Earnings Call Transcript
Everpure, Inc. (P)
Earnings Call Transcript - PSTG Q1 2021
Operator, Operator
Ladies and gentlemen, thank you for standing by and welcome to the Pure Storage Q1 Fiscal 2021 Earnings Call. I would now like to hand the conference over to your speaker today, Investor Relations for Pure Storage. Thank you. Please go ahead.
Unidentified Company Speaker, Investor Relations
Thank you and good afternoon. Welcome to the Pure Storage first quarter fiscal 2021 earnings call. My name is Investor Relations at Pure Storage. Joining me today are our CEO, Charlie Giancarlo; our CFO, Kevan Krysler; and our VP of Strategy, 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 the COVID-19 pandemic and related disruptions, our growth in sales prospects, competitive industry and technology trends; our strategy and its advantages, our current and future product offerings and business operations including our operating model. Any forward-looking statements that we make are based on facts and assumptions as of today, and we undertake no obligation to update them. Our actual results may differ materially from those forecasted, and reported results should not be considered an indication of future performance. A discussion of some of the risks and uncertainties relating to our business is contained in our filings with the SEC, and we refer you to these public filings. During the call, we will discuss non-GAAP measures in talking about the company's performance, and reconciliations of the most directly comparable GAAP measures are provided in our earnings press release and slides. This call is being broadcast live on the Pure Storage IR website and is being recorded for playback purposes. An archive of the webcast will be available on the IR website and is the property of Pure Storage. With that, I'll turn the call over to our CEO, Charlie Giancarlo.
Charlie Giancarlo, CEO
Good afternoon everyone. Thank you for joining us on today's earnings call. I hope you, your family, friends, and colleagues are all healthy and staying well. As you will have noted at the beginning of this call, Matt Danziger, our Head of Investor Relations, is no longer with us. Matt died unexpectedly last month from a non-COVID-related heart attack due to an undiagnosed genetic cardiovascular disease. Matt was healthy, vital, and intelligent and always a joy to work with and spend time with. He touched the lives of everyone he met and his passing has saddened us all. Our hearts go out to his family and friends. I'd also like to take a moment to share my thoughts on the current health crisis that has affected everyone around the world. Some of you may know that I contracted COVID-19 in mid-March, and that experience has provided me with a deep personal appreciation for this virus and its impact. The changes in people's lives and livelihoods are truly extraordinary, and our expectations of what is or will be normal is forever changed. Every day, each new report on the crisis brings an uneasy mixture of anxiety, uncertainty, and hope about the future. The global Pure team has had the great fortune of being able to work virtually. So, we are inspired by and appreciative of the world's first responders and essential workers. We thank all those who have provided the services that have been critical to meeting our basic needs and tending to the well-being of others during this time. Within Pure, every group has handled this crisis with courage and responsibility, steadfast in their mission to help our customers and our company. We continue to demonstrate that Pure has best-in-class teams, and that our products and services are simple, reliable, and trusted. It is this potent combination that enables Pure to solve the critical and immediate needs of our current and new customers. This past quarter especially, we were proud to be relied on to deliver products and services to critical infrastructure on the front lines, including hospitals, labs, governments, schools, banks, communication systems, research institutions, and first responders. Our highly automated systems enabled customers and our partners to remotely install and manage our products and solutions within an hour or two rather than days. A major state government was hit with a ransomware attack in the early days of the crisis. Pure was able to rapidly deliver our ransomware solution providing protection against future attacks. A major collaboration network increased their pure footprint after a huge increase in traffic and demand from new customers due to COVID-19. The customer chose Pure because they experienced failures in their installed base of legacy solutions under the high load and were unable to obtain new products from those vendors to scale their systems. Pure was able to deliver and install Pure solutions into the customer’s production network within 24 hours of our first call. A retail customer suddenly needed all of their employees to work from home when previously few did, rapidly increasing the load on their infrastructure. We've made this a smooth transition with robust remote capabilities and Pure as-a-Service, our true multi-cloud, consumption-based contract. In each case, Pure was able to deliver and install products expeditiously, enabling customers to be in full production within 72 hours and in some cases sooner from the first call. Our technology is also enabling those in search of a cure for this scourge or tracing the spread of the virus or in analyzing the structure and behavior of the disease. We have donated our products to companies involved in the fight against COVID-19 including shipping FlashBlades to Folding@home, an organization focused on simulating the dynamics of COVID-19 proteins to find new therapeutic solutions through crowd computing. I am proud of our supply chain and customer support