Pure Storage Inc

NYSE:PSTG

Earnings Call Transcript 2018-Q4

[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 2018 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. [Operator Instructions]

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

[Matt Danziger, Head, Investor Relations]

Thank you and good afternoon. Welcome to the Pure Storage Fourth Quarter Fiscal 2018 Earnings Conference Call. Joining me today are our CEO, Charlie Giancarlo; our CFO, Tim Riitters; our President, David Hatfield; and our VP of Products, Matt Kixmoeller.

Before we begin, I would like to remind you that during this call management will make forward-looking statements which are subject to various risks and uncertainties. These include statements regarding competitive, industry and technology trends; our strategy, positioning and opportunity; our current and future products; business and operations, including our operating model; growth prospects 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 an indication of future performance. A discussion of risks and uncertainties relating to our business is contained in our filings with the SEC and we refer you to these public filings.

During this call, we will discuss non-GAAP measures in talking about the company’s performance as well as the impact of the revenue accounting standard, ASC 606. Reconciliations to the most directly comparable GAAP measures are provided in our earnings press release and slides. This call is being broadcast live on the Pure Storage Investor Relations website and is being recorded for playback purposes. An archive of the webcast will be available on the IR website for at least 45 days and is the property of Pure Storage.

With that, I will turn the call over to our CEO, Charlie Giancarlo.

[Charlie Giancarlo, Chief Executive Officer]

Thank you, Matt. Good afternoon everyone and thanks for joining us on today’s earnings call. We will begin with a summary of our operating results and I will recap some of the key accomplishments of FY ‘18. Then Hat will provide some of our go-to-market highlights. And finally, Tim will provide a detailed review of our financials and our outlook.

Fiscal 2018 was a very good year for Pure. Full year revenue was $1.023 billion, up 41% year-over-year. It has been nearly two decades since an independent company in our industry has reached this revenue scale. We have achieved the $1 billion milestone in just over 8 years since our founding, one of the fastest starts of any enterprise company in history and we are just getting started.

For Q4, revenue was $338 million, up 48% year-over-year and operating margin was 8.3% both exceeding our high-end of our guidance. Not only did we have an exceptional first quarter of profitability, but we also achieved a key milestone of positive free cash flow for the full fiscal year. Our business model and culture, technology innovation and focus on customers continue to drive growth in our business. From day one, Pure has focused on delivering technology that helps customers leverage their most important asset, their data. Our underlying theme, which we have codified into our vision, is to empower innovators to build a better world with data. In conversations with customers globally, there is a consistent theme that a mounting challenge for organizations is not only their data growth, but also the ability to mine intelligence from that data. They are increasingly looking to NexGen technologies like artificial intelligence and machine learning to solve these challenges and have been partnering with Pure, because of our innovation.

Pure’s innovations have enabled us to deliver a fundamentally unique evergreen business model, increased performance and improved economics that enable our customers to turn their data into intelligence and advantage. We have furthered our competitive advantage with important innovations this past year. In FlashArray, we led and continue to lead the market in NVMe, with approximately 20% of our sales comprised of this new technology, which we believe is over 10x greater than any other competitor. We also introduced synchronous replication with our unique active cluster capability, which provides nonstop active-active metro scale clusters. And lastly, we brought out our Meta AI engine to Pure1 to pioneer self driving storage, while integrating more deeply with COG delivery platforms. Our FlashBlade product, the world’s first all flash array designed for unstructured data ramps quickly in its first full year of sales. It has become the product of choice for AI machine learning and advanced analytics. Its unmatched performance has also opened up traditional use cases in IT such as rapid restore for mission critical infrastructures. These and other innovations continue to open up new market and revenue opportunities for Pure.

As we work with customers to further develop our products, we see a common interest. Simplifying their ability to manage and utilize massive amounts of information. We believe to get and stay ahead customers will adopt more data centric architectures for their key business applications, what are hosted in public or private data centers. Data centers are named data centers, they are not called computing centers or communication centers. Data is at the center of the design. Current infrastructures are based on old, slow, scale out architectures which demand many data copies and silos, fragmenting the potential of data and increasing its cost and complexity. They lack the ability to take the most advantage of new technologies like NVMe and RDMA to provide customers with high density and high performance at low total cost of ownership. This shift in data management design is creating a massive opportunity for Pure. Technological advances in networking and processing are allowing businesses to rethink how they build their data centers. And Pure is uniquely positioned to help our customers prepare for this new data centric world.

