01-mar-2017 pure storage, inc.€¦ · pure storage, inc. (pstg)q4 2017 earnings call corrected...

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01-Mar-2017

Pure Storage, Inc. (PSTG)

Q4 2017 Earnings Call

Pure Storage, Inc. (PSTG) Q4 2017 Earnings Call

Corrected Transcript 01-Mar-2017


2 Copyright © 2001-2017 FactSet CallStreet, LLC

CORPORATE PARTICIPANTS

Liz Lemon VP, Finance and Development, Pure Storage, Inc.

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

David M. Hatfield President, Pure Storage, Inc.

Tim Riitters Chief Financial Officer, Pure Storage, Inc.

Matt Kixmoeller Vice President, Products, Pure Storage, Inc.

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

OTHER PARTICIPANTS

Steven M. Milunovich Analyst, UBS Securities LLC

Simona K. Jankowski Analyst, Goldman Sachs & Co.

Alex Kurtz Analyst, Pacific Crest Securities

Rod B. Hall Analyst, JPMorgan Securities LLC

James Kisner Analyst, Jefferies LLC

Jayson A. Noland Analyst, Robert W. Baird & Co., Inc.

David Ryzhik Analyst, Susquehanna Financial Group LLLP

Ittai Kidron Analyst, Oppenheimer & Co., Inc.

Aaron Rakers Analyst, Stifel, Nicolaus & Co., Inc.

Munjal R. Shah Analyst, Wells Fargo Securities LLC

Rich J. Kugele Analyst, Needham & Co. LLC

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

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

Eric Martinuzzi Analyst, Lake Street Capital Markets LLC

Nehal Sushil Chokshi Analyst, Maxim Group LLC

John A. Lucia Analyst, JMP Securities LLC

Dariush Pirmin Ruch-Kamgar Analyst, Bank of America Merrill Lynch





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 Q4 Fiscal 2017 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] Thank you.

I will now turn the call over to Liz Lemon, VP of Finance and Development. You may begin your conference. ................................................................................................................................................................................................................................

Liz Lemon VP, Finance and Development, Pure Storage, Inc.

Thank you and good afternoon. Welcome to Pure Storage's Q4 fiscal 2017 earnings conference call. Joining me

today are our CEO, Scott Dietzen; 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, and our current and future products,

business and operations, including our operating model, growth prospects, and revenue and margin guidance for

future periods.

Any forward-looking statements that we make are based on assumptions as of today, and we undertake no

obligation to update them. Our actual results may differ materially from the results predicted, and reported results

should not be considered as an indication of future performance. A discussion of risks and uncertainties relating

to our business is contained in our filings with the SEC, and we refer you to these public filings.

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 Pure Storage's Investor Relations website and is being recorded for

playback purposes. An archive of the webcast will be available on the 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, Liz. Good afternoon, and thank you for joining us. Pure just wrapped up another great quarter and year,

beating both our top-line and bottom-line guidance. Over 3,000 customers have now adopted Pure's platform to

accelerate data-driven applications. These customers are gaining [ph] new insights (02:28) for optimizing their

businesses while substantially reducing costs and complexity with our cloud-based management and business

model.

Pure just keeps growing, maintaining our high win rates in a competitive market. We've got a product pipeline

bursting with innovation. In this year, we expect to reach $1 billion in revenue for the first time. We're going to take

a different approach to today's earnings call.





Most calls focus first on the past. Today I'm flipping the script. We're going to start with our vision about what's

ahead and then dive into the details of the most recent quarter. At Pure, we're building the data platform for the

cloud era. The storage market is in rapid transition to silicon and cloud capable storage to keep up with the

demands of data growth and predictive analytics. After all data is paramount, data sheds light on the most

important opportunities and challenges faced by an organization.

At Pure, our mission is to enable our customers to put data to work to improve their businesses. We compete with

mainframe and client-server era technology designed 25 years ago which can simply no longer cope with today's

volume and velocity of data and increasing performance required for predictive analytics and machine learning.

We now have thousands of examples across our customer base that reflects the value that Pure uniquely delivers

to data-driven applications.

Our President, David Hatfield, is joining us today to share more about this customer point of view. Hat, over to

you. ................................................................................................................................................................................................................................

David M. Hatfield President, Pure Storage, Inc.

Thanks, Dietz. Only Pure is delivering a complete data platform as purpose-built for silicon in the cloud era. We

dramatically improved traditional applications while providing the bridge to the modern new stack applications,

enabling real-time analytics, cloud agility and machine learning. And this year, our exciting software development

pipeline will take our platform and technology lead to a completely new level.

Our end-to-end platform including FlashBlade, FlashArray and a converged offering with Cisco, FlashStack, is

powered by innovative software as cloud connected for management from anyone on a mobile device and

supported by our Evergreen business model. Similar to what customers expect from the public cloud, with Pure1

and Evergreen, our customers benefit from near zero administration and a subscription to the latest innovation but

with much higher performance and lower cost.

Take an example, for a Fortune 100 digital internet company that is running a leading cloud platform on Pure,

they're leveraging our Evergreen model to flexibly scale capacity while collecting and analyzing data in real -time

and decreasing operating costs globally. Unique to Pure, our customers never have to re-buy a single terabyte

they already own, and they can scale their storage performance and capacity on demand and without costly and

risky data migrations.

Over the next year, we'll be offering new software innovations for our flagship FlashArray and FlashStack

technologies including the debut of synchronized replication, a key enterprise resiliency feature and enhanced

cloud integration for data protection and hybrid cloud use cases. [indiscernible] (05:47) these features on, adding

complexity and cost, these capabilities will be native to our core software for our customers to leverage with a

non-disruptive online upgrade.

And as we mentioned in the last call, our unique implementation of NVMe flash will unlock new levels of

performance and efficiency, and will be available to all of our customers to take advantage of as a simple online

upgrade or expansion this year. Additionally, the highlight of the most recent quarter was announcing the general

availability of FlashBlade, our new product that enables flash to transform the unstructured data market in the

same way FlashArray does with the structured data.





It's still early but adoption so far has been robust, much faster than the early days of FlashArray. For two different

customers this past quarter, we replaced over 20 racks of spinning disks with a single 4U FlashBlade just the size

of a microwave. Early FlashBlade customers reported dramatic improvements in performance and sharp

reductions in operating costs.

In fact, we're finding that the core Pure tenants are building efficient, effortless and evergreen storage, maybe

even more impactful to this market as FlashBlade has often sold to data scientists and engineers, who have even

less tolerance than IT buyers with the complexity of legacy storage.

One leading insurance company is using FlashBlade to cut the analysis time for the average claim to under 30

minutes from more than 3 hours while reducing both hardware footprint and associated staff costs.

A large-scale university genomics project is using the exciting new stack analytics package of Apache Spark on

FlashBlade to speed genome sequencing, which previously took 12 hours in a leading cloud provider to only 30

minutes on FlashBlade.

Our continuous innovation coupled with our evergreen architecture and unique business model enable us to

capitalize on a meaningful portfolio effect, which enhances our selling motion, we believe will help drive higher

revenue per customer and continue to drive greater differentiation for us as a business. This is translating into two

exciting trends. First, we have hundreds of customers now spending greater than $1 million and many spending

$5 million, $10 million, $20 million or more by easily expanding their initial FlashArray deployments to consolidate

multiple applications in retiring their legacy footprint.

We believe that roughly 90% of the Tier 1 refresh to all-flash is still ahead of us. Respondents to a 451 Research

survey of those open to a new provider ranked Pure among the top three alternative vendors for consideration

alongside AWS and Azure, which we believe puts us in a great position. Second, we are benefiting from a steady

pull-through of new products as our data platform expands and continues to meet and exceed the needs of our

customers.

50% of our FlashBlade customers have come from our existing FlashArray installed base, expanding in the new

workloads and use cases. We've also seen the reverse where FlashBlade has enabled us to serve customers in

new markets like chip design, engineering stimulation, genomics, media, and oil and gas for their technical

computing workloads and then pull through FlashStack and FlashArray for core IT opportunities.

There are hundreds of stories that bring to life of benefits of our complete data platform across all 3,000-plus

customers. Every day, we're helping healthcare providers, improve diagnostics through PAC image analysis,

SaaS companies gain deeper customer insight through real-time analytics, aerospace and automotive customers

stimulate and develop their next generation of intelligent vehicles, network providers offer security monitoring to

their customers, investment firms model portfolio risk in real-time, and retail sites deliver targeted messaging

based upon social media streams to name a few.

We are confident this rich pipeline of innovation and shift to portfolio selling will be key drivers for our customers,

partners and our own success in 2017, and we could not be more excited about the opportunity ahead.

Dietz, back to you. ................................................................................................................................................................................................................................






Thanks, Hat. Now on to results for the quarter and the 2017 fiscal year. Pure's Q4 revenues were $228 million, up

52% from the year-earlier quarter and above the high end of our guidance range. Pure also continues to move

closer to breakeven. Non-GAAP operating margin was well ahead of expectations at negative 2%, a full 12

percentage points ahead of the year-ago quarter.