performance and resiliency, which not only maintained the high level of service and support our customers demand, but went above those expectations to serve customers with critical needs. Pure’s global supply chain strategy and our now fully tested business continuity plan prepared us well for this crisis. We continue to lead with innovation across all aspects of the business and our performance this past quarter was another validation of our modern data experience strategy, helping customers transform their storage operations to be simple, reliable, fast, and flexible. I was very pleased with our financial performance for this past very unique quarter as year-over-year revenues grew 12% to $367 million. Our revenue performance was broad-based across all products and services, including the continuing strength in our FlashBlade offering and our subscription services. Sales of our portfolio solutions, including both FlashArray and FlashBlade together continued to grow and existing customers increased their footprint in the quarter. FlashBlade solution sales to both new and existing customers also grew year-over-year and now represent approximately 15% of our total sales. Earlier this month, we announced the release of Purity 3.0 on FlashBlade, which adds significant new features to the world's most performant file and object platform. In this latest release, we've added simple and efficient file and object replication for disaster recovery in hybrid cloud as well as Kerberos and NFS 4.1 support. These features expand FlashBlade’s broad range of use cases including modern analytics, rapid restore, and ransomware. Customers have rewarded our leadership and innovation with nearly 100 organizations to date each spending more than $1 million in FlashBlade to consolidate their unstructured data for their growing list of modern, high-performance applications. Pure's subscription services had an outstanding quarter. Subscription services include our non-disruptive Evergreen services, Pure as-a-Service, and Cloud Block Store for multi-cloud environments. Evergreen reduces the risk and economics for customers by ensuring that Pure's on-premise systems never grow old. After seven years, competitors are still playing catch-up to Pure's Evergreen program of continuous non-disruptive upgrades, providing customers a subscription to innovation rather than a contract for obsolescence. But Pure has leapfrogged yet again with our Pure as-a-Service offering, also reducing the risk and economics of storage in the multi-cloud age. Customers leveraging Pure as-a-Service have the flexibility to determine their cash and capital commitments in the short as well as the long term, the flexibility to own or to subscribe and the flexibility to change where they place their data at any time. They have the freedom of a multi-cloud contract for storage and to only pay for what they use, when they use it, regardless of where they place their data. Customer flexibility through Pure as-a-Service is the right option in this uncertain COVID environment, particularly in a period where it may be difficult to predict long-term requirements. In Q1, a large U.S. national bank as a net new logo made a multimillion dollar commitment to Pure's entire portfolio and specifically our Pure as-a-Service offering to transform their storage needs and move off of a legacy vendor’s disruptive refresh storage model. This pandemic has changed the way we work with speed far beyond any pundit’s predictions for technology alone. There is an increased and likely permanent customer demand for greater hands-free management, automation, consolidation, and flexible consumption models. Pure has a great lead in these capabilities as I shared in the customer examples and demand and interest for Pure as-a-Service has increased dramatically. Moving on to Q2. It is now right to state that there are uncertainties in the global economy and unpredictability in the IT market as customers focus on the urgent push out the nearly important and reassess ongoing IT initiatives. Customers are reevaluating their spending in all areas as they navigate their own challenging environments. We have taken these dynamics and uncertainties into account with our measured Q2 expectations. Looking beyond the quarter, I am confident that we can navigate the choppy waters of our market. We remain committed to our long-term priorities while managing expenses prudently. We will continue to take market share with our superior and differentiated technology, services and customer-first culture. And I am confident that we will lead the market exiting the recession. As we go forward and shelter in place orders are lifted around the world, Pure will continue to do its part to protect our people and guard against community spread of this virus. Our dedicated crisis planning team meets daily to manage our global response to the pandemic. We have regional phase plans based on local conditions to carefully reintegrate employees into the workplace, while planning for a large fraction to continue working from home for some time. We will do what's right for Pure, our customers, our teams around the world and each and every employee. Lastly, I'd like to take a moment to thank our global employees executing as one virtual team for their tenacity, focus and genuine enthusiasm to help our customers, our partners, their teammates and local communities throughout this crisis. If anything, our teams are more connected than ever. Personally, I have enjoyed our new routine of interacting with the entire company weekly through virtual all hands broadcasts. I look forward to connecting with all of you and the broader Pure community, our customers and partners at our Accelerate Digital and Pure Partner Digital events on June 9 and 10. And with that, I'll turn it over to Kevan.