As we look ahead for next fiscal year and beyond, we have outlined a number of specific goals to help capitalize on the opportunity ahead of us. First, we will drive growth in three key markets, the Global 2000, the top 1,000 cloud and SaaS providers and next-generation use cases for AI and analytics and machine learning. Second, we will expand our international presence and grow our percentage of international revenue. Third, as we grow our revenue, we will scale our operations to be more effective and efficient. Fourth, we will continue to invest in innovation and improve our culture of commitment and accountability. And fifth and finally, we will continue to focus on our customers, our partners, our employees and our long-term investors.

With that I will now turn the call over to Hat for some customer highlights.

[David Hatfield, President]

Thanks Charlie. Last year was indeed and incredible year for Pure. We began the year with the ambitious goals of delivering a consolidated data platform reaching $1 billion in revenue and achieving profitability. The combination of listening to our customers, delivering on the technology promise and providing a fundamentally better customer experience resulted in our teams achieving their goals and finishing the year with some of the best momentum we have ever seen. Customer growth was strong in Q4 and throughout the year. We finished our fiscal year with more than 4,500 customers, up nearly 50% from the same period a year ago. We also added more customers in the fourth quarter than any other quarter of Pure’s history and we were very pleased with the mix across our target segments.

Purchase rates remain steady with approximately 70% of our business coming from existing customers. Partner momentum was strong, including solid contributions from the largest national partners. In this quarter we saw an increase in win rate across all of our competition. Finally, our increasing focus up-market is working as a number of new customers that spent more than $1 million with Pure doubled versus last year. At the core of this momentum is our innovation and technology which has never been more compelling. FlashArray continues to redefine Tier 1 storage to meet the demanding needs of mission critical production environments.

This year Pure delivered the first enterprise class all NVMe FlashArray with the objective of making this technology mainstream similar to what we did with our flash systems. We also redefined simplicity and efficiency for multi-data center application availability with our active cluster technology, which requires only four clicks to setup and is available as part of our recurring software subscription. These new Tier 1 capabilities significantly differentiate Pure into market and it led to larger deal sizes in both new customers as well as expanding our footprint within our installed base. This quarter specifically, a rapidly growing multinational SaaS company standardized on Pure for application integration and consolidation of their private clouds, with an initial investment of more than $5 million based largely on these new features.

FlashStack momentum has also remained strong, with presence now in more than 30 countries. Growth for this joint solution with Cisco has significantly outpaced the overall converged infrastructure and integrated systems markets and our partners have taken notice. In the past year, a number of national partners have recognized that FlashStack’s data center architecture is unique and creates value across their installed base for consolidating their customer storage, network and compute requirements. FlashStack is well-positioned for the future as we continue to invest with our partners in full stack automation and simplicity.

FlashBlade had a very good year and finished with a great Q4. Our success is being driven by a variety of repeatable use cases, but two really stand out. First, together with companies like NVIDIA, we are continuing to become the de facto standard for a wide range of performance intensive unstructured data workloads from modern analytics to AI and machine learning. Second, we are seeing significant traction amongst large enterprises in financial services, manufacturing and in the most demanding cloud customers, we are looking to improve their restore capabilities for hours and days to near instantaneous as their data sizes continue to explode. This rapid restore capability is unique in FlashBlade and is beginning to redefine what customers expect from their backup solutions.

In Q4, a long time FlashArray customer in the healthcare industry was searching for a rapid restore option to protect their business. After reviewing a number of providers and discovering that only FlashBlade could meet their requirements, they chose our solution for its ease-of-use and ability to recover massive amounts of data in near real-time and perhaps most compelling, because customers can consolidate the multiple use cases on to one FlashBlade system, they can justify the investment with the IT budget and expand the meet the needs of the data scientists and DevOps teams for their next generation analytics requirements. This is done without compromising performance for adding complexity in cost.

At the heart of the consolidated data platform is our software. The purity operating environment and Pure1, our cloud-based management and predictive support platform, are consistent across our entire product portfolio providing dramatic simplicity compared to alternatives. This year, we brought our meta-AI engine to Pure1 and we integrated more deeply with cloud delivery platforms like VMware, vSphere, Microsoft, Hyper-V, Docker, Kubernetes and Red Hat OpenShift. Our technology leadership and customer experience continue to differentiate Pure from everyone else in the market.