For the full year, revenues were $728 million, up 65% from the prior year and again above our guidance range. In

fact, Pure has grown revenues 2.7 times in the six quarters we have reported since our IPO.

A few other stats. In the quarter, we added 450 new customers, bringing our total for the year up to 1,400

customers added. This increases our customer count to over 3,000 total, including well over 100 from the Fortune

500, and roughly 70% of the net new logos in the quarter were driven by the channel.

Q4 additions included the streaming video service, Hulu; restaurant chain, Subway; healthcare tech and lighting

giant, Royal Philips; Japanese entertainment company, KONAMI; and cloud-based healthcare company,

Phreesia. New FlashBlade customers included the National Hockey League, the law firm, Keker, Van Nest &

Peters, and geoscience company, ION.

Cloud companies account for more than 25% of our total sales and the repeat metrics are higher than the rest of

our customer base. We now serve over 500 software-as-a-service, infrastructure-as-a-service and consumer

Internet cloud customers.

And since inception, 8 of the top 10 U.S. telecommunications providers have collectively spent over $100 million

with Pure. This reflects the scale of our platform as hundreds of Pure's customers have graduated from app by

app deployment to investing north of $1 million in leveraging Pure's data platform across their business -critical

applications.

To sum up, as we continue to focus intensely on the all-flash array and cloud segments, which make up the

majority of the market, our opportunity remains vast. We are convinced 2017 will be Pure's best year yet. We are

thrilled that our data platform is in a position to drive $1 billion in revenue in just our sixth year of selling. Pure is

uniquely well-positioned to win as the inevitable transition to silicon and cloud-capable data storage unfolds.

And with that, I'll turn the call over to Tim to provide further details on our financials. Tim? ................................................................................................................................................................................................................................

Tim Riitters Chief Financial Officer, Pure Storage, Inc.

Thanks, Scott. As Scott said, Q4 marks another solid quarter and a strong end to our fiscal 2017. We're pleased

with strong execution around our operating model, highlighting consistent top-line growth and notable year-over-

year improvements in operating leverage. As we approach the $1 billion revenue mark this fiscal year, it's clear

we have both the technology and the business model for continued growth and industry leadership.

Before I dive into Q4 specifics and fiscal 2018 guidance, please note that the gross margin, operating margin,

OpEx and free cash flow numbers I will use are non-GAAP unless otherwise noted. A reconciliation of these non-

GAAP metrics to the GAAP comparables is available in our press release and on our earnings slide deck, which

are available on our website at investor.purestorage.com. For full details on our Q4 and fiscal financial results,

please refer to our press release and our earnings slide deck also available on our Investor Relations website.

As Scott said, Q4 total revenue grew 52% year-on-year and 16% quarter-on-quarter to a record $227.9 million,

which is 2% above the midpoint of our guidance. For the full fiscal year 2017, total revenue was $728 million or





3.3% above the midpoint of our full-year guidance and represents 65% growth year-on-year. Product revenue in

Q4 grew 47% year-on-year and 16% quarter-on-quarter to $186.8 million, driven in part by a record 450 new

customers and excellent demand from our existing customers. This quarter, across our entire customer base, for

every dollar that our customer spent initially, they spent an average of two additional dollars within the next 24

months.

We announced in January that our FlashBlade products are now generally available. While the revenue

contribution was non-material to our Q4 fiscal 2017 results, we are focused on driving our FlashBlade business to

operate at scale and are optimistic about the long-term expanded market opportunity that this product represents.

Support revenue in Q4 grew 79% year-on-year and 13% quarter-on-quarter to $41.1 million, driven by revenue

recognition on ongoing support contracts. We continue to drive loyalty among our customers demonstrated by a

strong customer retention rate in the mid-90% range. Looking at Q4 and full year fiscal 2017 from a geographic

perspective, 77% of our revenue came from the U.S. and 23% from international for both periods compared to an

80/20 split in the prior fiscal year. We continue to observe notable success across all our regions.

Q4 total gross margin of 66.1% increased 0.6 point quarter-on-quarter and remained flat year-on-year. We

continue to be in the range of our target long-term model of between 63% and 68% for total gross margin.

Product gross margins of 66.6% improved 0.6 point sequentially and declined 1.7% year-on-year. We continue to

be focused on driving industry-leading product gross margins while successfully managing new product

introductions and working within the constraints of the current NAND and other component market.

Support gross margins of 63.6% improved 10.2 percentage points year-on-year and 0.4 point sequentially. This is

driven by our expanding customer base and the deferred support associated with increasing product revenue. In

addition, we continue to drive operational efficiencies within our support organization as we scale.

Turning to operating margins, we continue to make excellent progress in our drive to profitability and toward our

long-term operating margin goal of between 15% and 20%. For Q4, non-GAAP operating losses were negative

$4.4 million or negative 1.9% of revenue, compared to non-GAAP operating losses of negative $20.9 million or

negative 13.9% of revenue in the year-ago quarter. This represents a 12-percentage-point improvement in

operating margin year-on-year and a 7.9-percentage-point improvement sequentially.

As we have said previously, we intended to make fiscal year 2017 our turning point in terms of absolute operating

losses, and we exceeded those goals. Our operating loss for fiscal 2017 was negative $96.3 million or negative

13.2% of revenue, 31% lower than the operating loss for last fiscal year and 32% ahead of our operating loss

guidance that we shared with investors at the beginning of the year.

We did this while growing the business 65% year-on-year. Total head count at the end of Q4 was over 1,700, up

from 1,650 at the end of Q3, and up from 1,300 a year ago. We remain dedicated to hiring great talent to drive our

sales execution and innovation efforts throughout the year.

Moving on to the balance sheet and cash flow. We finished fiscal 2017 with cash and investments of $546.7

million. Our free cash flow was positive $25.3 million or 11% of revenue, compared to $32.1 million or 21% of

revenue in the year-ago quarter. Please note that this includes $8.1 million of cash impact related to our

employee stock purchase plans. Excluding this amount, free cash flow would have been $17.2 million or 8% of

revenue compared to $21.0 million or 15% of revenue for the year-ago quarter.





Let's turn now to our guidance. This fiscal year, we will begin reiterating annual guidance each quarter. As our

revenue is becoming increasingly predictable through repeat business and our growth rates transitions from hyper

growth to high growth, it's the right time to make this shift.

For the full fiscal year ending on January 31, 2018, we expect revenues of between $975 million and $1.025

billion, implying a $1 billion revenue level at the midpoint of our guidance. We expect gross margins between

63.5% and 66.5% and operating margins between negative 9% and negative 5%.

We are on track to achieve sustained positive free cash flow in the second half of calendar year 2017 and believe

we have a clear path to profitability as we drive consistently toward our long-term operating margins of between

15% and 20%.

With that in mind, it's important to emphasize the seasonal trends in our business. We typically build bookings

momentum in the second half of the year, with Q1, our seasonally softest quarter in revenue and operating

margin. We typically see lowered bookings but continue investing in our sales force and marketing programs. As

our business grows larger and our growth rates understandably moderate, the impact of seasonality is naturally

more pronounced as we've mentioned in the past.

With this background in mind, for the first quarter of fiscal 2018, we expect revenues of between $171 million and

$179 million. This is based on the seasonality that I just discussed. In addition, with our focus on adding new

customers in Q4, our bookings mix skewed towards smaller first purchases as is typical to new customers. We

are excited about repeat business that these new customers will deliver for Pure in the future, and Q4's bookings

mix is factored into our Q1 guidance.

Turning to gross margins, we expect Q1 fiscal 2018 non-GAAP gross margins in the range of between 63.5% and

66.5%. We have completed the manufacturing ramp of FlashBlade. To fuel the next phase of growth for this

product, characterized by rapid market expansion and footholds into new verticals and geographies , we will

continue to make strategic deals as we build momentum. We will do this while continuing to operate in the 63% to

68% long-term gross margin guidance we've provided earlier.

Our gross margin guidance also accounts for the current component supply environment. We anticipated these

natural cycles when modeling the quarter and our full-year gross margin. We expect Q1 non-GAAP operating

margins of between negative 27% and negative 23% as we focus on making strategic investments in our sales

force and continue to drive velocity in our business. As I mentioned earlier, this is seasonally normal and

deliberate given our continued strategy of investing early in the year and reaping the rewards in the traditionally

strong second half.

To wrap up, as Scott and David said, fiscal 2018 is shaping up to be another strong year for Pure, driven by

several key factors. First, we have very strong repeat purchase rates. In fact, we anticipated that repeat

purchases from current customers will account for full 70% of the bookings required to reach our $1 billion goal

this year. Second, we have significantly increased our sales capacity, and our latest sales cohorts are the

strongest yet. And third, we are delivering strong innovation across all of our products and are at the beginning of

several key product cycles. With this growth, it's also important to reflect on the fundamental health of our

business as seen through improvement in operating leverage.