Kevan Krysler, CFO
Thank you, Charlie. Financial performance during Q1 was solid, despite significant economic disruption during a difficult and constantly changing environment. Total revenue during Q1 was $367 million, growing 12% year-over-year, product revenue was $247 million growing 3% year-over-year and subscription services revenue was $120 million growing 37% year-over-year, which includes revenues from our Evergreen subscriptions, Pure as-a-Service and Cloud Block Store. Subscription services revenue represented approximately 33% of total revenue during Q1. Total revenue in the United States during Q1 was $264 million, growing at 15% year-over-year and total international revenue in Q1 was $103 million, growing 5% year-over-year. Given the current environment that we are navigating, I will provide some additional color around our sales performance during the quarter. Total bookings or sales during Q1 grew 24% year-over-year and is broadly diversified across industry verticals and customers. Sales during Q1 to our enterprise and government customers in the United States were solid and growing, while we saw overall weakness in our commercial business. We are pleased with our partnership and continued momentum from our channel partners worldwide. Global channel source sales continue to represent a growing and meaningful percentage of our total sales. New customers acquired during Q1 were approximately 300 customers compared to approximately 350 customers during Q1 of the prior year. Our business during Q1 benefited from increased demand of mission-critical IT needs arising in response to the unprecedented pandemic. We fulfilled these orders without significant delays and supply shortages based on the remarkable efforts and resilience of our global supply chain and manufacturing operations. Partially offsetting this tailwind, we saw an increase in opportunities in our pipeline that were expected to close during the quarter but did not close. Non-GAAP gross margins in the quarter for product and subscription services continue to be solid and are a result of our product solution differentiation in the market. Total non-GAAP gross margin in Q1 was 71.9%, increasing 3.8 points year-over-year. Now non-GAAP product gross margin in Q1 was 73.3%, increasing 4.6 points year-over-year and non-GAAP subscription services margin in Q1 was 68.9%, increasing 2.6 points year-over-year. Total non-GAAP operating loss during Q1 was approximately $5 million compared to a non-GAAP operating loss of approximately $31 million during Q1 of the prior year. Reduced travel, marketing and depreciation expenses as well as slower than planned hiring contributed to lower non-GAAP operating losses. Non-GAAP net loss during Q1 was $4 million and non-GAAP net loss per share was $0.02. Non-GAAP net loss in Q1 of the prior year was $28 million and non-GAAP net loss per share was $0.11. Weighted average shares used for the non-GAAP net loss per share calculation was 263 million shares in Q1 and 245 million shares in Q1 of the prior year. Operating cash flow for Q1 was $35 million and was $7 million in Q1 of the prior year. Operating cash flows during Q1 benefited in part from strong collections of our receivables. Free cash flow for Q1 was $11 million and was a negative $18 million in the prior year. Total cash and investments at the end of Q1 was $1.27 billion compared to $1.3 billion at the end of fiscal 2020. We have a very strong balance sheet that provides us with flexibility to handle a wide range of scenarios. Total deferred revenue for Q1 was $706 million, compared to $697 million at the end of fiscal 2020 and $564 million at the end of Q1 of the prior year. We are pleased to see the continued growth in our multiple subscription service offerings. During Q1, we returned $70 million to shareholders through share repurchases of 5.96 million shares, approximately $65 million remains for a share repurchase authorization. Total headcount at the end of the quarter was approximately 3,500 employees, compared to approximately 3,400 employees at the end of fiscal 2020 and 3,150 employees at the end of Q1 of the prior year. Now moving to annual guidance, the core fundamentals of our business remain strong. However, we are withdrawing our annual guidance given significant uncertainty around demand for the remainder of the year due to the global economic contraction caused by COVID-19. As we progress through the year, we expect to continue to see strength in sales and adoption of our subscription services. Our Pure as-a-Service and Cloud Block Store unified subscription offerings also continue to gain momentum, offering increasing flexibility in how our technology is consumed, providing customers with a cloud-like business model. Our pipeline generation for the second half of the year continues to grow, but it is unclear how and when these opportunities will convert given the current economic environment. Moving to investments, we continue to be disciplined on our spending levels and are focused on operating expense savings initiatives and tight capital spend oversight. Our investments in areas of innovation and quota carrying capacity will continue in a prudent manner with ongoing monitoring of our business plan and conditions. Now let's move to the second quarter. For similar reasons, while we were pulling our annual guidance, we are also not providing guidance for Q2. We expect customers purchasing our solutions for their mission-critical IT infrastructure and digital transformation needs will continue to provide a tailwind. However, we expect this benefit to be more than offset during Q2 by customers who decide to pause IT infrastructure projects. Our diverse customer base and our growing recurring revenue derived from our subscription services will provide a level of mitigation. However, the range of potential outcomes is many and widely distributed. Our current view of Q2 outcomes, which should not be viewed as guidance, is that sales will be near flat year-over-year and our operating profit will be near breakeven. To summarize, our business priorities and long-term growth objectives have not changed as we've delivered solid financial results while navigating in a very challenging environment.
Operator, Operator
Your first question comes from Pinjalim Bora from JPMorgan. Your line is open.