In closing, we are proud of exceeding our commitments last fiscal year and couldn’t be more excited about our prospects for the future market. Our market is huge. Our go-to-market engines are running well and we continue to extend our lead and innovation, while competitors are focused on restructuring and cost-cutting. We believe that this coming year will be our best yet.

And with that, I will turn the call over to Tim.

[Tim Riitters, Chief Financial Officer]

Thanks, Hat. Fiscal 2018 was a great year for Pure as we exceeded our goal of $1 billion in total revenue and delivered our first ever quarter of non-GAAP profitability. Before I dive into the specifics, I will make my usual note that the gross margin, operating margin, OpEx, net income and free cash flow numbers I will use are non-GAAP unless otherwise noted. Reconciliations of these non-GAAP metrics to the GAAP comparables as well as our full Q4 results and presentation are available on our [e-mail].

Additionally, I will discuss Q4 and full year fiscal 2018 results on this call according to the historical revenue recognition standard, ASC 605. However, I will provide forward-looking guidance under the new standard, ASC 606. For comparability, we have included financial tables in the appendix or our investor deck and I will discuss some of these impacts later in my prepared remarks.

Total revenue in Q4 grew 48% year-on-year to $338.3 million outside of our guidance range and over 2 points above our guidance midpoint. Product revenue grew 48% year-on-year to $277.4 million and support revenue also grew 48% year-on-year to $60.9 million. The strong performance in the quarter was driven by both continued customer growth and all-time high of additions combined with strong repeat business from existing customers. Geographically, 76% of sales came from the United States and 24% came from our international markets. All regions performed well with the U.S. finishing particularly strong in our most seasonally strong quarter. We continued to deliver industry-leading gross margins with total Q4 gross margins of 66.2%. Product gross margins were 65.7%, down 0.6 points sequentially, primarily from mixed dynamics as FlashBlade increased its overall percentage of revenue. Support gross margins were 68.3%, up 1.3 points sequentially driven by a continued increase in amortization of ongoing support contracts as well as continued solid execution in our support organization.

Moving to operating margins, we achieved our first profitable quarter as a public company in Q4 and we continue to make great progress toward our longer term profitability goals. Q4 operating profit was positive $27.9 million or positive 8.3% of revenue, which came in above the high-end of our guidance range and compares to operating loss of $4.4 million in the year ago quarter. This represents a 9 point improvement sequentially and a 10.2 point improvement year-on-year. Q4 net income for the quarter was positive $31.8 million or positive $0.13 per share. This compares to the year ago period net loss of $4.8 million or negative $0.02 per share. The weighted average shares used for the per share calculations were $251 million in Q4 and $201 million for the year ago period. Note that, the Q4 share count reflects a fully diluted calculation as we turned profitable this quarter. Please refer to our earnings presentation for further detail on the fully diluted share count.

Moving on to the balance sheet and cash flow, we finished Q4 with cash and investments of $597.3 million, an increase of $45.9 million from the previous quarter. Free cash flow in Q4 was positive $38.3 million, which includes an $11.5 million impact related to our employee stock purchase plan. The strong performance in the quarter enabled Pure to generate positive free cash flow for the year, another significant milestone for the company.

Lastly, I wanted to spend a moment going over the new accounting standard ASC 606 and the minimal impact it has on our overall financials. The new revenue standard will be effective at the beginning of our fiscal ‘19 and we will adopt this standard using the full retrospective method. Please refer to our earnings presentation for more detail on the adoption impact of ASC 606. At a high level, ASC 606 changes the accounting for three primary types of transactions at Pure: number one, revenue splits between product and support; number two, commission expense timing; and number three, accounting for a portion of our evergreen controller refresh program. These changes have historically had a relatively modest impact on our P&L, with total revenue being just 0.20 point higher in FY ‘18 under 606 and our gross margin rate being just 0.10 point higher in FY ‘18 under 606. There is a mix change in revenue between product and support and consequently, there are changes in gross margin in each revenue type under 606 that investors should be aware of going forward.

Operating expenses under 606 are less than under 605 as we amortized commission expenses over a longer period of time now over 6 years versus 1 to 3 years typically depending on each contract under the old standard. As we look ahead to FY ‘19 we anticipate that the magnitude of these impacts will decrease over time resulting in a minimal impact to our revenue levels and a modest uplift to our operating margin. As a reminder, all of our future reporting including guidance on this call will be under this new accounting standard. I will remind investors that we are moving again into the first half of our year, representing a period where we focus on making investments to drive velocity in the business. This is a consistent and deliberate strategy we have been following for several years now to invest early in the year and reap the rewards in the seasonally stronger second half. Specifically, Q1 is marked by notable ramp up in our go to market hiring and our company kick-off while Q2 is marked by the full quarter impacts of Q1 hiring as well as both our accelerate user confidence and continue to go to market programs.