In fact, our Q4 results brought us very close to profitability. As we continue to grow our business, we will continue

our predictable march to our long-term operating targets and believe sustained profitability is well within reach.





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

QUESTION AND ANSWER SECTION

Operator: [Operator Instructions] Your first question is from Steve Milunovich from UBS. ................................................................................................................................................................................................................................

Steven M. Milunovich Analyst, UBS Securities LLC Q Thank you. Good afternoon. So I understand your comments about seasonality regarding the first quarter, but it

still appears the year-over-year revenue growth rate might be something under 30% and actually accelerates

year-over-year as you go through the year to get to the $1 billion. Is my math roughly correct? And what

confidence do you have that that's going to happen? ................................................................................................................................................................................................................................

Scott Dietzen Chief Executive Officer & Director, Pure Storage, Inc. A Hey, Steve. So in order to hit $1 billion in revenue this year, all you have to believe is that we can drive

FlashArray growth in the 25% to 30% range, and that's off of a 55% growth that we drove in FlashArray last year.

And if FlashBlade is going to do roughly 2x in its first full year of selling versus what FlashArray did and that's

easy to believe given, we're already operating at scale. So, we think that combination of factors, adding in the

sales core productivity and the strong bookings from repeat purchases is how we get to the $1 billion.

With respect to seasonality, as we've said in the past, seasonality does become a bigger factor at scale, right? As

we scale and the rate of growth slows, then seasonality will get more pronounced. I do want to add though that

we did see a shift in Q4, that we had our strongest new customer adoption in that quarter that we've ever

experienced, but along with that comes an inevitable mix shift toward the starter products as opposed to the more

entry level systems sold as opposed to the repeat purchase system sold, and that mix ultimately ended up

impacting our Q1 guide as well. ................................................................................................................................................................................................................................

Steven M. Milunovich Analyst, UBS Securities LLC Q And to be a little more specific, on FlashBlade, you said your assumption is that it's roughly 2 times the first year

FlashArray sales. So I'm just wondering, how conservative do you feel you're being in terms of the FlashBlade

contribution to that $1 billion? ................................................................................................................................................................................................................................

David M. Hatfield President, Pure Storage, Inc. A Yeah, Steve, maybe I'll take that. This is Dave Hatfield. I'll tell you that when I – I've been here for just over four

years, and when I first saw FlashArray, I knew it was special and would transform things, but FlashBlade is

lightning in a bottle. The unstructured market there is exploding around in other things, machine learning and big

data as you know. We kind of held the sales force back last year with directed availability to make sure we got the

quality and the product that we want and the stability and also the use cases. But when we launched this to our

sales teams a couple of weeks ago at our kickoff, there is huge enthusiasm to drive it.

And so there's a couple of things that you need to think about it as you model it. One, it takes one to two

FlashBlades per selling team for the year to beat our internal numbers, and 50% of our business so far has come





from our installed base. And so if you look at it a different way, less than 10% of our installed base needs to

convert over to FlashBlade. So, we're super enthusiastic and very confident in the FlashBlade launch. ................................................................................................................................................................................................................................

Steven M. Milunovich Analyst, UBS Securities LLC Q Great. Thank you. ................................................................................................................................................................................................................................

Operator: The next question is from Simona Jankowski from Goldman Sachs. ................................................................................................................................................................................................................................

Simona K. Jankowski Analyst, Goldman Sachs & Co. Q Hi. Thank you very much. Can you comment a little bit on the impact of the NAND supply constraints and the

price increases? It seems like it's not really affecting your margins. But just curious if you can comment on what

steps you've taken to ensure supply and if you are passing on some of those increases to the customers or how

you expect them to impact you. ................................................................................................................................................................................................................................

Scott Dietzen Chief Executive Officer & Director, Pure Storage, Inc. A Hey, Simona. Thanks for the question. We think we're in a uniquely strong position. There is no question that

there is some heightening in NAND supply, but keep in mind, Pure software gives us unique advantages. We are

between 2 times and 5 times more efficient in our use of NAND because of those software innovations versus the

competition. And our software also allows us to mix and match different kinds of flash, consumer-grade MLC,

consumer-grade TLC. So we have the opportunity to pool from different suppliers in order to meet our customer

obligations, and it's a key part of the reason we're so confident we can continue to grow and maintain industry -

best margins. So, maybe I'll ask Kix to chime in. ................................................................................................................................................................................................................................

Matt Kixmoeller Vice President, Products, Pure Storage, Inc. A Yeah. The only thing I would add to that is I think this is really showing the product differentiation shine through in

our product line, in particular on the software side compared to some of our competitors. As we know, some of

our competitors basically just have to leverage large SSDs at overall low cost to the customer to try to drive their

way into the all-flash market. They're basically kind of buying their way and then underwriting product efficiencies

with a bunch of all-flash.

And so that's hard strategy to kind of keep up as we go into a supply constraint situation. We thought they would

hit a wall a bit this quarter, and indeed we saw HP post a negative 13% and claim that was really tied to flash

shortage. We saw NetApp lose 5 points of gross margin, now operating their business about 20 points under us.

So I think we're really starting to see that strategy hit a wall. ................................................................................................................................................................................................................................

Simona K. Jankowski Analyst, Goldman Sachs & Co. Q Thank you. And then just as a follow-up, I think you said that to reach your target for this year, you're going to

need to see repeat customers drive about 70% of the bookings if I heard that correctly? Can you just put that in

context for us of what that number was for last year? ................................................................................................................................................................................................................................





Tim Riitters Chief Financial Officer, Pure Storage, Inc. A So, Simona, this is Tim. We haven't disclosed those numbers in the past, but what I can tell you is that those are

in the same zip code. Over time, we've seen that rate continue to climb up, and now that we've got the history in

front of us in repeat business, we've gained a lot confidence in how those are going to curve out over the course

of the next year. ................................................................................................................................................................................................................................

Simona K. Jankowski Analyst, Goldman Sachs & Co. Q Thank you. ................................................................................................................................................................................................................................

Operator: The next question is from Alex Kurtz from Pacific Crest Securities. ................................................................................................................................................................................................................................

Alex Kurtz Analyst, Pacific Crest Securities Q Yeah. Thanks, guys. Just a couple of questions here. Back on that 70% comment, Tim, what percentage of that

70% is – your sales force has some visibility into it right now, or is that kind of just you projecting out capacity in

your installed base and certainly knowing where your customers are and kind of getting to that number? Or is

there a large chunk of that that's sort of in the pipeline already? ................................................................................................................................................................................................................................

Tim Riitters Chief Financial Officer, Pure Storage, Inc. A I would say two things on that, Alex. The first point is that we build pipeline throughout the year, and we watch

that. So we watch that very religiously out at multiple quarters. So that gives us confidence, point number one.

And then in terms of the automation techniques, we've also done a number of statistical analyses that triangulate

on that, looking at how cohorts have seasoned over the last two years or three years and then project that on top

of the new cohorts that are coming in. So a lot of analytical rigor as well. And the combination of those two things

really is what's driving that confidence for the year. ................................................................................................................................................................................................................................

Alex Kurtz Analyst, Pacific Crest Securities Q Okay. And can you maybe give us an update on rep product ivity and how that plays into the second half outlook?

I mean, clearly, that's going to be a discussion going forward as you guys have put a lot of revenue in the second

half here, and what the confidence in the catalysts are for you guys to exceed those numbers? ................................................................................................................................................................................................................................

David M. Hatfield President, Pure Storage, Inc. A Yeah. Maybe I'll comment on that first. This is Dave. So, A, we added our largest cohort of salespeople last year,

north of 30% over the year. And that class is growing faster than any other cohort we've had in the history. And so

we're very thrilled with not only the additional capacity, but the incremental productivity, of that cohort.

Two other reasons I think that give me the confidence. Second, we really fine-tuned our incentive structure to be

more balanced toward the top line versus net new logos. And our sales teams are trained up on the FlashBlade

and the software innovations that we're having, but they're shifting from product -oriented selling to portfolio-

oriented selling.





And to be able to deliver the data platform for the cloud era and be able to offer a solution for any data

requirement that a customer has we think not only will differentiate us over the long term but drive that productivity

even further. ................................................................................................................................................................................................................................

Alex Kurtz Analyst, Pacific Crest Securities Q Thank you. ................................................................................................................................................................................................................................

Operator: The next question is from Rod Hall from JPMorgan. ................................................................................................................................................................................................................................

Rod B. Hall Analyst, JPMorgan Securities LLC Q Yeah. Hi, guys. Thanks for taking my question. So I had two. I guess I want to just start -off and see if you could

just give us some idea of what's your average order lead time is. And then I have follow-ups after that. ................................................................................................................................................................................................................................

Scott Dietzen Chief Executive Officer & Director, Pure Storage, Inc. A So average order lead time, Rod, you mean, in terms of fulfilling the customer order once it comes in? ................................................................................................................................................................................................................................

Rod B. Hall Analyst, JPMorgan Securities LLC Q Right. ................................................................................................................................................................................................................................