Pinjalim Bora, Analyst
The booking number appears to be quite positive and seems to be exceeding the annual goal that was shared with us last quarter. Can you discuss the mix of use cases contributing to this? Is it mainly related to VDI, and how do you anticipate the impact of VDI and end-user computing diminishing over the remainder of the year? Additionally, when I examine your deferred revenue sequential addition, it seems relatively low compared to historical figures. Where should we expect to see these booking numbers reflected? Will it primarily show up in the RPO? Where can we expect to see the overall impact? Thank you.
Charlie Giancarlo, CEO
Pinjalim, thank you for the question. And again, for everybody in the audience, I just want to say that I wish you all well, and I hope you're faring well during this crisis. We really saw, Pinjalim, a very balanced demand for product. Certainly, VDI was one of the major use cases out there, but there were many others as well. We saw positive buying for all sorts of infrastructure needs because of not just work from home, but the higher levels of Internet commerce that took place for many customers, not to mention a greater service provider needs, et cetera. So, I'll tell you, it was a very balanced quarter overall, all products doing very well. As we mentioned in our comments, we did see a good strong strength in U.S. enterprise, whereas we did see weakness in the commercial segment, which I don't think should surprise anybody on the call. And for the second question, I think I'll pass it over to Kevan.
Kevan Krysler, CFO
Thanks, Charlie. Yes. In specific to deferred revenue, we're pleased with really both our sequential and year-over-year deferred revenue growth. As a reminder, sequentially, we're coming off the seasonally highest quarter, which would be Q4. So that's going to have some impact when you're looking at deferred revenue sequentially, but you are correct as well that as we're growing our subscription offerings, there's an off-balance-sheet component that’s also growing that's included in RPO, and that's going to have an impact as well.
Operator, Operator
Your next question comes from George Iwanyc from Oppenheimer.
George Iwanyc, Analyst
Charlie, can you give us a sense of how the monthly trends have proceeded from April into May?
Charlie Giancarlo, CEO
Yes, it's still early in May. As you know, we assess our quarters month by month, so it’s difficult to make a projection based solely on May. However, I can mention that we observed strong overall linearity in Q1. Again, it's challenging to forecast Q2 based on the data we have in May so far.
George Iwanyc, Analyst
All right. And just following up on that, can you give us a sense of how your sales motion is going from the disruption and moving to work from home? Have you been able to keep that pretty smooth through the transition?
Charlie Giancarlo, CEO
George, that's a great question. We've actually seen increased productivity in sales due to the work-from-home setup. I find that I'm communicating with about twice as many customer executives now that I’m working from home, and this is true for our sales team as well. It takes less than a week to schedule appointments, as people are more available, and the meetings are very efficient. What used to take a month or two to arrange and hours to conduct can now be accomplished in roughly two-thirds of the time. Setting up these meetings is relatively quick, and we're noticing this pattern across our sales operations. In other words, it's been easier to reach higher levels within our customer base. These meetings have proven to be very effective. Therefore, I anticipate that sales in the B2B environment will increasingly adopt a more virtual approach.
Operator, Operator
Your next question comes from Wamsi Mohan from Bank of America.
Wamsi Mohan, Analyst
Charlie, happy to hear of your recovery from COVID-19 and we all will miss Matt as well, thoughts with his family. Can you give us some more color on your comment about I know it's not explicit guidance but your expectation around the flattish performance year-on-year? What sort of assumptions are backing that expectation? We're not holding that as guidance. We understand that, but what are the puts and takes that sort of get you there? Any color there would be helpful? And I'll follow up.
Charlie Giancarlo, CEO
Sure. On the positive side, we still anticipate some continued benefits from the COVID impact seen in Q1, particularly in addressing urgent issues for customers related to working from home, schooling from home, and increased online activity. However, we need to keep in mind that in Q1 we experienced about half a quarter of normal pre-COVID conditions, which we won't see this time. On the negative side, we expect to feel the full effects of a weaker global economy, making it challenging to balance these two factors in our projections.
Kevan Krysler, CFO
I had a couple other points on that. Obviously, we're staying really close to the field as we always do, and their inputs are really weighted pretty heavily for us as we're thinking about Q2. And when we think about the headwinds for Q2, really it's around the increased risk of how the opportunities in Q2 will convert and the timing of those conversions is really the big question mark for us. And then, looking at the commercial space in the middle market, obviously there was some softness there that we expect to be a continued headwind for us. But those were factors that we were thinking about on the tailwind side. And really, on the headwind, we're also looking at increased recurring revenue that we would expect over time to be a larger portion of our total revenue, which will be a mitigating factor for us as well.
Operator, Operator
Your next question comes from Simon Leopold from Raymond James.