Turning to our guidance, for the full fiscal year of 2019, we expect revenue in the range of between $1.31 billion and $1.36 billion, $1.335 billion at the midpoint. Non-GAAP gross margins in the range of between 63.5% and 66.5% and non-GAAP operating margins in the range of between zero and positive 4%, another important milestone for Pure of full year profitability. For the first fiscal quarter of 2019, we expect revenues in the range of between $246 million and $254 million, a $250 million midpoint, non-GAAP gross margins in the range of between 63.5% and 66.5% and non-GAAP operating margins in the range of between negative 13% and negative 9%. As a reminder, given our guidance for negative operating margin in Q1 the share count for EPS will revert back to the basic share calculation in Q1.

Looking back, we began last year with specific goals to become a $1 billion revenue company with industry leading gross margins and on a path to profitability. The results today highlight our execution and focus as we overachieved on each one of these goals. We look forward to continuing this momentum into our new fiscal year. With that we will now open the call for questions. Operator?

[Operator]

[Operator Instructions] Your first question comes from Andrew Nowinski with Piper Jaffray.

[Andrew Nowinski, Piper Jaffray]

Great. Thanks a lot of for the question and great quarter and great guidance. Just wanted to ask the question, I guess can you give us any color with regard to the contributions from your partnership with NVIDIA and whether you started to penetrate that install base yet?

[David Hatfield, President]

Yes. This is Dave. The partnership with NVIDIA started in the field which I think is generally at least in my experience where the best partnerships begin. We did a bunch of global tours with them across the last couple of quarters in joint marketing activities and we got some fantastic wins with joint engagements with Zenuity, with Volvo and Autoliv, a big web centric company here in the U.S. and one of the leading AI service providers. So we got a lot of great traction. We are continuing to work on formalizing the partnership and working jointly with their sales and field teams and more to come on that in the months to come.

[Andrew Nowinski, Piper Jaffray]

Okay. And then just a follow-up, I think you mentioned that NVMe accounted for 20% of sales this quarter, what was the percentage last quarter, just trying to understand how quickly customers are adopting that? Thanks.

[Charlie Giancarlo, Chief Executive Officer]

Yes. We just started to give out some local color this quarter, but we are not going to be tracking on a quarter-by-quarter basis.

[Operator]

Your next question comes from Aaron Rakers with Wells Fargo.

[Aaron Rakers, Wells Fargo]

Yes. Thank you and also congratulations on the quarter. I want to follow-up on that last question on NVMe, appreciating that you are not giving what the number was last quarter, but could you talk about how much of those deployments are to be considered net new customers for Pure versus maybe existing customers and as we think about the progression of NVMe, I think it would be interesting just to understand of how do you guys look at the competitive landscape with regard to that architectural shift and just remind us of what you think is your sustainable differentiation in that?

[Charlie Giancarlo, Chief Executive Officer]

Yes. Let me start and then I will hand it over to Kix for some more color. We expect NVMe to grow very rapidly in our portfolio, eventually extending to most of it and part of our competitive advantages we were first, we have the performance of the underlying software and architecture to allow NVMe to be most effective and fast. And it’s been driving a lot of our growth in in customers, we are frankly we are the only player that can provide the performance necessary to address their application environments. But Kix, do you want to handle some of the rest?

[Matt Kixmoeller, Vice President, Products]

Yes. I will just add to that our approach has really been a software centric one and I think the leadership we have had around NVMe connections to flash just to showcase how we have long understood within our software to be able to do flash management and kind of speak to flash directly. And so when we came out with NVMe, we did so with the pre-novel architecture on direct flash that we take advantage across both of our products. And we are a year in now I think to talking about NVMe pretty publicly in the market and we hadn’t have seen any of our competition ship any reasonable portion of their revenue NVMe.

[Aaron Rakers, Wells Fargo]

Okay. And then as a quick follow-up I would like to kind of question you on this fiscal relationship, I think at your were end user event back mid-part of last year, I think that the number was around 1,400 cumulative customers with the Cisco, it sounds like your alignment with Cisco continues to be very strong, so any kind of update you have as far as your momentum with Cisco and whether or not that relationship continues to deepen further?

