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Good day, and welcome to the Pure Storage Second Quarter Fiscal 2026 Financial Results Conference Call. Today's conference is being recorded. All lines will be muted during the presentation portion of the call, with an opportunity for questions and answers at the end. If you would like to ask a question, please press 1 on your telephone keypad. At this time, I'd like to turn the call over to Paul

Afternoon, everyone, and welcome to Pure Storage's second quarter fiscal year 2026 earnings conference call. On the call, we have Charlie Giancarlo, Chief Executive Officer, Tarek Robbiati, Chief Financial Officer, and Rob Lee, Chief Technology Officer. Following Charlie's and Tarek's prepared remarks, we will take questions. Our press release was issued after the close of the market and is posted on our website where this call is being simultaneously webcast. The slides that accompany this webcast can be downloaded at investor.purestorage.com. On this call today, we will be making forward-looking statements which are subject to various risks and uncertainties. These include statements regarding our financial outlook and operations, our strategy, technology, and its advantages, our current and new product offerings, and competitive industry and economic trends. 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 the results 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 this call, all financial metrics and associated growth rates are non-GAAP measures other than revenue, remaining performance obligations or RPO, and cash and investments. 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 and is the property of Pure Storage. Our third quarter fiscal 2026 quiet period begins at the close of business Friday, October 17, 2025. With that, I'll turn over to Charlie. Thank you, Paul.