Simon Leopold, Analyst
Also extend my condolences on Matt, and Charlie glad you're feeling better as well. So certainly crazy environment for sure. One of the things I wanted to see if you could help us understand is the trending between new and existing customers in that, I would imagine it's harder to land new customers, and I think in the past, you've talked about your revenue split typically around 25% new and 75% existing. If we could get a sense of what your thoughts are on that trend given the current circumstances.
Charlie Giancarlo, CEO
It's a great question. The situation is somewhat complex. This past quarter, our new customer additions were slightly lower than last year. This is attributed to two main factors: first, the commercial market is slowing down, making it harder to acquire new customers due to the market's risk aversion related to COVID. At the same time, we are transitioning towards an enterprise focus, emphasizing the quality of new customers over simply the quantity. We believe this approach is starting to show results, so the lower numbers reflect these combined factors. Additionally, there is a general risk aversion in the market regarding new products, features, and vendors, which will likely persist for the next few quarters until customers feel more comfortable testing new offerings. The urgency to act has led them to avoid risks, but we expect that once the immediate pressures ease, they will be more open to engaging with new customers again.
Kevan Krysler, CFO
I will just add a couple of notes to that in terms of the existing customers. Clearly, we're seeing an expanding footprint as Charlie mentioned, and what is interesting on the new customer front is if we pull out the new customers from commercial or mid-market, we actually have an increase year-over-year in sales, which was a significant positive, really going back to the strength we're seeing elsewhere, including enterprise, even for new customers.
Charlie Giancarlo, CEO
You need to consider both aspects. My supply chain team appeared to be operating flawlessly, but behind the scenes, they were working hard. From the customer's perspective, there was no disruption in the supply chain. As I noted earlier, we managed to deliver products within 24 hours of the initial order, and delays were minimal, typically just a day or two. Overall, there were no interruptions in the supply chain, including our subscription service. I am very proud of our supply chain and service teams. This success is not merely coincidental; it stems from our product's design, which has limited reliance on China, mostly for sub-assemblies. Additionally, the global and distributed nature of our supply chain means we do not have a high concentration of supply in any single location.
Operator, Operator
Your next question comes from Katy Huberty from Morgan Stanley.
Katy Huberty, Analyst
We were devastated by the news of Matt's passing but I know he'd be really proud of the operational execution this quarter. Had a couple of questions. First, Charlie, do you have a view at this point as to whether July will be the trough in demand, or is it just too early to tell? And then a follow up for Kevan's, what percentage of the subscription services today is Pure as-a-Service and Cloud Block Store versus traditional Evergreen maintenance?
Charlie Giancarlo, CEO
Katy, thank you for all the support that you've provided to Matt and/or Matt's family, we really do very much appreciate that. It's very difficult to predict July because one might predict July, if one feels that the effects of COVID are moving beyond us or moving past us at this point. But if we've learned anything from these pandemics from the past is that they can come back and they can come back, as early as late summer. So I would tend to agree that if we continue to see the slowdown of COVID, that July might be the watermark. But I don't think we can say that, there's a lot of unknown, there are some true unknowns that we want to make sure that we're prepared for. And one of those is we don't really know what this virus will do later in the year.
Kevan Krysler, CFO
Katie, regarding your second question about separating Pure as-a-Service and Cloud Block Store, we won't provide specific breakdowns. However, I can share that we are pleased with the performance, momentum, and interest we are experiencing, particularly around our unified subscription model for both Pure as-a-Service and Cloud Block Store. For instance, we secured an eight-figure deal with an enterprise customer this quarter, which is very encouraging. Our main focus remains on offering customers flexibility in how and where they use our technology—whether on-premises or in a multi-cloud setting, which our subscription offerings facilitate. Overall, we are quite excited about the momentum across all our subscription services, including Pure as-a-Service and Cloud Block Store.
Operator, Operator
Your next question comes from Jason Ader from William Blair.
Jason Ader, Analyst
Charlie, my question is on the whole potential acceleration of the shift to the cloud from COVID-19. Obviously, many people believe that's going to be happening here or has already happened? How do you think that affects your business? Does that create more headwinds for the on-prem storage part of your business in the near to medium term? Just maybe walk us through that how you're thinking about that?
Charlie Giancarlo, CEO
Yes, I believe the reasoning behind our Pure as-a-Service offering reflects this situation. We see an increasing demand for cloud-based solutions, but customers need to transition from on-prem to the cloud. In Q1, the urgency was focused on enhancing their existing on-prem setups. However, they wanted the flexibility to move to the cloud without committing to long-term on-prem contracts. Our Pure as-a-Service is specifically designed to provide that flexibility. It offers a single unified contract and subscription that allows customers to manage their data wherever they choose. Additionally, it ensures they use the same software and interface in the cloud that they do on-prem, facilitating easier migration of their applications. So, in response, yes, we feel positive about our unified subscription offering and our account plan for representatives. We are optimistic about the potential shift towards cloud data services, and we believe our timeline aligns with that of our customers.
