking at a $35 billion TAM, you're at a run rate of $1 billion, and I just

want to see how you will see the company evolve in either independently or through acquisition, and I have a

follow-up. ......................................................................................................................................................................................................................................................

Scott Dietzen Chief Executive Officer & Director, Pure Storage, Inc. A Hey, Mehdi. As we look at the market opportunity in this $35 billion total addressable market we're playing in,

we're hugely excited about our organic prospects, right? FlashArray continues to take share in a very large

market, and we think we built the future in FlashBlade. Each of these products enjoys a multi-year lead over the

often 25-year-old architectures we compete against. And so we see phenomenal opportunity to continue to grow

the business organically. And this was the key part of our recruiting Charlie, right, as 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-billion dollar organic business. ......................................................................................................................................................................................................................................................

Mehdi Hosseini Analyst, Susquehanna Financial Group LLLP Q So I guess we have to wait for Charlie to think about the strategy and whatever M&A would fit into that new

strategy? ......................................................................................................................................................................................................................................................

Scott Dietzen Chief Executive Officer & Director, Pure Storage, Inc. A I'm sure you can bring that question again next quarter and we'll probably duck it there as well but... ......................................................................................................................................................................................................................................................





Mehdi Hosseini Analyst, Susquehanna Financial Group LLLP Q Sure. Okay. Okay. One quick follow-up regarding the FlashBlade $80 million run rate. Would it be fair to assume

maybe one-quarter of that is more of a front – in the first half of the year and then the remainder three-quarter in

the second half? Is that how we should be modeling that? ......................................................................................................................................................................................................................................................

Scott Dietzen Chief Executive Officer & Director, Pure Storage, Inc. A I think the simple thing to do is to go back and look at the historic revenue rate for FlashArray since we've

quantified the FlashBlade ramp as greater than twice the FlashArray ramp thus far and that's a streak we're

looking forward to continuing. ......................................................................................................................................................................................................................................................

Mehdi Hosseini Analyst, Susquehanna Financial Group LLLP Q Great. Thanks so much and good luck [ph] with Dietzen (40:36). And nice working with you. ......................................................................................................................................................................................................................................................

Scott Dietzen Chief Executive Officer & Director, Pure Storage, Inc. A Pleasure. ......................................................................................................................................................................................................................................................

Operator: The next question is from Ittai Kidron from Oppenheimer. ......................................................................................................................................................................................................................................................

Ittai Kidron Analyst, Oppenheimer & Company, Inc. Q Thanks, and Scott, first of all, congrats and thank you for all your services. And Charlie, it's great to have you back

on a public company. We miss you from Cisco, so glad to have you back with us. And good luck. ......................................................................................................................................................................................................................................................

Charles H. Giancarlo Chief Executive Officer, Pure Storage, Inc. A Thank you. ......................................................................................................................................................................................................................................................

Ittai Kidron Analyst, Oppenheimer & Company, Inc. Q As far as my questions are concern, first of all, can you give us a little bit more color on the FlashArray//X

transition? How much traction have you had with that? How much of that was with existing customers? Did it

create some opportunities with new customers? Would love to pick your brain on that. ......................................................................................................................................................................................................................................................

Matt Kixmoeller Vice President, Marketing & Product Management, Pure Storage, Inc. A Yeah. 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 we did that because we believe there was an opportunity for both FlashArray differentiation and for

market expansion. And so, on the differentiation side, 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 NVMe with

FlashArray//X, right? The whole point here is DirectFlash where we now take our software and interface it directly





with a NAND. That's something that no one else can do and so we're finding that we have a very unique story. 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 FlashArray//X, but also in our 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 games. 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 all the scale allows centralized storage to not have any of the performance

compromises from internal storages, totally a game change discussion. And so it's one that we think will be

expansion area for us. ......................................................................................................................................................................................................................................................

Ittai Kidron Analyst, Oppenheimer & Company, Inc. Q Got it. And then on FlashBlade, lastly for me, clearly you had a very big win over there. I'm just trying to gauge –

when you talk about the multiple of growth relative to FlashArray, is a lot of the growth here concentrated with a

single customer? Help me think about how broadly based is the FlashBlade adoption? ......................................................................................................................................................................................................................................................

David M. Hatfield President, Pure Storage, Inc. A Yeah. This is Hat. 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

[indiscernible] (43:16) the required, if 10% of our entire customer base purchased one or two FlashBlades and

we're just seeing great broad adoption 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 the nice

distributed curve. ......................................................................................................................................................................................................................................................

Ittai Kidron Analyst, Oppenheimer & Company, Inc. Q Very good. Good luck, guys. ......................................................................................................................................................................................................................................................