Afternoon, everyone, and thank you for joining our Q2 FY 2026 earnings call. Pure Storage delivered a strong Q2, expanding our double-digit revenue growth. Our results were underpinned by strong enterprise performance and accelerating momentum in our core software and service offerings of Evergreen One, Cloud Block Store, and Portworx. Our growing success stems from the compelling value proposition of the Pure Storage platform. We deliver simplicity, reliability, and long-term value with our integrated Purity operating system. Purity is the infrastructure software that has enabled the only true nondisruptive evergreen service and an unrivaled storage as a service model with Evergreen One. Now enhanced with Fusion v2, Purity allows our customers to create their own enterprise data cloud, automating their storage and enabling software-defined data management. As I've shared previously, the enterprise data cloud is an industry-changing architecture that transforms how organizations store and manage data. It replaces traditional siloed compute stack dedicated storage with a software-defined and orchestrated enterprise-wide data service. Customers' demand for Fusion continues to grow in both commercial and enterprise accounts. Purity, enhanced with Fusion, will enable businesses to manage their global data as an integrated cloud, providing a policy engine, presets, and cataloging for how different classes of data are managed on a global basis. Presets control attributes such as price performance, resiliency, security, geofencing, access controls, and other critical values. Cataloging will provide the location, provenance, and lineage of datasets as they are copied, modified, and combined. Together, these capabilities allow customers to more consistently manage their global datasets through software. The enterprise data cloud also enables businesses to lower labor costs while reducing risk and increasing operational agility through software-defined enterprise policies. Datasets become centrally governed with policies and automated workflows handling the heavy lifting, freeing IT teams from manual configurations for each and every dataset. The enterprise data cloud or EDC architecture allows fast, seamless, and consistent policy changes as business needs evolve. The key takeaway is that by virtualizing enterprise storage, Pure enables organizations to stop managing infrastructure and start managing data as a strategic asset, maximizing its value, ensuring availability, and standardizing control. As enterprise datasets multiply, grow, and become more in the new AI economy, an enterprise data cloud architecture becomes more critical and necessary. Recently, a global leader in IT consulting and digital services is adopting Pure's technology framework to create an enterprise data cloud. This shift helps them move away from legacy technology components and eliminates existing data silos. We are also supporting their strategy to consolidate business applications and to manage their global data estate. The enterprise data cloud provides a highly efficient, scalable, and secure foundation as their data volumes grow exponentially. It reduces infrastructure complexity and delivers predictable outcomes for their users. Pure is also at the forefront of helping customers with their strategic moves to modern virtualization, to containers, to Kubernetes, and to the cloud. A leading financial institution is setting a clear strategic direction to modernize its application environment with Purity and the Pure Storage platform. Building on success running mission-critical container services with Portworx at scale, the institution is working towards migrating all of their workloads from traditional virtual machines to either containers or Kubernetes virtualization. With Portworx and the Pure Storage platform, the shift will deliver platform independence, stronger security, higher efficiency, and rapid recovery. Our solution will also sharply reduce their infrastructure space, power, and cooling needs by over 70% over their legacy solutions. Partnering with Pure's professional services, the institution is positioning itself to run a fully automated, software-defined data environment, lighter, faster, and built for long-term competitive advantage. This institution is also deploying our new high-performance FlashArray Excel R5 to consolidate diverse large-scale applications onto a single platform, delivering significant performance gains with improved space, power, and cooling. Their new enterprise-wide Kubernetes platform now provides a nonproprietary solution across any underlying infrastructure, across any public or private cloud, and on any Kubernetes distribution. They are replacing legacy infrastructure with modern virtualization and beginning to leverage Fusion v2 to manage their global storage fleet, fully automating data management to operate as a true enterprise data cloud. A global automotive company significantly expanded their use of Portworx this quarter for modern virtualization. This deployment expands Pure's footprint from manufacturing into their core enterprise operations, significantly reducing risk, complexity, and operational overhead across the company's infrastructure. From a business perspective, Portworx is allowing them to simultaneously modernize their IT virtualization stack and enable them to meet their developer needs to support new modern cloud-native application development. These examples demonstrate the unique value Pure and Portworx bring to our customers and strengthen our position as enterprises increasingly adopt cloud-native architectures. One of the most interesting large wins this quarter comes from a multi-food products company moving thousands of its business applications to the cloud. Working alongside one of the world's largest global IT consultants and system integrators, our solution is delivering to the customer at least a 40% cost savings with our Cloud Block Store subscription, while providing higher availability for business-critical applications, greater redundancy, and stronger data protection. This is a powerful example of how Pure can help customers lower their costs while improving performance and resilience in the cloud. Turning to our other subscription services, we saw continued strength and growth in Evergreen One and Evergreen Forever sales in Q2. Evergreen One continues to deliver consistent customer value that protects customers from future uncertainties, including capacity and performance planning, pricing, and tariff unpredictability. Evergreen One promises customers service level agreements that ensure the performance, capacity, and security they need now and in the future, with consistently the most modern technology without disruption. Moving to our hyperscale engagements, our strategic co-engineering effort with Meta continues on track. They have initiated their first volume deployment, and we have recognized our first revenue from this activity in Q2. Tarek will share further details. Overall, our early-stage engagements with other top scalers continue to progress well, as hyperscalers in general are increasingly seeking to accelerate their transition to flash data storage where we continue to lead the industry in all things Flash. As a reminder, we are working with our hyperscale partners to enable them to replace their raw storage with our direct flash technology. To put this in perspective, imagine hyperscaler storage infrastructure as a three-layer cake. Layer one is the storage media layer. Layer two is the storage protocol and format layer. And layer three is the storage services layer. The capabilities that Pure is developing for hyperscalers focus on the layer one storage media and media management layer, below layer two. Hyperscalers have developed their own layer two data storage protocols and formats and also layer three services. By providing Pure direct flash technology at layer one, we are able to dramatically reduce the power, space, and cooling requirements of hyperscale storage while significantly increasing its performance and reliability. Additionally, PureCloud Block Store also provides advanced layer three services on top of hyperscale services, which provide enterprise-class storage services at lower cost than existing cloud storage services. Cloud Block Store, provided by Purity Software at Layer three, is able to provide enterprise customers the advanced storage services that their traditional applications depend on in the cloud while saving them significant expense. Our primary annual user conference, Accelerate, took place this past few. There, we formally introduced the enterprise data cloud architecture, as well as next-generation innovations in our FlashArray and FlashBlade systems designed for the most demanding high-performance workloads. We announced the general availability of FlashBlade Exa, targeting the most demanding AI training environments, FlashArray XL R5, which doubles the performance of previous generations, and the new FlashArray ST, which targets even higher performance ultra-low latency workloads. Looking ahead, the extended Accelerate roadshow along with our financial analyst meeting will kick off in New York on September 25. And we invite all of our analysts to attend. The roadshow will continue through Asia and Europe in September and October. Our success continues to be driven by our four sustainable competitive advantages: our unified Purity operating system for scale and simplicity, our evergreen model for always-on and always-modern operation, Purity Direct Flash for unmatched performance, and our cloud operating model with Evergreen One and PureFusion, empowering customers to build and operate their own enterprise data cloud. While the global macro environment remains as variable and as uncertain as ever, our strong execution and thoughtful planning have kept us ahead of the curve. And we remain confident in our ability to extend our industry leadership, as indicated by our improved guidance which Tarek will discuss. Before I turn the floor over to our new CFO, Tarek Robbiati, I want to take a moment to welcome him to his first earnings call with Pure. Tarek, we're thrilled to have you on the team, sharing your deep financial expertise, sharp strategic insight, and business acumen. I know our listeners will appreciate hearing from Tarek today, and in the quarters ahead. And with that, Tarek, the floor is yours.