Kevan Krysler, CFO
Yes. We kind of laid out in our prepared remarks the subscription growth as well as what it represents in terms of total revenue, which is increasing. And so we have that in the prepared remarks.
Charlie Giancarlo, CEO
But we did not, just to be clear, we did not convert that to what it would have been had it been a perpetual, had it been an equipment capital sale.
Operator, Operator
Your next question comes from Tim Long from Barclays.
Tim Long, Analyst
Also condolences to Matt's family and thankfully you're feeling better Charlie. Two questions for me first. Just give us an update on FlashArray C. Sounds like FlashBlade is moving along well, maybe just let us know how that rollout or that take for that has been? And then second, the gross margin has been a really strong performance wanted to kind of ask about competition and pricing, but it doesn't seem like that's a problem. So maybe any comments on kind of sustainability of that strength that we're seeing in the gross margin line both product and overall? Thank you.
Charlie Giancarlo, CEO
Absolutely. As far as FlashArray C, we're very pleased with its continued performance in our revenue base and with the customer acceptance. We've had several very large deployments of C. We've also had a good uptake of C, just individually by new customers. And it's been nine months roughly since we introduced it. And of course, there's no competitive product out there that even comes close to C. So it's an open field for us right now. And we're seeing the power of our portfolio as well, because it's really allowing us now to go into customers. And I would say, as of two years ago, we were pretty much still a unique product offering with a great but niche product. And now customers are saying, gee, we can use Pure across a wide variety or even all of our storage needs and that's really been a great benefit to us as we've penetrated further and further into the enterprise.
Kevan Krysler, CFO
And then I'll hit gross margin, in terms of how we're thinking about gross margin and really our long-term view of gross margin remains unchanged. We're very pleased with the performance both on product gross margin and on our subscription services gross margin. And it really is the product of the design of our product solutions, in particular, our software IP and development. And we say that each and every quarter and that continues to be true. And that's where the value is. That's where the customers are seeing the value. And that's really where the competitive differentiation is and while we're competing head to head on cost, the value of the software is really driving the results of what you're seeing on gross margin, but again, our long-range view on gross margin hasn't changed.
Operator, Operator
Your next question comes from Karl Ackerman from Cowen.
Karl Ackerman, Analyst
Charlie or Kevin, two questions, if I may. First, while you're not enacting any restructuring actions, like one of your peers, just kind of curious on how much room do you have to rein in on the OpEx side, if demand remained subdued for the next few quarters? And I guess on COGS, I understand that your software stack is the largest driver, but some component costs have risen in the first half a year. It really just kind of both off the shelf SSPs, but also flash controllers with some of these extended lead times. But you expect that to reverse. Where are these component costs can actually be a tailwind in the second half? Have a quick follow up.
Charlie Giancarlo, CEO
Thank you, Karl. I want to emphasize that my personal goal is to avoid any layoffs or furloughs this year. Everyone at Puritan is committed to delivering the performance needed to achieve this, increase our market share, and support our customers. We are confident in our ability to operate in a way that prevents any layoffs or furloughs. It's my personal mission to ensure this happens. We are actively pursuing many initiatives to enhance both productivity and efficiency, and we've already started saving on travel and large events, which is encouraging. I believe that if we can manage the company to operate near breakeven, we won't need to implement any restructuring actions this year. I want to clarify that we did have a planned restructuring earlier this year, which was decided last year before COVID was a concern. This was a rebalancing within the company, addressing the placement of people and resources over time to optimize productivity, resulting in only a small number of displacements not based on economic factors.
Kevan Krysler, CFO
In response to your question about NAND pricing, we observed stabilization in pricing during Q1, with a modest rise in NAND pricing. The data for the second half of the year is mixed, and there are some signs that pricing could decline later in the year. However, when we look at the bigger picture, we anticipate a more normalized pricing environment throughout the year compared to the latter half of last year.
Karl Ackerman, Analyst
Yes. Thanks for that. Just, I know you're not providing a full-year quantitative outlook, which makes sense given just some limited demand visibility. But can you speak qualitatively of how you see the growth trajectory of your hardware business? I asked, because since you last reported, VMware added support of Rocky and professional network fabrics. Doesn't that eliminate one of the largest impediments to NVMe over fabric implementation? Given that you're more angrier than peers, how does that influence your view on the forward trajectory of your all-flash array hardware? Thank you.