Scott Dietzen Chief Executive Officer & Director, Pure Storage, Inc. A Yeah. So one of the things we prided ourselves on is very rapid turnaround time. It's the hallmark of what

customers tell us when they need new deployments. So we can turn those orders pretty quickly. We don't advise

on a specific number, but I will tell you we're ahead of the industry in our ability to fulfill. ................................................................................................................................................................................................................................

Rod B. Hall Analyst, JPMorgan Securities LLC Q And can you give us some kind of a ballpark? Are we talking like you tend to fulfill within a couple of months an

order or do you tend to fulfill in four months, or what's the ballpark? ................................................................................................................................................................................................................................

Scott Dietzen Chief Executive Officer & Director, Pure Storage, Inc. A Yeah. The ballpark, again we don't offer that because it can vary based on different system configurations. But

what I will say is that we are ahead of the industry in our ability to serve customers quickly. ................................................................................................................................................................................................................................

Rod B. Hall Analyst, JPMorgan Securities LLC Q Wouldn't that then suggest that your guidance from a visibility point of view you can only get at the second of the

year? ................................................................................................................................................................................................................................





Scott Dietzen Chief Executive Officer & Director, Pure Storage, Inc. A Not at all. I think for the earlier comment in terms of the pipeline that we're building, we watch deals and

opportunities mature. As we know, particularly in the enterprise market, those sales cycles can take some time.

And so we've got good visibility in that pipeline one, two, three quarters out as we build the business. ................................................................................................................................................................................................................................

Rod B. Hall Analyst, JPMorgan Securities LLC Q Okay. ................................................................................................................................................................................................................................

David M. Hatfield President, Pure Storage, Inc. A I think the one that I'll also add that... ................................................................................................................................................................................................................................

Rod B. Hall Analyst, JPMorgan Securities LLC Q And then... ................................................................................................................................................................................................................................

David M. Hatfield President, Pure Storage, Inc. A ...this is Dave. Sorry. The one thing I'll add to that, I think on the repeat purchase metrics, we look at that

religiously as well and have over the last four years. And so we know by cohort, by segment what the propensity

to buy is on a monthly basis as they come in. And so the high-level metric that we provided is that over a 24-

month period of time, every $1 spent on the front end, they spend another $2. But that varies by segment. And so

we're quite granular in our visibility around repeat purchase metrics as well. ................................................................................................................................................................................................................................

Rod B. Hall Analyst, JPMorgan Securities LLC Q Okay. And I guess then if that's the case, why is the guidance so much weaker than I guess what we were

expecting, I think weaker than what most people on the call were expecting, given you have that kind of visibility? ................................................................................................................................................................................................................................

Scott Dietzen Chief Executive Officer & Director, Pure Storage, Inc. A So I would reiterate again, seasonality is certainly the primary factor. And as the business scales and our relative

rate of growth slows, we are going to see greater effects of seasonality. There was a secondary factor in having

so many new customer adds in the fourth quarter and those being starter systems. But first and foremost, this is

inherent seasonality that is reflected in the Q1 guidance. ................................................................................................................................................................................................................................

Rod B. Hall Analyst, JPMorgan Securities LLC Q Great. Okay, I'll [indiscernible] (33:34). Thanks a lot, guys. ................................................................................................................................................................................................................................

Scott Dietzen Chief Executive Officer & Director, Pure Storage, Inc. A Appreciate it, Rod.





Operator: [Operator Instructions] The next question is from James Kisner from Jefferies. ................................................................................................................................................................................................................................

James Kisner Analyst, Jefferies LLC Q Hi there, guys. Thanks for taking my question. So I guess one thought was – I guess can you just clarify, just to

beat a dead horse on FlashArray's first year of shipping. What was the number for that? Are you saying you can

double that this year for FlashBlade? Can you just clarify what that number was? ................................................................................................................................................................................................................................

Tim Riitters Chief Financial Officer, Pure Storage, Inc. A Yeah. So, James, this is – if you look back to a couple of years ago no, it would have been about $43 million, I

think, from a revenue perspective. That would have been calendar 2013, I think it is. It's the first full year we

reported our S-1. ................................................................................................................................................................................................................................

James Kisner Analyst, Jefferies LLC Q Okay. I see. That's $300 million in product revenue into – you think you can do $80 million in FlashBlade basically

this year, just to be explicit. ................................................................................................................................................................................................................................

Tim Riitters Chief Financial Officer, Pure Storage, Inc. A To be explicit, based on the commentary, we'd like to do 2x of where we were with FlashArray, yes. ................................................................................................................................................................................................................................

Scott Dietzen Chief Executive Officer & Director, Pure Storage, Inc. A And we are confident of that. ................................................................................................................................................................................................................................

James Kisner Analyst, Jefferies LLC Q Okay. Thanks. So, great. So I have a question regarding your supply chain. So there's been a lot of talk about at

it, in import tax, and I know that there's nothing that's certain yet, but I know you guys – in your K, you revealed

that some portion of your products are produced overseas. I'm just wondering, could you give us a general idea of

how much of that – of your [indiscernible] (35:03) is in Asia and whether or not you would see any kind of impact if

there was an import tax? Thanks. ................................................................................................................................................................................................................................

Scott Dietzen Chief Executive Officer & Director, Pure Storage, Inc. A So, product assembly for the U.S. market is actually done onshore, so we manufacture through our contract

partners in the United States. The silicon that we use does come from all over the world, but we're assembling in

the U.S. market for the U.S. I would also mention we do have manufacturing facilities in Europe, and we're

ramping them in Asia as well. ................................................................................................................................................................................................................................

James Kisner Analyst, Jefferies LLC Q





Great. And just one last thing is housekeeping on FlashBlade. I mean, is it fair to say that the margin impact for

FlashBlade is no longer a drag? Is it that kind of – behind us at this point? Thanks. ................................................................................................................................................................................................................................

Tim Riitters Chief Financial Officer, Pure Storage, Inc. A Yeah, James, this is Tim. In terms of gross margin, we got through as I said in my prepared remarks, the

manufacturing ramp. What we're doing now is the next phase of growth. There's a lot of opportunities in various

verticals in geo. So we're not quite there where the FlashArray business is, but we're in a comfortable spot

particularly within our overall gross margin range that we feel excited about taking this next step in terms of

growth. So we'll always manage it to our overall mix. And as we said, we're driving industry -leading margins while,

A, we are continuing to ramp FlashBlade and B, dealing with the supply NAND component topics that we talked

about earlier. ................................................................................................................................................................................................................................

James Kisner Analyst, Jefferies LLC Q Okay. Thank you very much. ................................................................................................................................................................................................................................

Operator: The next question is from Jayson Noland from Baird. ................................................................................................................................................................................................................................

Jayson A. Noland Analyst, Robert W. Baird & Co., Inc. Q Okay, great. Thank you. I had a couple of competitive questions. I guess first with FlashBlade, who do you

compete with, if anyone? And are these net new workloads or are these kind of older rip and replace situations? ................................................................................................................................................................................................................................

Matt Kixmoeller Vice President, Products, Pure Storage, Inc. A Yeah. So this is Kix. The majority of the FlashBlade business sells into customers that are using either primarily

today in NetApp or Isilon. And I think the good news is that there has been a real dearth of innovation from both

those vendors. And so we're finding the reception for FlashBlade to be extremely positive. Unlike where a

FlashArray deal might go up against two or three people on a POC, typically a customer that buys FlashBlade has

already got one of these incumbents, already has found the problems within it, and is really looking for a better

answer.

I'd say that everything that's been heartening is that we've seen both vendorship, small updates to try to address

FlashBlade, most notably Isilon with their All-Flash Nitro system, but it appears to be just a retrofit where they've

taken the same big SSDs and put it in the old architecture without making fundamental improvement. So I think

we feel really about where we are in a competitive positioning, and it's just a market that has less natural

competition and has had less innovation over the last few years. ................................................................................................................................................................................................................................

Scott Dietzen Chief Executive Officer & Director, Pure Storage, Inc. A Jayson – go ahead, Hat. ................................................................................................................................................................................................................................

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





This is Hat. Just two points to add on your second question, which is half of the use cases are from our installed

base so far. So from the customers that we brought in, they are from our very happy installed base of FlashArray

customers, and 50% of the other ones were introducing us in the new market segments that technical computing

is the lead. And that then drags or does a pull-through for FlashArray and FlashStack. So we have real nice mix of

being able to go after our installed base and expand in the use cases there while also opening up new markets. ................................................................................................................................................................................................................................

Jayson A. Noland Analyst, Robert W. Baird & Co., Inc. Q Okay. And then a follow up with Dell and EMC. We've heard about a lot of EMC departures with the start of Dell's

new fiscal year, but at the same time it sounds like Dell is offering better than expected economics to the

channels. So maybe if you could update on the situation with your leading competitor. Thanks. ................................................................................................................................................................................................................................