Thank you, Charlie, for the warm welcome. We are very pleased with our Q2 financial results, exceeding both our revenue and operating profit guidance. Revenue of $861 million grew 13% year over year, and operating profit of $130 million resulted in an operating margin of 15.1%. Most importantly, we saw broad-based strength across our entire portfolio, led by large enterprises and the continued momentum of FlashBlade, including FlashBlade E, and accelerating momentum in our core software and services offerings of Evergreen One, Cloud Block Store, and Portworx. I would like to take this opportunity to formally thank my predecessor, Kevan Krysler. Kevan deserves a lot of credit for the results attained this quarter, certainly more than me. I would like to personally thank him for his professionalism and for facilitating a smooth textbook transition between us two. Turning back to understanding our performance in Q2 2026, our results highlight strong customer adoption of our platform strategy. Customers can now deploy Pure Storage across entire data center footprint from the most demanding mission-critical workloads to cost-effective disk replacement. For performance-intensive databases, analytics, and AI, Pure delivers the high-speed all-flash solutions needed to drive results. At the same time, the E family makes it possible to replace legacy disk systems at a comparable upfront cost while delivering lower long-term total cost of ownership or TCO, greater reliability, and scalable performance, turning the vision of the all-flash data center into reality. By unifying and simplifying operations while cutting energy consumption and overall costs, the Pure platform optimizes the TCO for its customers. This message resonates across value-focused C-suite executives, from IT leaders to CFOs and sustainability officers focused on efficiency priorities. Q2 TCV sales for our storage as a service offerings grew 24% year over year to $125 million, driven by high volume, high velocity transactions of less than $5 million. This momentum reflects our confidence in the expanding demand growth opportunity for Evergreen One, a subscription-based offering. Our collaboration with Meta continues well and as expected. As a reminder, our original fiscal year 2026 guidance assumed deployment of one to two exabytes of our direct flash technology. Deployments have started, such that we have begun to recognize revenue this past quarter. Given the pace of these deployments, we are now increasingly confident about the assumption of one to two exabytes and possibly more by our fiscal year end. Our relationship with Meta continues to advance, and we continue to see increased interest from other hyperscalers looking to replace both hard disk and SSD-based environments with our direct flash technology. Turning to our subscription offerings, Subscription services revenue in Q2 reached $415 million, up 15% year over year, accounting for 48% of total revenue. ARR grew 18% to $1.8 billion, while total remaining performance obligations, or RPO, grew 22% to $2.8 billion. RPO, encompassing our storage as a service offerings and evergreen subscriptions across our installed base, grew 21% exiting Q2. This backlog continues to reflect robust renewals and new Evergreen One commitments. With respect to our geographic mix of revenues, US revenue was $577 million, growing 7%, and international revenue was $284 million, growing 26% year over year. In terms of new logos, we added more than 300 new customers, and our penetration of the Fortune 500 remains at 62%. Turning to margins and profitability, total gross margin remained strong at 72.1%, reflecting healthy subscription services gross margin of 76.5%. Product gross margin again rose sequentially to 68%, aligning with our long-term expectation for product gross margins between 65-70%. Operating profit of $130 million and operating margin of 15.1% in Q2 were positively impacted by revenue strength and healthy gross margins. Our headcount increased sequentially by 120 employees to approximately 6,100 employees. Our balance sheet remains strong with $1.5 billion in cash and investments. Q2 operating cash flow was $212 million, and our capital investments of $62 million included test and infrastructure equipment to support data center expansion and funding of Evergreen One subscription growth. In Q2, our free cash flow performance was strong, as we generated $150 million of free cash flow for a free cash flow margin on revenue of 17.4%. Finally, we returned $42 million to shareholders through 800,000 share repurchases and offset 1.1 million shares in employee award withholding taxes, and we currently have a $109 million of buyback authorization remaining. Now turning to our guidance. We have made a decision to introduce a range for our financial guide. This approach differs from our practice in previous quarters where we provided a single target number for each metric we guided to. This change aligns with many other growth companies in our industry, while also offering us the flexibility to make the necessary incremental investments we need to capture additional growth opportunities and other transformational projects we identify as we execute our strategy. For fiscal year 2026, we anticipate revenue to be in the range of $3.6 billion to $3.63 billion, representing 14% year over year growth at the midpoint. This is a 300 basis points increase from our previously provided revenue guidance of 11% year over year growth. We expect operating profit to be in the range of $65 million to $625 million, representing approximately a 10% year over year increase at the midpoint. This is over a 300 basis points increase from our previously provided operating profit guidance. Specifically for Q3, we anticipate revenue to be in the range of $950 to $960 million, representing approximately a 15% year over year increase at the midpoint. We also expect operating profit to be in the range of $185 million to $195 million, representing approximately a 14% year over year increase at the midpoint. With that, I'll now turn the call back to Paul for Q&A.

Thanks, Tarek. Before we begin the Q&A session, I'll ask you to please limit yourselves to one question consisting of one part so we can get to as many people as possible. If you have additional questions, we kindly ask that you please rejoin the queue and we'll be happy to take those additional questions as time allows. Operator, let's get started.