Matt Kixmoeller, VP of Strategy
Just on the point around VMware support from NVMe over fabric, absolutely. So we're very excited to see support for NVMe over fabric from VMware also from Cisco as part of the UCS platform. And so we see, we were obviously out very, very early in that game. And we've seen some of the largest cloud providers we sell to already embraced that wholeheartedly. But we think this really opens it up to more broad enterprise usage. So something we're quite bullish on.
Charlie Giancarlo, CEO
Yes. I'll just double down on that. Yes, we've seen a lot of enthusiasm, especially among our cloud customers and just a reminder, our cloud customers are now over a third of sales, but a lot of enthusiasm for the NVMe over fabric as a way to really consolidate to improve their rack structure because it brings the ability to have stateless servers into play and to consolidate all of their state into a single device that has been designed to maintain state. So it actually lowers the cost and increases the density and increases the reliability of large-scale infrastructure. So the more NVMe support over fabric support that we see out there, the better frankly, that it is for us. I believe that being the first we still support probably more use cases than almost any other vendor out there and overall, I think it's good for us.
Operator, Operator
Your next question comes from Alex Kurtz from KeyBanc Capital Markets.
Alex Kurtz, Analyst
Charlie, I want to reflect on a few previous quarters when Tim was still the CFO, and we discussed the disconnect between market pricing and what was reflected in your models. Last year, we experienced a revenue reset related to that. With NAND pricing stabilizing and potentially increasing, what steps have been taken to improve the perception of the model for Kevan, so that there's more confidence in how communication flows between the teams?
Charlie Giancarlo, CEO
What really affected our ability to accurately project last year was not just the decline in NAND prices, which we typically anticipate with any commodity. It was the unusually steep drop over two to three quarters, which was significantly higher than normal and was largely due to disruptions in demand. This rapid decrease caught us off guard, and while it's debatable how one can predict such changes, I now receive weekly updates on NAND pricing. I'm not primarily looking for the usual quarter-over-quarter drops of 3% to 5%, as those are expected. Instead, I'm focused on sudden fluctuations, which typically stem from both supply and demand issues that are far outside our normal observations. We're monitoring this closely, and if we identify any changes, we will address them proactively in the future. Previously, these factors weren't incorporated into our models since prices had always remained within typical ranges.
Alex Kurtz, Analyst
Okay. And just a follow-up on bookings for Kevan, a little bit late to the call here. So I just want to make sure I didn't miss this in the prepared remarks. But just the delta between bookings and revenue growth, like what drove that?
Kevan Krysler, CFO
Well, that's really going to be the primary driver really will be around our subscription offerings Alex. It's really what that's coming down to. In terms of either our Evergreen model or what we're doing on Pure as-a-Service or Cloud Block Store. Those would be the main drivers of that difference.
Operator, Operator
Your next question comes from Rod Hall from Goldman Sachs.
Raghunathan Kamesh, Analyst
Hi. This is RK on behalf of Rod. Thanks for taking my question. Congrats on a nice quarter guys and my deepest condolences to Matt's family. Could you contrast your Pure as-a-Service offering with other competitor as a service offering? And I have a follow-up.
Charlie Giancarlo, CEO
Yes, let me start by saying that our service offering is more than just an economic model; it’s not simply a revamped lease. You purchase our product through a cloud-based procurement model that relies on a service level agreement. This means it’s not focused on the hardware deployed. We operate with a cloud utility model that is consistent across different cloud environments. Our unified subscription is functional no matter where your data is stored, whether in the cloud or on-premise. It’s a common platform featuring the same software operating within both settings, managed by a single management system. This allows your applications to be easily deployed either on-prem or in the cloud with minimal adjustments. We bill customers based on actual usage rather than reserved capacity. While some of our competitors have tried to create an economic model similar to a lease, they lack these additional features.
Operator, Operator
Your next question comes from Amit Daryanani from Evercore.
Michael Fisher, Analyst
This is Michael Fisher on for Amit. So appreciate the qualitative expectations for the July quarter. Just wondering if you could maybe touch on what's embedded as far as product revenue expectations? Should we be thinking down low single-digit year-over-year in July?
Kevan Krysler, CFO
Yes. So we're not giving specific guidance on that. But look, you saw how product revenue came out. And again, product revenue is just a derivation of the product portion of our capital sales. So anything we're selling on our subscription offerings did include our products solutions will be in subscription services. And so when I think about Q2, obviously, we see the growth and the momentum in subscription services. And we see overall, potentially at this point sales in total to be flattish year-over-year. So that'll be a headwind on product revenue.
Operator, Operator
Your next question comes from Mehdi Hosseini from SIG.