[David Hatfield, President]

Yes. So this is Dave. The traction with Cisco in the field is very strong, it continues to grow. The momentum with the product is significantly outpacing the converged and integrated systems markets as I mentioned in our prepared remarks. And we see that continuing to grow into the future.

[Aaron Rakers, Wells Fargo]

Okay. Thank you very much.

[Operator]

Your next question comes from Katy Huberty with Morgan Stanley.

[Katy Huberty, Morgan Stanley]

Thank you. Good afternoon, just wanted to ask about revenue guidance, your first quarter grow stronger than the full year, should we think about that as the 30% full year is a planning assumption and you are starting off the year much slower and that could continue if all goes well as you move through the quarters or is there a reason that you think growth rate will flow from the first quarter? And then I have a follow-up.

[Tim Riitters, Chief Financial Officer]

Yes. Katy, this is Tim. In terms of Q1, your Q1s are very strong guide as you mentioned sort of 36%, 37% based on the momentum that we saw here in the latter half of this quarter. I wouldn’t read anything into the latter half of the year, continued the growing above 30% based on our guide at $1 billion scale is a really good momentum and we feel very confident in rest of those numbers.

[Katy Huberty, Morgan Stanley]

Thank you. And then as it relates to AI use cases that you are seeing in the market beyond some of the autonomous is driving scenarios that you talked about in the past, what are some of the other AI related use cases that your product has been pulled into?

[Charlie Giancarlo, Chief Executive Officer]

Yes. Katy, lots of real-time analytics use cases specifically security and threat detection internally. You can kind of think of it Splunk on-prem leveraging our FlashBlade technology to really run through that. Lots of IOT types of applications as well, so there is a whole host of next generation applications. But I think the thing that I am most excited about is the progress of the rapid restore use case, because this is selling into our traditional IT decision makers and is leveraging backup budgets and we are delivering something that’s completely unique to meet that rapid restore requirement, but then also have the platform to consolidate their next generation applications. So the combination of those two use cases is taking advantage of our go to market and getting a lot of great progress. Kix, I don’t know if there is anything else?

[Katy Huberty, Morgan Stanley]

Thank you for the color.

[Charlie Giancarlo, Chief Executive Officer]

Yes.

[Operator]

Your next question comes from Steve Milunovich with UBS.

[Steve Milunovich, UBS]

Thank you. You had a year ago talked about FlashBlade being about $80 million of revenue, did you achieve that goal?

[Charlie Giancarlo, Chief Executive Officer]

As we mentioned Steve, last time around we weren’t going to be tracking things on a quarter-by-quarter basis, but what I can say is that we had a great quarter with FlashBlade last quarter. The total strength across the portfolio was 48%, almost 50% and we just very pleased with the growth in FlashBlade and we are expecting very good year in FlashBlade next year as well. So it’s going to be one of the fastest growing new products, I think ever in the market and we are pleased with that as the performance.

[Steve Milunovich, UBS]

I am assuming looking at the 30% plus growth next year that FlashArray is expected to grow 25% to maybe 30%, it’s not that much faster than the market, I wonder if you could address that and also the competition seems to be doing better in flash, NetApp is doing well, HPE had a recovery, even IBM is growing, you are viewing that as a market’s phenomenon or is – should we have any competitive concerns?

[Charlie Giancarlo, Chief Executive Officer]

No, I would say that Q4 in general was a great market for IT infrastructure across the board. It doesn’t matter whether it was the data storage or as you looked at all of the IT vendors in the space, I think you saw good across the board results. I think what you can see is in 48% year-over-year growth in the overall data storage market we are picking up share. Whether other vendors are substituting magnetic for flash and reporting on flash, but not really showing total growth in their market. We are picking up share clearly. So no, I don’t think you are seeing any competitive challenges at all, in fact our win rates as Hat had mentioned are ticking up quarter-by-quarter. We feel very good about our growth and growth prospects.

[Steve Milunovich, UBS]

And the size of your deal is I assume is moving up?

[David Hatfield, President]

Yes. So we don’t report on the size of the deal, but the one thing I love about active clusters that for every deal you need two arrays. So as a sales guy that’s a great way to boost revenue. And I think that the innovation lead that we talked about really is extending. I mean all NVMe architecture and bringing that to the mainstream is exactly what we did with all flash systems 6 years ago. And so we are seeing the same dynamic with that where other competitors are talking about that is a niche tier for very specific use cases where we are bringing that to the masses. So maybe a combination of the new Tier 1 platform that we have got including ex and our active cluster solutions together with our portfolio motion is just giving us a real advantage in driving ASPs up.