Scott Dietzen Chief Executive Officer & Director, Pure Storage, Inc. A So we've once again managed to hold very strong win rates against Dell EMC, who does remain the competitor

we see most often in the marketplace. We're incredibly excited about the innovative pipeline that we have and

how it's going to actually help us continue to accelerate our business. We'd say there's another really key

dynamic, and I'll ask Hat to chime in on, but it's our close partnership with Cisco and our work on FlashStack.

We have got a very strong alignment between our channel partners and those of Cisco. And Dell EMC is seen as

a strong Cisco competitor, who the Cisco channel is not favorable toward. And so I would say the FlashStack

work in particular has been very helpful in differentiating ourselves from Dell EMC. ................................................................................................................................................................................................................................

David M. Hatfield President, Pure Storage, Inc. A Yeah. The only add that I would have on that is Dell, much like all the other legacies, are declining businesses

and they're forced into cost cutting. And so they're cutting people, they're cutting product lines, they're cutting

partner programs. And this is starting to have a real material effect in the field.

I think we're just beginning to see the level of disruption that the Dell EMC thing will have. And as you go, as you'd

naturally think about the partner programs that they go out with, they're going after the EMC storage partners and

asking them at providing additional incentives if they replace the UCS servers with Dell servers.

And so that strategically aligns our interest very closely with Cisco. I think they recognize that and they're starting

to see that both through their partners and through their our joint customers. Partners have been very committed

to Cisco over the last 20 years. Their partner programs are predictable, they're very focused on it. Whereas with

Dell and EMC, there's more of a direct DNA that creates a direct conflict with their channel partners.

So if we were to choose and believe what would happen, we think more people are going to be more loyal to

Cisco, and that lines us up very naturally with them. So our partnership with Cisco is improving and is deep at

both the product level and the go-to-market level, and I think that'll continue. ................................................................................................................................................................................................................................

Jayson A. Noland Analyst, Robert W. Baird & Co., Inc. Q Appreciate the color. ................................................................................................................................................................................................................................

Operator: [Operator Instructions] The next question is from Mehdi Hosseini from Susquehanna Financial.





David Ryzhik Analyst, Susquehanna Financial Group LLLP Q Thanks so much. This is David Ryzhik for Mehdi Hosseini. So, Tim, when I look at the operating loss, operating

margin leverage year-over-year at least for the second half of 2017 compared to the second half of 2016, I see

about a 11-percentage-point improvement. And as we look for 2018, is it pretty safe to say that the second half of

2018 we could hit profitability particularly since you hit 2% in the Jan Q? What would prevent us from getting

there? ................................................................................................................................................................................................................................

Tim Riitters Chief Financial Officer, Pure Storage, Inc. A Yeah. I think maybe you're thinking about it right. With us being at nearly only 1.9% in Q4, if you just play forward

that leverage and you look at how the math works relative to our full-year guide, I think you're thinking about it

exactly right. ................................................................................................................................................................................................................................

David Ryzhik Analyst, Susquehanna Financial Group LLLP Q Right. Great. And just a quick follow-up on the innovation front, something that you guys have done since your

inception data reduction, it's at around 4:1 times or 5:1 times. Is that the limit or could that be the next leg of

innovation where you can actually innovate to average of 7:1 times or 10:1 times? Just curious on that. Thank

you. ................................................................................................................................................................................................................................

Matt Kixmoeller Vice President, Products, Pure Storage, Inc. A Yeah. So this is Kix. Look, one of the great things about being a software driven-array is we constantly make the

software better. And so if you look at our history, we always work on better performance, always work on better

data reduction, et cetera. We've seen our data reduction improve over time even as our move towards higher-end

workloads that tend to be more databases flips. And so we've maintained great data reduction in that 5x range.

I'll also say that this is probably one of the best examples of a "checkbox" that many of our competitors say they

have. But when you get into the reality of driving the car, it's a very different experience.

And so we continue to see that our data reduction quality ends up being around 2x better than most of our

competitors in head-to-head POCs and deployments. And again, that becomes really, really critical in this area of

a little bit of supply constraint on the flash side where I think it's going to really challenge our competitor strategies

of trying to just compete on price with a lot of raw flash. ................................................................................................................................................................................................................................

David Ryzhik Analyst, Susquehanna Financial Group LLLP Q Great. Thank you. ................................................................................................................................................................................................................................

Operator: Next question is from Ittai Kidron from Oppenheimer. ................................................................................................................................................................................................................................

Ittai Kidron Analyst, Oppenheimer & Co., Inc. Q Thanks. So when I think about your guidance, it sounds like a lot of your expectations for the second half of the

year, that big ramp, is really built on whether the past experiences with FlashArray, statistical analysis, repeat





purchase, booking patterns, and so it's kind of very statistical looking at patterns. And I guess I'm trying to kind of

challenge your FlashBlade assumption of 2x, the performance of FlashArray in its first year. When FlashArray

came around, there was really no competition. There was a lot of – I guess there was a pent-up demand need for

all-flash arrays and that nobody has really served well, it's a category you define and so all that demand naturally

went to you right up front.

When you talk about Isilon and NetApp as competition, I mean, Isilon already has all-flash arrays, Isilon already

comes in an all-flash array format from the second half of last year. By itself, of course, it was a very successful

platform for a long time for an establish brand. And so I guess I'm trying to gauge, what is it that gives you that

confidence again that FlashBlade can do so well so fast out of the gate? And I'm also asking it in the context of

the future set because I think you've mentioned in the past that the future set of FlashBlade, at least initially, is

going to be very limited of course, in the 18-month, 24-month timeframe, that would get beefed up and use cases

will expand.

But for now a use case up front with competition that's already established in the area as opposed to the

framework that FlashArray had for four, five years ago when it launched, how do I get comfortable with that? ................................................................................................................................................................................................................................

Scott Dietzen Chief Executive Officer & Director, Pure Storage, Inc. A Hey, Ittai. So it's a combination of two things: it's innovation inside of the FlashBlade software and its unique

architecture. It allows us to drive much greater data bandwidth than you're capable of driving these legacy

designs even when you fill them with flash.

I would cite the point that Hat made during his comments about us replac ing 20-rack configurations with a single

FlashBlade and being able to offer improved performance. This comes out of a design that's built around silicon

and fast networking, and it doesn't have the legacy holdbacks that are inherent in these 20-plus-year-old designs

that we compete against.

Keep in mind we're also going up against public cloud workloads. Hat also cited a Spark configuration where we

were depending on the query two to six times faster than leading public cloud deployment than our ability to

process analytics. And so this is a product that is unlike anything else in the market.

So with innovation, did half of our confidence, and the other half of our confidence comes from our scale's go-to-

market engine, right? When we got started with FlashArray, I mean, we had a dozen teams that were working in

that first year to grow the business. We are approaching $1 billion revenue run rate. This gives us so much more

exposure to touch many, many more customers, right? As we mentioned, half of the FlashBlade ramp to-date has

come from existing FlashArray customers loving FlashArray and wanting to bring more of that innovation into their

shops to have impact on their unstructured data workloads. ................................................................................................................................................................................................................................

Ittai Kidron Analyst, Oppenheimer & Co., Inc. Q [ph] You don't find (47:09) the fact that the architecture is innovative that it will lead to long qualification cycles for

this product? ................................................................................................................................................................................................................................

Matt Kixmoeller Vice President, Products, Pure Storage, Inc. A





Ittai, this is Kix. I'll jump in with answering that and one additional comment. I don't think we see it to be any

different than our FlashArray product line. And if anything else, the customers in this space have such a burning

need so tied to their core business that we find them diving in, testing in and driving faster. We've even had

people buy FlashBlades literally off the spec sheet without even trying it and installed it and liked it.

One of the things, just back to the confidence versus Isilon question. One thing that gives us confidence is that

we've gone head-to-head now multiple times with not only kind of existing Isilon retrofit with Flash, but now with

the new Nitro product. And so we've beaten it and we understand the performance advantages we've got.

And the real benefit comes down to architecture. If you look at the Isilon architecture, it was designed in the era of

media which is all about the big streaming rights and big streaming IO. The problem is if you look at the current

world of large-scale IoT analytics and real-time analytics, you need that combo. You need to land tons of data and

analyze it in real-time, and that's just something the Isilon architecture was not meant for. ................................................................................................................................................................................................................................

Ittai Kidron Analyst, Oppenheimer & Co., Inc. Q Okay. That's helpful. And a couple more, Dave, on the sales force, you made some good points there. I guess my

question would be, are salespeople specifically incentivized to push FlashBlade or is it still just an overall revenue

figure as a driver? ................................................................................................................................................................................................................................

David M. Hatfield President, Pure Storage, Inc. A Yeah. So as we move from product to portfolio selling, we want people to be understanding the customer

requirements and selling a solution that maps to those. What we've done is the early folks that helped us build

very successfully FlashArray – and I just got to reflect back on four and a half years ago, we had a dozen-plus

competitors, no brand, and half a dozen or a dozen teams that were out there going against the big guys. And

these initial sales teams are extraordinary and they're great builders. So many of the folks that have the DNA who

are great start-up builders, we put into our FlashBlade selling team. And so they're a specialist organization that

have discrete accountability for the FlashBlade product line, but they're leveraging the brand and distribut ion and

all the sales teams and partners that we have out there. So to answer your direct question, everybody has the

dollar-to-dollar but we've got discrete focus and accountability with a specialist sales force on top it. ................................................................................................................................................................................................................................