Mehdi Hosseini, Analyst
I had a couple of follow-ups. I want to thank you for providing the mix for the flash play, but I think you would put it in a better context if we could provide some competitive q-o-q or year-over-year, how should we compare this 55 million through prior quarters and I have a follow-up?
Charlie Giancarlo, CEO
Thank you, Mehdi. As you know, we prefer not to break down product performance on a quarterly basis, but we aim to share insights occasionally. In our September update, we mentioned that we expected to exceed 500 million in cumulative sales for FlashBlade by year-end, and we typically share such projections only when we are confident in achieving them. Additionally, we indicated that FlashBlade represents 15% of total sales, which offers further context. We're pleased with the growth of FlashBlade and Purity 3.0, particularly as it creates significant new market opportunities both in existing accounts that have been waiting for replication and in new accounts needing Kerberos capabilities to engage with government clients. We are very excited about this product's future and anticipate continued growth.
Operator, Operator
Your next question comes from Erik Suppiger from JMP Securities.
Erik Suppiger, Analyst
And I do pass along my condolences to Matt's family as well. Most my question were asked but on Flash Array C, can you comment as to whether that's still the fastest growing product in Pure's history?
Charlie Giancarlo, CEO
Yes. Quite simply, yes.
Operator, Operator
Your next question comes from Nehal Chokshi from Northland Capital.
Nehal Chokshi, Analyst
And my condolences to Matt's family as well. Can you discuss what you perceive as a possible weakness in the power store? Additionally, could you address whether rates were affected in any way, or if there has been an improvement now that it's out? That would be appreciated.
Charlie Giancarlo, CEO
Thank you. I'll address the second part of the question first. We haven't observed much impact so far since it's very new. There’s a lot of discussion around it, but simply put, we believe it creates an opportunity to replace four products during disruptive upgrades. Whenever there's a disruptive upgrade, it opens up opportunities for all vendors, especially new ones, as customers are willing to make changes for a brand new product. In this instance, we have launched XR3, which is our seventh generation of non-disruptive upgrades on a highly mature product known for its reliability. We have repeatedly demonstrated our capability in this area, and now, seven years later, our competitors are still striving to match our Evergreen program. What they have done effectively validates our program from seven years ago. Now we're moving towards Pure as-a-Service, which focuses on enhancing economics and reducing the risks associated with migrating to the cloud, whereas Evergreen addressed the economics and risks of on-prem storage. No other product, including power store, addresses this. Finally, I’d like to note that launching a new 1.0 product at this time is quite challenging as customers are cautious. Thus, we see this as a significant opportunity for us.
Operator, Operator
And your last question comes from Aaron Rakers from Wells Fargo.
Aaron Rakers, Analyst
And also my condolences to you guys and Matt's family. He was great to work with. I guess most of my questions have been asked and answered, but I wanted to go back to kind of the channel engagement a little bit. Several quarters ago, you guys announced a partnership with a global systems integrator. Just curious of how you would characterize the current channel motion expansion. And whether or not you've seen additional GSI kind of come to Pure as clear opportunity? Thank you.
Charlie Giancarlo, CEO
Yes. We have. What's been very interesting over the last, I would say over the last nine months to a year, but accelerated, frankly, in this last quarter is the degree to which both national and global VARs as well as system integrators have really embraced Pure more and more. Now I think part of that were the aggressive growth programs that we put in place for these integrators, but frankly, the expansion of our product line, our ability now to address cloud needs and the fact that the product is not long line now really addresses a much wider variety of enterprise storage needs, has really convinced these integrators to throw in more and more of their lot with Pure. We've seen a significant increase in a partner what we call partner sourced, which is opportunities that are truly sourced by the partner and they may still require us to help them close but these were opportunities that they brought to us, rather than us bringing collectively to them. And we expect this to continue to grow. We're very pleased with what we're seeing from partner scale, both in terms of partner source generally, but in particular, the growth in what we're seeing in large enterprise partner activity. I believe we're wrapping up the hour. I truly appreciate all the time and attention you've given us. Although our short-term projections are quite uncertain, we remain extremely optimistic about the opportunities ahead. We are confident in our ability to persistently increase our market share, quarter after quarter, thanks to our unique differentiation, unmatched simplicity, and reliability, which make Pure the safe and easy choice for customers right now. Thank you again for joining us, and I invite you to join us virtually for our upcoming Accelerate Digital event on June 9 and 10. We look forward to seeing you there. We will provide a wealth of new information. Please take care and stay safe; sheltering in place is important due to the serious nature of the virus. We want everyone healthy and safe for the next quarter and look forward to our conversation then.
Operator, Operator
Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.