Operator: [Operator Instructions] The next question is from Rod Hall from JPMorgan. ......................................................................................................................................................................................................................................................

Rod Hall Analyst, JPMorgan Securities LLC Q Yeah. Hi, guys. Thanks for the questions. I just want to ask back on the AI, can you talk a little bit about who

you're seeing competing for that business, who else out there has joined 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 a bit of it, but just curious what that looks like. And then lastly, other people are getting quite a bit of

traction 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 the software-only product or does it make more sense to do things the

way you're doing them? Thanks. ......................................................................................................................................................................................................................................................





Matt Kixmoeller Vice President, Marketing & Product Management, Pure Storage, Inc. A So, this is Kix. I'll start with the first question. Maybe then Hat can take on FlashStack. So in terms of who we

encounter storage-wise for 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 ramp their operation, they need to basically have a centralized data store that feeds a big scale

out here with 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 as 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 on FlashBlade and it's no-brainer. Hat, do you want to take

FlashStack? ......................................................................................................................................................................................................................................................

David M. Hatfield President, Pure Storage, Inc. A Yeah. So from a FlashStack perspective, converged infrastructure mirrors cloud-like simplicity and that's what

customers want. They don't want to worry about infrastructure. 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 they are ahead 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. ......................................................................................................................................................................................................................................................

Scott Dietzen Chief Executive Officer & Director, Pure Storage, Inc. A And maybe I'll chime in on the software-defined question. Everyone should keep in mind Pure is first and foremost

a software company, it's order 90% of our engineers that write code in order to deliver the product, but a pure

software packaging is hard to achieve today because there is still a great amount of variability in the underlying

flash. Each new generation of 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 the flash technology.

I would take the fact 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. ......................................................................................................................................................................................................................................................

Rod Hall Analyst, JPMorgan Securities LLC Q Great. Thank you. ......................................................................................................................................................................................................................................................

Operator: Your next question is from Nehal Chokshi from Maxim Group. ......................................................................................................................................................................................................................................................

Nehal Sushil Chokshi Analyst, Maxim Group LLC Q





Thanks and congratulations, Charlie, for joining. And Scott, you will undoubtedly be missed, and Pure is not going

to 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 in your Chairman role? ......................................................................................................................................................................................................................................................

Scott Dietzen Chief Executive Officer & Director, Pure Storage, Inc. A So, I think this is something we're still working on together with Charlie and Hat. I do see opportunity to help

Charlie ramp up the business and I am looking forward to spending time with the team in helping them

understand all of the nuances of the transition. At the same time, I want to be clear, Charlie is in charge, right?

We are passing the baton. He's the new CEO of the company, and my job as Chairman is to help ensure he's

successful. ......................................................................................................................................................................................................................................................

David M. Hatfield President, Pure Storage, Inc. A And this is Hat. I'll just comment on it because I can't resist. Pure is Pure because we've got 2,000 wonderful

people out with a shared vision and shared values. Clearly, Dietz helped set that direction and we've loved every

minute of it.

Your second point is absolutely valid too, which is he's not going anywhere. He's the Chairman of the board. And

we're going to pull on him as need be, but we've got a foundation in place that with $1 billion in revenue, a couple

of thousand employees, almost 4,000 customers, that is Pure. And we're going to keep evolving it to become that

multi-billion dollar profitable business that we set up to do many years ago. So we love Dietz. He's still going to be

around, but in spending time with Charlie over the last several periods of time, he is an absolute Puritan. He's

going to help take this to the next level. ......................................................................................................................................................................................................................................................

Nehal Sushil Chokshi Analyst, Maxim Group LLC Q All right. ......................................................................................................................................................................................................................................................

Scott Dietzen Chief Executive Officer & Director, Pure Storage, Inc. A Maybe I should reinforce. I'm not taking another job, right? My position is to help Charlie, Hat, Coz and the entire

team. I'm here to support their success. ......................................................................................................................................................................................................................................................

Nehal Sushil Chokshi Analyst, Maxim Group LLC Q All right. And then you mentioned one of the, I guess, drivers of the succession is that Pure is and will become an

even more multi-product company. And Charlie has managed very well a multi-product company. But right now,

let's say, Pure Storage is a two-product company, FlashBlade and FlashArray. Yes, there are deviations of those,

but these are two 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 other directions you're looking at as you do that? ......................................................................................................................................................................................................................................................

Scott Dietzen Chief Executive Officer & Director, Pure Storage, Inc. A So I would add FlashStack to that mix, right, our converged infrastructure offering in joint with Cisco, 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 set to 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. ......................................................................................................................................................................................................................................................