[Steve Milunovich, UBS]

Thanks.

[Operator]

[Operator Instructions] The next question is from Tim Long with BMO Capital Markets.

[Tim Long, BMO Capital Markets]

Thank you. Just to if I could just touching on the gross margin in the guidance and you guys continue to operate towards the upper end of that range, could you just talk a little bit about the moving parts there, it does seem like that the service margins continue to impress and those should stay above the range, can you just talk a little bit about some of the puts and takes there. And then secondly, just if this plays into at all just – if you just remind us on commodity impacts and what you think that meant to your results and what happens if we start to see more normalized price – flash pricing in the next few quarters? Thank you.

[Tim Riitters, Chief Financial Officer]

So Tim this is Tim. On the first part of your question as you alluded to, we have been operating in our range at the high end of the range for nine quarters now, so obviously, really, really in good strong execution. The puts and takes that I would say as you called out the support margin continues to climb nicely. We are picking up kind of 0.5 to 1 point every single quarter if you look at that and that’s just really a phenomenon of both driving additional efficiency in the business as well as amortizing more and more of our support revenue into the P&L. So I think those are the things you are seeing on the support line. What I would say – I would encourage everybody to have a look at our earnings materials around ASC 606, because while the overall revenue number is essentially flat next year and it has been for a while it will result in a reset of the support numbers. There are some more dollars going to product and less dollars going to support. So just think about that when you tune the model. But then we would anticipate that that would start climbing back again. So I will definitely look at those appendix materials. And then I will now turn over to the other part to Charlie here on the last part of the question on NAND.

[Charlie Giancarlo, Chief Executive Officer]

Yes. First of all, I will just remind people that our revenue is not flat year-over-year, did the affect of 606 is flat…

[Tim Long, BMO Capital Markets]

Correct.

[Charlie Giancarlo, Chief Executive Officer]

So Tim, get with the program, right, okay. On the NAND pricing our innovation is really giving us some competitive advantage. In this case it’s tails we wins and heads we win. In the case – for example, our software really enables us to better, because of our better data reduction, it gives us better cost advantage in almost every case. Another example is because we are multi-source table we will take advantage of different types of NAND at different times very quickly. It allows us to take advantage of price discontinuities in the market between different types of NAND. And then finally, I would say lower flash pricing in the industry will open up more market for us. It will open up the Tier 2 market in a big way. We are expecting this to occur in the years ahead and they may occur faster or slower, but we would really see the continued improvement in NAND as really opening up more and more the storage market to us.

[Tim Long, BMO Capital Markets]

Okay, thank you.

[Operator]

Your next question comes from Alex Kurtz with KeyBanc Capital Markets. The next question is from Erik Suppiger with JMP Securities.

[Erik Suppiger, JMP Securities]

Yes, thanks for the question. You talked about the cloud, your focus on cloud and as you get into 2018, what was your contribution from cloud providers in ‘17 and where would you like to take that?

[David Hatfield, President]

Hey, Erik, this is Dave. We thought at the beginning of the year paying over 25% of our business coming from cloud providers and we ended the year over 30%, so nice sequential progress in pursuing the cloud and we look at the cloud in a number ways, wanted to sell to and just be the predominant provider as a sell to, but also recognizing that most companies are going to have a multi-cloud strategy. They are going to have multiple public clouds. They are going to have obviously their on-prem clouds and being able to integrate with and make that easy is really core and remain to our strategy as well.

[Erik Suppiger, JMP Securities]

Okay. Then can you talk a little bit about your go-to-market with FlashBlade you had talked about having to refigure that out on the last quarter’s call, it sounds like things have gone well, do you feel like you have got your go-to-market pretty well nailed down for FlashBlade at this point?

[David Hatfield, President]

Yes. We feel great about FlashBlade. I think as you introduced the new product, you have a broad number of use cases and you are trying to get into the ones that are going to be highly repeatable and then drive those through your channels. And so we have seen a great uptick in rapid restore, a great uptick in AI and machine learning. And so we feel really good about the motion there. We have got a specialist team that are focused on DevOps and data scientists in these next-generation workloads and that’s working well. And look the 50% top line growth that we have achieved is a combination of the portfolio selling motion that we have pulled together and the focus on the net new opportunity for FlashBlade.