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

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

Operator: The next question is from Aaron Rakers from Stifel. ................................................................................................................................................................................................................................

Aaron Rakers Analyst, Stifel, Nicolaus & Co., Inc. Q Yeah. Thanks for letting me ask the questions as well. So a couple of questions. A lot of things have been

answered around FlashBlade, but there were two things that you had commented on, synchronous replication,





and I'd also like to re-ask the question around NVMe and how you're thinking about that through the course of this

year. Does that – I think first of all, on synchronous replication, that clearly opens you up into some of the higher-

end workload that maybe in the past you've not been able to attain. So, how much of that is factored into your

guidance for this year? And then also, how should we think about a fully native NVMe architecture and what that

means for Pure through the progression of fiscal 2018? And then I have one follow-up. ................................................................................................................................................................................................................................

Matt Kixmoeller Vice President, Products, Pure Storage, Inc. A Yeah. So this is Kix here. In general, if you look at our business, we continue to march higher and higher in terms

of serving the highest-end enterprise workloads, and synchronous replication really remained probably the last big

feature that was preventing us from going after pieces of that TAM. And so this isn't a product announcement;

we're not announcing the timeline but we are committed to shipping that this year. And we're also very confident

that like everything we do, we've really looked at how we can kind of rethink this whole problem and deliver

something that's going to really change how people think about that high NDR scenario.

With regard to NVMe, you probably noticed over the past quarter or two we've [ph] donned (51:11) on the

bandwagon to really go and educate customers that this transition to NVMe was coming. And we kind of hung out

that we believe that this transition is likely even more important and even more difficult than the move to flash for

some of the retrofit architectures. And our reasoning behind that is we really see this is a huge opportunity to

showcase the value of our software.

We think that there is going to be literally a next generation of all-flash arrays that is emerging that are really

designed for the next generation of new stack applications where they're meant for to be built from scratch to take

the best advantage of NAND, SaaS networking – NVMe is the protocol on top of fast Ethernet – and really making

that kind of also a kind of connection from host servers all the way down to flash to drive new levels of

performance and efficiency.

We've already got one array in that category and that, of course, is FlashBlade. But we're committed this year to

really progressing our FlashArray product line with the inclusion and upgrade to NVMe to really help and make

the jump to that next category as well. And unlike, we believe, any of our competitors, we're going to do it in a

couple of unique ways. It's going to be a totally non-disruptive evergreen transition like everything we do. And

we're absolutely going to target this at the mainstream. And this again comes back to our software advantage,

right? We're not going to sacrifice our software to go and shift to something that's really, really fast. We are going

to shift to something that's really, really fast, that leverages our full software advantage. ................................................................................................................................................................................................................................

Aaron Rakers Analyst, Stifel, Nicolaus & Co., Inc. Q Okay. And then as a quick follow-up, I want to go back to your guidance, and I can understand where you're

coming from FlashArray versus FlashBlade. But I want to be very distinct and clear, as far as the NAND flash

dynamics are concerned, we've seen obviously material increases in pricing, we've seen constraints out there on

enterprise SSDs. As we look at the guidance going into this current quarter and even beyond, what are you

assuming as far as flash pricing, number one, and your ability to pass that through, getting down to the gross

margin line? And have you or do you anticipate any impacts from your ability to fulfill demand based on

constraints in SSDs? ................................................................................................................................................................................................................................

Tim Riitters Chief Financial Officer, Pure Storage, Inc. A





So, Aaron, this is Tim. And we've remarked in the previous calls that we've got some really good relationships.

Our supply chain folks are doing a phenomenal job here. And so in the next couple of quarters, I feel very

confident in terms of not only the supply that we have but also what we're going to be procuring it at over time,

and we've been very smart about how we've leveraged different suppliers. So, that's factored into our guidance.

That's not something that overly concerns me. ................................................................................................................................................................................................................................

Aaron Rakers Analyst, Stifel, Nicolaus & Co., Inc. Q And you're able to pass along in pricing? ................................................................................................................................................................................................................................

Tim Riitters Chief Financial Officer, Pure Storage, Inc. A So, I wouldn't – we don't talk a lot about pricing one way or another. Obviously we have a variety of different

products that we offer. I think more importantly, I would take a look at how we crafted the – it is down a little bit Q-

on-Q but still industry-leading by a wide margin and well within our long-term targets.

And so we'll use that to our advantage. As I think Matt was saying earlier in the call, there is absolutely an

opportunity for us to go out and be even more competitive right now and do it at Smart margins given that

candidly our competitors who've been relying on price are a little bit on their heels. ................................................................................................................................................................................................................................

Aaron Rakers Analyst, Stifel, Nicolaus & Co., Inc. Q Okay. Thank you. ................................................................................................................................................................................................................................

Operator: The next question is from Maynard Um from Wells Fargo. ................................................................................................................................................................................................................................

Munjal R. Shah Analyst, Wells Fargo Securities LLC Q Yes. Hi. This is Munjal on behalf of Maynard Um. I had a quick question. One on new customer ads. What pace

do you expect customer additions to continue this year? I mean, you added 450 last quarter. In the prior quarters

you've been in the 300 to 350 range. Should we expect that you could add at the 450 customer level? And if you

do, you should have – I mean, do you expect an impact of small purchases from new customers to continue

beyond Q1? And then I have one more question. ................................................................................................................................................................................................................................

David M. Hatfield President, Pure Storage, Inc. A Hey, Munjal. This is Dave. I'll hit that first and maybe Tim will follow up on it. What we're more focused on this

year obviously is top line and customer acquisition in the core segments of enterprise, cloud, commercial,

healthcare and government. So it's less about volume and more about continuing on our marks to segmenting

and getting the most important customers that have the highest repeat purchase rate. So we're not guiding on a

specific number of new customer adds, but we're more focused on quality and top line than we are on breadth. ................................................................................................................................................................................................................................

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





Yeah. I would really concur with what Dave is saying there. We talked about the 70% repeat being part of driving

the majority of our business next year. So, you don't need to believe a lot of new customer additions, but we

believe that there's a lot of more customers out there still [ph] at touch too (55:56). So, it's a nice upside for us too. ................................................................................................................................................................................................................................

Munjal R. Shah Analyst, Wells Fargo Securities LLC Q Okay. And then in terms of first half versus second half seasonality, your core business versus FlashBlade,

should we expect a similar seasonality or the ramp would be different from FlashBlade and so it could be more

second half? ................................................................................................................................................................................................................................

Scott Dietzen Chief Executive Officer & Director, Pure Storage, Inc. A Yeah. I think FlashBlade, just because it's still a developing product, will probably be more back-half-loaded than

the FlashArray business. But as we know from the past, FlashArray has a bit of a back load to it as well just given

the seasonal dynamics in enterprise storage. ................................................................................................................................................................................................................................

Munjal R. Shah Analyst, Wells Fargo Securities LLC Q Okay. All right. Thanks a lot. ................................................................................................................................................................................................................................

Operator: The next question is from Rich Kugele from Needham. ................................................................................................................................................................................................................................

Rich J. Kugele Analyst, Needham & Co. LLC Q Thank you. Good afternoon. I just want to revisit Q4. Again, in terms of the incremental customers that you added

that were buying some of the more entry level systems, was that something that was intentionally driven by some

type of marketing push on your part or was that just the nature of the market? And then as you're heading into Q1,

do those customers just have a different purchasing cycle that extends it out? And your core larger customers,

why are they not coming in per [indiscernible] (57:12) 9% to 10%? Thanks. ................................................................................................................................................................................................................................

David M. Hatfield President, Pure Storage, Inc. A Hi, Rich. This is Dave. Yeah. So, we definitely focused and optimized for net new logo acquisition in Q4, and we

overachieved on that. So that was an incentive that we put in place to make sure people were out getting share of

wallet. We've addressed that and fine-tuned it for 2017 going forward to be still focused on acquiring the right

customers but with more emphasis on top-line bookings as a result. So we're pleased with the growth that we had

in the enterprise business. We grew our enterprise Fortune 500 business last year, north of 50% in terms of adds.

Our cloud business, which is the modern stack of where storage is really running, continues to be 25% of our

business and growing faster than the rest in terms of repeats. So we're just going to be focused on the right

customers and the right customers adds but with the fine-tuning toward top line. ................................................................................................................................................................................................................................

Rich J. Kugele Analyst, Needham & Co. LLC Q Understood. Thank you. ................................................................................................................................................................................................................................

Operator: The 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 appreciate the color that you gave around the competition

earlier, but I guess outside of the dynamics with Dell EMC, are you seeing any traction, in general, from other

incumbent legacy storage vendors who've refocused their efforts towards flash over the last few quarters, the last

few years? ................................................................................................................................................................................................................................