Nehal Sushil Chokshi Analyst, Maxim Group LLC Q All right. Thank you. ......................................................................................................................................................................................................................................................

Operator: The next question is from Steven Fox from Cross Research. ......................................................................................................................................................................................................................................................

Steven Fox Analyst, Cross Research LLC Q Hi. Good afternoon. Just one question for 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 wondered 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 one,

two, three, say, drivers? And then how concentrated was that growth in cloud during the quarter? Thanks. ......................................................................................................................................................................................................................................................

David M. Hatfield President, Pure Storage, Inc. A Yeah. I'll take that. I think the first two drivers that are most relevant are net new customer adds. We talked about

having 600 cloud-native customers that are combining – 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 and moving the FlashArray//X top-of-rack and FlashBlade to be able to

open up a whole new set of use cases within their environments much more efficiently, 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. ......................................................................................................................................................................................................................................................

Steven Fox Analyst, Cross Research LLC Q And in terms of concentration, I guess you would say there wasn't much in terms of the growth? ......................................................................................................................................................................................................................................................

David M. Hatfield President, Pure Storage, Inc. A Yeah. No. We had some great wins that were multi-million 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 – you

want to hit that one, Tim? ......................................................................................................................................................................................................................................................

Tim Riitters Chief Financial Officer, Pure Storage, Inc. A Yeah, Steve, this is Tim. No 10% customer. We haven't had a 10% customer, I think, ever, and same trends hold

true. So, really nice diverse portfolio of customers both by geo as well as by vertical. ......................................................................................................................................................................................................................................................

Steven Fox Analyst, Cross Research LLC Q Great. That's really helpful. Appreciate the color. ......................................................................................................................................................................................................................................................





Operator: The last question is from Jason Ader from William Blair. ......................................................................................................................................................................................................................................................

Jason N. Ader Analyst, William Blair & Co. LLC Q Great. Thank you. And I also wanted to extend my congrats to Dietz on getting Pure to $1 billion, quite an

accomplishment and great hire in Charlie. So I got a clarification for Tim, just on the diluted share count. You said

it was 237 million shares, if you were profitable in Q2. I thought you had said for Q1, it was 279 million shares. So

could you... ......................................................................................................................................................................................................................................................

Tim Riitters Chief Financial Officer, Pure Storage, Inc. A Yeah. So, Jason, our fully, fully diluted share count is 279 million shares. It actually didn't change much from

quarter on quarter, maybe circa about 1 million shares or even less. But when you do an EPS calculation, you 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 million shares and then you back off and assume share buyback. And

so, that's why we want to start talking about what that number is for EPS purposes as we talk to Wall Street. ......................................................................................................................................................................................................................................................

Jason N. Ader Analyst, William Blair & Co. LLC Q Okay, great. And then my question for the team is, I don't think anyone will 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? ......................................................................................................................................................................................................................................................

Matt Kixmoeller Vice President, Marketing & Product Management, Pure Storage, Inc. A Yeah. This is Kix, I'll take this one. So this is an area where – if you look at our third growth opportunity, we're all

about trying to help large enterprises cloudify 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 co-lo

environment and use DirectConnect type technology to use hybrid compute from the cloud from AWS and from

Azure.

We announced at our Accelerate Conference a desire to begin [indiscernible] (53:37) set of features that allow us

to do data transport to the cloud and to take snapshots and kind of move them seamlessly to the cloud to power

back up DR, archive and migration-type use cases. And so, that's active development that's underway and slated

to ship this year.

And then finally, I think you saw at Accelerate if you followed our news there. We think the end game in this space

is it's 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 at Accelerate jointly 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 Compute to do deeper analytics through a standard

API back in the cloud. And so we think that's the feature that, over time, folks will build to. And that's what we're

excited about, particularly pioneering over time. ......................................................................................................................................................................................................................................................

Jason N. Ader Analyst, William Blair & Co. LLC Q





Okay. Thank you. ......................................................................................................................................................................................................................................................

Operator: I will now turn the call back over to Scott Dietzen for closing remarks. ......................................................................................................................................................................................................................................................


Thank you. Pure 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 six worldwide storage provider. We remain

hugely excited about the future as we continue to march towards $1 billion in revenue. And you will see our first

quarter of profitability in the 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 will see you all next quarter,

and I will join the rest of you in critiquing their performance. Cheers. ......................................................................................................................................................................................................................................................

Operator: This concludes today's conference call. You may now disconnect.

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24 -Aug -2017 Pure Storage, Inc. · 8/24/2017 · Wamsi Mohan Analyst, Bank of America Merrill Lynch Erik L. Suppiger Analyst, JMP Securities LLC ... Pure Storage, Inc. (PSTG ) Q2