[Erik Suppiger, JMP Securities]

Very good. Thank you.

[Operator]

Your next question comes from Eric Martinuzzi with Lake Street.

[Eric Martinuzzi, Lake Street]

I got a question on the customer base as far as the Fortune 500 goes. A year ago this time you talked about having over 20% of the Fortune 500, today’s slide deck includes better than 30% of the Fortune 500. I want to focus on those Fortune 500 customers from a year ago and just talk about how much do you think those that installed base has penetrated? And then I just have a follow-up.

[David Hatfield, President]

Yes, this is Dave. So, we saw great progress in net new Fortune 500 wins, so bringing those in is first and foremost. Once you have it in, these are the highest repeaters that we have got, which is why we want to continue to drive both net new customer acquisition, but also supporting and cross-selling within them. So, we are in the early days of this, which is great. The fact that we got 30% means we have 70% to go, but the repeat purchase metrics and the characteristics once we have them create lifetime customers. So, we are excited about the progress and it’s going to be a continued area of focus for us this year and beyond.

[Eric Martinuzzi, Lake Street]

Okay. And then the follow-up is that obviously the Fortune 500 accounts they have already got a storage provider when you guys show up at the front door, any change in the competitive defensive posture for those new Fortune 500 accounts between last year and this year?

[David Hatfield, President]

Yes, I’d say no change on that. Storage is a competitive battle, especially in the Fortune 500, about our win rates are ticking up in Q4 against all of our competitors. And so I think it’s a good leading indicator and what we have with FlashBlade is something that’s also completely unique and you can sell that to the Chief Data Officer and the data scientists and DevOps organization that’s kind of the side door. So, we are seeing nice progress in being able to use that to access the enterprise even faster.

[Eric Martinuzzi, Lake Street]

Got it. Thank you.

[Operator]

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

[David Ryzhik, Susquehanna]

Hi, thanks so much for taking the question. This is David Ryzhik for Mehdi Hosseini. So, in the past, you have talked about the introduction of QLC NAND is potentially unlocking some new used cases. Question is, are you working with QLC now and should we expect any new product introductions revolving around QLC whether that being FlashBlade or FlashArray? And I had a follow-up.

[Matt Kixmoeller, Vice President, Products]

This is Kix. I will take that one. Look, I don’t think we are ready to introduce new products or timelines on this call. But in general, we are excited about QLC being just a further continuation of the NAND roadmap that allows us to go further kind of into more use cases in the data center. And in particular, when you look at taking advantage of QLC, it’s going to take a massive amount of software, because it’s less reliable. And so all the value we bring around new flash with our software will be even more relevant as we go down that journey.

[David Ryzhik, Susquehanna]

Great. And when you first introduced FlashBlade, you talked about it offering competitive scale of file storage compared to NetApp and EMCs Isilon. Is that still the case? It sounds like you have kind of pivoted into a niche of AI machine learning just would love your updated thoughts, do you need like additional features to penetrate that market or are you comfortable with what you have? Thanks so much.

[Charlie Giancarlo, Chief Executive Officer]

No, no, we are absolutely focused over the long-term of going for the mass market with FlashBlade. And if you look at where FlashBlade wins, it’s a massively parallel system and so use cases that take advantage of its massively parallel I/O are kind of the front of the opportunity right now. So, AI is a great growing one that’s bringing us into some of these amazing environments. We talked a little bit on the call about backup and that turns out as data sizes grow to also be a massive parallel need to be able to move that much data. We are also participating though in a wide range of engineering, scientific, compute DevOps type use cases. And yes, as we add more of the traditional IT features to the product, we will be able to go into more traditional IT use cases with it as well, but it’s an opportunity rich environment.

[David Ryzhik, Susquehanna]

Great. Thanks so much.

[Operator]

Your next question comes from Srini Nandury with Summit Insights Group.

[Srini Nandury, Summit Insights Group]

Alright. Thank you for taking my question. I have a bigger picture question on network storage and hyperconverged devices, can you take us through some of your thoughts how hyperconverged devices are replacing or if not replacing what used case that they are being deployed in and what are people using that I focused show up devices mainly for?