Matt Kixmoeller Vice President, Products, Pure Storage, Inc. A This is Kix. I would say that the same trends we've seen, the large incumbent vendors just start ing to really try to

push with a lot of raw flash to buy their way into the all-flash market continues. From a technical point of view, I

think the interesting thing is that we've seen them really start to deprioritize their kind of purpose-built all-flash

arrays in favor of the retrofits. And so, although they are using their kind of checkbook to show all -flash gains, we

see them in many ways falling behind technically as they kind of favor their old platforms versus really making the

technical investments to move forward.

And so as an example, it is on a comparative basis. We've seen less XtremIO. We've less solid fire. Once it's part

of NetApp, you would have expected the opposite. And so we're pretty excited about how [ph] we're committed

(59:30) to push forward and define this next generation of all-flash array, as evidenced by FlashBlade, as

evidenced by where we're taking FlashArray, and we intend to keep widening that technical gap. ................................................................................................................................................................................................................................

Scott Dietzen Chief Executive Officer & Director, Pure Storage, Inc. A I just want to add. These retrofits compete with the rate of data growth. They can't deliver on the rich predictive

analytics that organizations want to run. They don't support the cloud computing model, which dramatically

reduces cost, and easy elastic scaling. And so we're in a position where we think all of the technology that was

designed for the mainframe and client server era is going to get replaced over the next refresh cycle or two, and

that we are uniquely well-positioned to win that market. ................................................................................................................................................................................................................................

Victor W. Chiu Analyst, Raymond James & Associates, Inc. Q Okay. So, when you speak about scaling and that impacting the seasonality for Q1 now, so that – I mean, that

doesn't reflect any impact, I guess, from amplifying the competitive environment at all? ................................................................................................................................................................................................................................

Matt Kixmoeller Vice President, Products, Pure Storage, Inc. A No. No. Win rates have held every nicely. It really is a just seasonal function. ................................................................................................................................................................................................................................

Scott Dietzen Chief Executive Officer & Director, Pure Storage, Inc. A Yes. So holding the strong win rates, I think you see it in our customer satisfaction, you see it in our industry -

leading margins, repeat purchase trends, sales force productivity. And we had a great fourth quarter, right? I

mean, we're very satisfied with the 65% year-over-year growth, and we think we're poised to drive $1 billion in

revenue in the coming year and continue to accumulate share from the legacy PLEX. ................................................................................................................................................................................................................................





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

David M. Hatfield President, Pure Storage, Inc. A Victor, I think I'll add one thing to that, which is we kind of find ourselves in this unique position of being both the

disrupters and innovators as everybody knows us to be, but also had $1 billion in scale. And together with the

software enhancements that we have with sync rep and other products – and FlashBlade moving to the portfolio,

we're also the safe choice. There's a lot more fear, uncertainty and doubt about the legacy incumbents about

what they're going to do with their product lines, what they're doing with their programs, what they're doing with

their partner offerings, what they're doing with their sales teams, and we're just seeing that that fear, uncertainty

kind of fly throughout the marketplace.

And so we have a lot of respect for those folks. They got big because they did something well, but we have a

window a time we think over the next couple of years to go acquire customers and then delight them with our

cloud-based model and our superior technology. And we just got to give them the boat. And once they're in the

boat, we know that they're going to repeat and be excited to be with us. So we have this window of time that we

really are focused on seizing. ................................................................................................................................................................................................................................

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

Operator: Next question is from Jason Ader from William Blair. ................................................................................................................................................................................................................................

Jason N. Ader Analyst, William Blair & Co. LLC Q Yeah. Thanks. I wanted to go back to the FlashBlade guidance. Are you expecting the bulk of FlashBlade

revenues this year to come from the dedicated sales team that you mentioned? Because I would think that it's a

tougher sale for the average, sales guide at Pure especially there's no incentives. Why would they burn a bunch

of cycles selling something that may be harder to sell? I'm just trying to understand how you think that distribution

will come between the dedicated selling teams and the – let's call it traditional sales force? ................................................................................................................................................................................................................................

David M. Hatfield President, Pure Storage, Inc. A Jason, thank you. Yeah. No, I actually think that what we've seen in the initial sales that we've had is that's easier

to sell this because there's less competition and there's more demand around these really large workloads that

are looking for performance. If it's hospitals trying to do genomic sequencing or it's autonomous driving cars with

machine learning applications or other big data applications like the Spark that we referenced.

I mean, the customers have a real pain point and there is not an alternative solution that's as big, fast or as simple

or as economical as what FlashBlade provides. And so we've actually had our sales teams kind of chomping it a

bit to want to go sell this. They're out qualifying opportunities and they've proven they can sell all the way through.

Our specialist sales teams will work with them. And so we don't see this as a separate dedicated sales force to go

focus on FlashBlade discretely on their own sales campaigns, but rather how to leverage the existing sales teams





that we have in place, those relationships that exist and our partners. And so I think it'd be much more of a sell

with than a discrete breakout. ................................................................................................................................................................................................................................

Jason N. Ader Analyst, William Blair & Co. LLC Q All right. That's helpful. Thank you. And then one quick one for Tim. Tim, what is the fully diluted share count if

you were to be profitable in Q4? ................................................................................................................................................................................................................................

Tim Riitters Chief Financial Officer, Pure Storage, Inc. A 270 million. ................................................................................................................................................................................................................................

Jason N. Ader Analyst, William Blair & Co. LLC Q 270 million. Okay. Thank you. ................................................................................................................................................................................................................................

Tim Riitters Chief Financial Officer, Pure Storage, Inc. A Yeah. ................................................................................................................................................................................................................................

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

Eric Martinuzzi Analyst, Lake Street Capital Markets LLC Q Yeah, I wanted to talk about the channel efforts for FY 2018 versus FY 2017. I'm sure you're probably going to go

into a lot of detail at Accelerate come June. But you've got FlashBlade so there's something new for them to show

their installed base or show new logos. But just curious to know what your – anything different about how you

approach the channel in 2018 versus 2017? ................................................................................................................................................................................................................................

David M. Hatfield President, Pure Storage, Inc. A Yeah, thank you, Eric. This is Hat. So we're continuing to double down on the channel. We knew and recognized

when we started the company that we're going to be a 100% channel model because it was the fastest way for us

to get our technology and our innovation out into customers' hands, and we didn't want to be gated solely on the

rate in which we hired salespeople.

So we're going to continue on that philosophy. Our approach always been more of the scarcity versus an

abundance model. It's far more efficient. So we're looking for the top national partners, those partners that have

services practices that solve problems for our customers that get the benefit of driving disruptive technology and

the economics and the business outcomes that we can provide. So, continuing to double down on it, we talked

about our CLED net new logo contributions at north of 70% coming in. We want to make sure we're doing

everything we can to incent them with the portfolio of offerings that are differentiated and incentives to represent

Pure to their customers.

So, lots of exciting momentum. And I think the last point that I would add is this dynamic between the large legacy

providers, particularly Dell and Cisco, I think does play well at the national partner level for Pure. And so we're





going to be very, very focused on innovating with FlashStack and working together with Cisco and their TrueNorth

partners to drive velocity in the marketplace. ................................................................................................................................................................................................................................

Scott Dietzen Chief Executive Officer & Director, Pure Storage, Inc. A And, Eric, just one quick add. That 70% repeat purchase behavior is profoundly good for our partners, right? It

means that their franchises built on Pure, they're going to redo roughly 70% of what they already did in the prior

year, and then everything else is new growth on top of that. That best-in-class repeat purchase trend bodes really

well for the channel. ................................................................................................................................................................................................................................

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

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

Nehal Sushil Chokshi Analyst, Maxim Group LLC Q Thanks for taking my question. I want to talk about hyperconverged and with respect to FlashBlade in terms of the

ability to transform that product to address that potential threat. Because in ways, I would argue that FlashBlade's

elasticity of moving workloads from node to node is very similar to the attractiveness of hyperconvergence. So

why not move in that direction? ................................................................................................................................................................................................................................

Scott Dietzen Chief Executive Officer & Director, Pure Storage, Inc. A Nehal, we're convinced that FlashArray and FlashBlade are the best possible platforms for data-driven

applications. What we see across our customer base is the desire to connect many different applications to share

data sets. And that ability to scale, compute elastically, and have lots of different application share the same data

is what is so common in the cloud. As you look at all of the top-tier cloud architectures, they're multi-tier. And the

hyperconverged sweet spot has been for single-tier architectures that play well down market of where our sweet

spot has been, where our sweet spot is. I mean, we do see this across our customer base. We have customers

that use hyperconverged infrastructure. They tend to use it in smaller, less data-driven workloads, often remote

and branch office.

That's why we have 500-plus software-as-a-service, infrastructure-as-a-service, and consumer cloud customers

way more than we see typical for hyperconverged design. So it's again planked more toward traditional IT and

smaller footprint workloads. ................................................................................................................................................................................................................................

Nehal Sushil Chokshi Analyst, Maxim Group LLC Q All right. Thanks. And if I may, I'd like to do a follow-up, a little bit beating a dead horse. But the full-year guidance

does imply an acceleration of the year-over-year growth. And from what I understand, please correct me if I'm

wrong, but the confidence in that acceleration of the year-over-year growth throughout the remainder of the year,

is that FlashBlade selling motion will kick in? Plus, that you have increased seasonality for the April quarter that

depresses that year-over-year growth rate for the April quarter as well? Is that a correct characterization there? ................................................................................................................................................................................................................................





Scott Dietzen Chief Executive Officer & Director, Pure Storage, Inc. A No. I changed that slightly, Nehal. So, what we're looking at at $1 billion in revenue is that FlashArray just needs

to consistently grow in the 25%, 30% range. As I mentioned, it grew well faster than that in the prior year. And that

FlashBlade will deliver 2x what FlashArray did in its first full year of selling, a metric we're already tracking ahead

of in our growth. So that's what gives us such confidence in the guidance for the year. ................................................................................................................................................................................................................................

Nehal Sushil Chokshi Analyst, Maxim Group LLC Q Okay. Thanks. ................................................................................................................................................................................................................................

Operator: The next question is from John Lucia from JMP Securities. ................................................................................................................................................................................................................................

John A. Lucia Analyst, JMP Securities LLC Q Hey, guys. Thanks for taking my question. It seems like there's still a pretty big opportunity in your core

FlashArray market. I think you said 90% of Tier 1 applications are still available to you. So with that as a

backdrop, can you just give us some color as to why you're expecting that FlashArray growth to decelerate to

25% to 30% in fiscal 2018 from over 60% in fiscal 2017? Is it competition-related? Is it just a conscious decision

to drive better profitability? Any kind of the color there would be great. ................................................................................................................................................................................................................................

Scott Dietzen Chief Executive Officer & Director, Pure Storage, Inc. A John, we're convinced there is a phenomenal opportunity for FlashArray. We are specifically guiding at the $1

billion rate, given that's the ability we see to continue to grow the business, right, based on our repeat purchase

behavior, our sales force productivity. But we are so far away from tapping the full potential in this market as so

many of the legacy systems need to come offline because they just can't compete with modern data growth, they

can't compete for the predictive analytics and for the cloud computing model that cus tomers want. So I think there

is a phenomenal opportunity for both of our products. And you see that reflected in a best -in-class growth that we

continue to accumulate share in a competitive market. ................................................................................................................................................................................................................................

John A. Lucia Analyst, JMP Securities LLC Q Okay. And then on the FlashBlade side, I think you just mentioned that you're already tracking ahead of kind of

that expectation to double the first year of FlashArray growth. What did you mean by that? Are you seeing some

pretty strong momentum here in the first quarter or what was – can you characterize that for us? ................................................................................................................................................................................................................................

Scott Dietzen Chief Executive Officer & Director, Pure Storage, Inc. A We are seeing strong momentum both now and towards the end of last year through directed availability and now

into GA. ................................................................................................................................................................................................................................

John A. Lucia Analyst, JMP Securities LLC Q Okay. Thank you.





Operator: The next question is from Dariush Ruch-Kamgar from Bank of America Merrill Lynch. ................................................................................................................................................................................................................................

Dariush Pirmin Ruch-Kamgar Analyst, Bank of America Merrill Lynch Q Hey, guys. Quick question from me. You highlighted the market transition from app by app deployments to

broader primary stores deployments. Just wanted to know what you're seeing in terms of average deal size? And

then to sort of beat a dead horse, when you talk about 70% customer repurchases, is this in terms of revenues or

deals? And does increase in deal sizes provide some upside here? Thank you. ................................................................................................................................................................................................................................

Tim Riitters Chief Financial Officer, Pure Storage, Inc. A Dariush, this is Tim. On your first question, we don't disclose ASPs. They do tend to jump around our quarter-on-

quarter depending on mix, so we don't really comment on those. As it relates to the repeat data, what we're

looking at there is we're looking, as Dave noted earlier on the call, we're looking at how these folks have

performed over time. And so when you look back two, three years back, you see how those folks have climbed

from a repeat perspective. And what we see is similar trends. And so it's just really a compounding effect that we

see which gives us that nice strong confidence. And we've cut that data a number of different ways to give us that

confidence. ................................................................................................................................................................................................................................

Dariush Pirmin Ruch-Kamgar Analyst, Bank of America Merrill Lynch Q All right. Thanks and congrats on the quarter. ................................................................................................................................................................................................................................

Tim Riitters Chief Financial Officer, Pure Storage, Inc. A Thank you. ................................................................................................................................................................................................................................

Operator: The last question is from Alex Kurtz from Pacific Crest Securities. ................................................................................................................................................................................................................................

Alex Kurtz Analyst, Pacific Crest Securities Q Hey, guys. Thanks for the follow-up. Synchronous replication, SRDF, VPLEX are some of my favorite topics here.

We know that in some large DR site-to-site deals, you guys can't necessarily compete for those very, very large

XtremIO VMAX environments. If I was a Pure rep getting synchronization replication, maybe it will be at a quicker

way to my quota than FlashBlade. Can you just talk about what you've seen in the pipeline, Scott, over the last

year and what synchronous replication could do for the revenue outlook? I mean, imagine that's more of a fiscal –

out of your fiscal discussion, but it just seems like that scenario that you guys haven't been necessarily been able

to really penetrate at this point. ................................................................................................................................................................................................................................

Scott Dietzen Chief Executive Officer & Director, Pure Storage, Inc. A Alex, if don't think there's any question that there's any additional opportunity. I would say in North America, the

predominant replication model has been asynchronous, but internationally, there is a lot more use of synchronous

replication. And so this will be great in this coming year that it should be an additional accelerator on our





international business specifically, and then also business-critical workload domestically that we haven't had an

opportunity to play in, but that's definitely part of the calculus that goes into our confidence in our $1 billion

guidance. ................................................................................................................................................................................................................................

Alex Kurtz Analyst, Pacific Crest Securities Q And you guys are willing to say this is more of a second half launch? Is that fair for that product? ................................................................................................................................................................................................................................

Scott Dietzen Chief Executive Officer & Director, Pure Storage, Inc. A I think we should stay away from product announcements, but it's definitely not shipping yet. ................................................................................................................................................................................................................................

Alex Kurtz Analyst, Pacific Crest Securities Q Okay. Thank you. ................................................................................................................................................................................................................................

David M. Hatfield President, Pure Storage, Inc. A Alex, the one thing I would add to that is that there is no doubt there is a discrete market opportunity in EMEA and

APJ where it is a specific requirement, but there is also an enterprise halo that comes with having that feature that

we believe will allow us to compete in more mix workloads even where it's not a requirement. So we are very

excited about that. We are working in heading out on a road map which allows us to be able to sell into those

opportunities for the second half.

And to answer your second question FlashBlade, look, I think our sales teams are incredibly enthusiastic about

the combination of the software enhancements we have in our FlashArray and FlashStack product lines together

with the FlashBlade innovation. So they're kind of more enthusiastic than I've ever seen them in four years here to

be able to go deliver this data platform message and meet the needs of what their customers have based upon

their geography and their segment and their account territory. So I think that sort of breadth of product offerings

together with the focused specialist teams on FlashBlade gives me a great deal of confidence that we'll be able to

hit the $1 billion. ................................................................................................................................................................................................................................

Alex Kurtz Analyst, Pacific Crest Securities Q Thanks, guys. ................................................................................................................................................................................................................................


[ph] That's a great setup (01:15:17), Hat. So I want to thank everyone for spending time with us again at the end

of our quarter and year. The team and I were thrilled with the performance we were able to deliver in the fourth

quarter and the group results for the overall year. So we're even more excited about the opportunity ahead.

This year, we're focused on three pillars. First, innovation and you're seeing that in the software that's coming for

FlashBlade, the software innovation that's coming for FlashArray that we've talked about. You'll also see it in

Pure1, which is our cloud automation suite, and in software innovation that's coming in FlashStack, our





collaboration with Cisco. This combination continues to allow us to move from point application sales to platform

sales and to grow our footprint in our largest enterprise and cloud customers.

The second pillar would be growth. The opportunity to deliver $1 billion in revenues with just our sixth year of

selling and grow the business 2.7x already since IPO, we're obviously looking to continue that our trend.

And last but by no means least, profitability. You saw in Q4 material progress and are getting to minus 2 points of

operating margin. Obviously, we intend to continue to improve our operating efficiency as we scale the business

going forward. That leaves Pure uniquely well-positioned. Playing for one of the biggest available markets in tech,

we are uniquely able to deliver the data growth, the performance for rich, predictive analytics that our customers

need, and the cloud computing operational model and business model that our customers depend on.

And for the storage were going up against is being rendered obsolete by all those four factors. So, it's going to be

a fantastic year for Pure going forward, and we'll speak to you in a quarter. Thanks again. ................................................................................................................................................................................................................................

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

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