[Charlie Giancarlo, Chief Executive Officer]

No, thank you, so hyperconverged and converged are really going through certain amount of metamorphosis now. We really see the interest in hyperconverged really being an interest in just simplicity of use in terms of having single pane of glass automated, install, auto install and easy management and easy growth. And our integration with Cisco in the FlashStack environment gives us many of those things. What we see with traditional hyperconverged in the brick-by-brick model is that it really doesn’t economically address many environments that are not symmetrical whereas in a converged or configured environment with easy deployment we can address many different applications. Kix, do you have something to add?

[Matt Kixmoeller, Vice President, Products]

I think that was well said. I mean the only other I would say is when we work with our largest cloud and enterprise customers, they are very focused on full stack automation and we have been excited to see so much of the management move towards automation orchestration of our arrays within their broader full stack compute and we don’t find those customers looking for a lower end appliance to kind of solve those problems. They have sophisticated environments. They want to automate them at scale with a cloud delivery platform.

[Srini Nandury, Summit Insights Group]

Thank you.

[Operator]

Your next question comes from Rod Hall with Goldman Sachs.

[Unidentified Analyst]

Hi, this is RK on behalf of Rod. Thanks for taking my question. I wanted to follow-up on previous question on competitive intensity, particularly with respect to Dell EMC, I know you guys have done a good job taking share, but they have talked about the new refused to lose program and hiring new storage sales specialists. Could you talk about any kind of impact you are seeing or you expect to see from there?

[David Hatfield, President]

Hi, RK, this is Hat. I will take the first part of that. So, first I characterized the overall competitive landscape as innovation versus restructuring. We are focusing on taking the market to the next level and we are competing with a number of players that are focused on cost-cutting and restructuring and we have a lot of respect for them and lot of respect for Dell EMC specifically, but our win rates are ticking up and so we feel great about how that performed in the quarter. We have heard about the same programs and storage has always been a very competitive market, but we feel like our innovation lead is really extended and our ability to compete has never been stronger. You add the $1 billion status and the profitability of the business overall and our traction in the Fortune 500 in the large enterprise. We feel great about our position.

[Unidentified Analyst]

Okay, great. And for my follow-up, could you comment on seasonality for fiscal ‘19 whether it was similar to what we saw in fiscal ‘18 or would you call it any differences?

[Tim Riitters, Chief Financial Officer]

Yes. So, RK, this is Tim. On seasonality, I think that seasonality in FY ‘19 would play out similar to FY ‘18. We are now at scale growing at a nice, very stable 30% plus. And so I would start looking at seasonality following kind of what you saw the previous year.

[Unidentified Analyst]

Okay, great. Thanks.

[Operator]

Our last question at this time is from Wamsi Mohan with Bank of America/Merrill Lynch.

[Wamsi Mohan]

Hi, yes. Thank you. I want to go back to the competitive question a little bit, I mean that half been showing some pretty solid momentum in all flash and third-party data suggesting it’s not all coming from just installed base replacing disk, but also acquisition off new customers, some could attribute that to on top cloud and native NFS integration with Azure, etcetera, I was wondering if you have some thoughts on sort of whether you think that that is a meaningful driver, competitively how do you think Pure would evolve on a real context where something like that gets more important? Thank you.

[David Hatfield, President]

Hey Wamsi, this is Hat. So first, it’s good to see progress across infrastructure providers on-prem. We think that’s indicative of the overall IT spend, so I think NetApp is benefiting from that. I do think that there are also could not only converting their installed base, but they are getting new looks inside of their install base for block workloads at the expense of others. And so I think they are growing their install base in that capacity. Because our win rates are steady and up-tick in the quarter against them and everybody else, our challenge continues to be at that. We can go get it back. We feel great about our opportunities to win. So in the end I think not all growth is created equal, we feel great about our 50% growth compared to their single digit to 10% growth overall. And we think it’s good to have a healthy competition and a healthy IT environment for all of us.

[Wamsi Mohan]

Thanks a lot.

[Operator]

And I will now turn the call back over to Charlie Giancarlo for closing remarks.

[Charlie Giancarlo, Chief Executive Officer]

Thank you very much. In closing, we had a solid Q4 and we are excited about the accomplishments of this past year. I want to acknowledge our customers, partners in the Pure team for the world class commitment and dedication they give to the company and our products and our customers. Demand remains strong across our technology portfolio. And as a result we continue to enjoy rapid growth in this overall and very large storage market. We remain optimistic about our continued momentum in the year ahead and we look forward to chatting with you next quarter.

[Operator]

This concludes today’s conference call. You may now disconnect.