Thank you. If you would like to ask a question, please press star followed by one on your telephone keypad. Again, to ask a question, press star 1. As a reminder, if you're using a speakerphone, please remember to pick up your handset before asking your question. We will pause here briefly as questions are registered. First question comes from Amit Daryanani from Evercore. Please go ahead. Your line is open.

Thanks a lot. Good afternoon, everyone, and congrats on some impressive numbers here. Charlie, your guide implies that growth in the back half of your fiscal year, October and January quarter, will be mid-teens, like 15-16% growth, versus the 12% to 13% growth you saw in the first half of the year. Can you just help us appreciate what is really enabling this looks like a very sizable acceleration of growth? Are you seeing better macro tailwinds or better adoption of the Pure platform, or something specific like EXA, for example, just driving up a ramping up for you? Just help us understand what's driving this acceleration of growth in the back half beyond your top line. Thank you.

Thanks, Amit. I hope all is well. So, you know, we're seeing broad-based strength in our overall product line and offerings. You know? And, of course, we're halfway through the year now. Seven months, and, you know, we just have a better sense of the pipeline and, therefore, more confidence, you know, in the forecast. As you may recall, at the beginning of the year and even after Q1, there were lots of dark clouds over the second half of the year, not just, you know, from financial analysts, but also from the banks. You know, clearly, now we're in the second half of the year. Those dark clouds seem to have just disappeared at the macro level. But I think, you know, also just we have very strong company momentum based on the introductions that we've made, not just at the product level. But this architectural shift that we're driving in our enterprise data cloud with Fusion. And that's driving more demand and more interest, especially around large deals. So I think it's just a lot of positive momentum overall. Coupled with, you know, an economy that's holding up. Thank you, Amit. Next question, please.

Our next question comes from Aaron Rakers from Wells Fargo. Please go ahead. Your line is open.

Yes. Thanks for taking the questions and also congrats on the quarter. Kind of building on Amit's question there, thinking about the revenue trajectory and sounds like incrementally positive comments with regards to the Meta relationship. I'm curious, you know, how maybe that's evolved. Have you gotten some visibility into the procurement cycle of Meta? And are we still kind of confident in the progression of that relationship to I think it was double-digit exabyte shift into the next fiscal year? And any thoughts on kind of the margin profile of that opportunity at this point? Thank you.

So, you know, the relationship continues apace. I have to say that, you know, whether it's luck or skill, it's very much along the lines that we both forecast and have expected and have expressed on these calls. So seem to be right on time and on target. You know, I think we've been, you know, appropriately judicious in terms of evaluating, you know, what a reasonable time to expand is, and I think we're going to stay with our, you know, with how we forecast that, which is that, you know, we don't I would say that in general, you know, we don't have, you know, very we can we have to interpret a lot of the information we get in order to be able to forecast properly. And so far, that interpretation has been operating well. I would say that you may recall that we described this in the past that the income that we receive is based on effectively royalty or software revenue. So, you know, at a percentage basis, it's almost, practically speaking, a 100% margin. You know, 90% plus except for the service element. And because they will be acquiring the actual physical product directly from the supply chain. Thank you, Amit. Next question, please.

Our next question comes from Howard Ma from Guggenheim Securities. Please go ahead. Your line is open.

Great. Thank you. And it's great to see the strong business momentum. Charlie, based on what you just said about the Meta deal being a high margin, essentially royalty revenue, I guess for you or for Tarek, how much of the sequential gross margin improvement versus Q1 was a result of the Meta shipment that, as you just said, carries significantly higher gross margin? For instance, if I assume $30 million of revenue for Meta shipments in the quarter, at 90 plus percent gross margin, that would imply that half the gross margin improvement was due to Meta and that the other half was due to core improvement. I'd love to get your thoughts on that. Thank you.

Alright. Mike, thanks for the question. It's Tarek here. I'd say to you, if you look at our product gross margin improvement of four points in the quarter, I'd say it comes from three factors. First is revenue mix between product and software. The second factor is product mix as customers go for higher-end solutions, and third is pricing discipline. Specifically, Howard, for the numbers that you have quoted on Meta, I would say that in Q2, the number was not material to the overall results and not in the proportions that you highlighted. Most of the improvements in the product gross margins come from those three factors. We also had, as Charlie highlighted, a strong deal from Portworx that contributed to the improvement in product gross margin. But, by and large, the strength was across the portfolio with customers acquiring higher-end solutions and pretty good pricing discipline throughout. Thank you, Howard. Next question, please.

Our next question comes from Mike Cikos from Needham and Company. Please go ahead. Your line is open.

Great. This is Matt Colicchio on for Mike Cikos over at Needham. Thanks for taking our question, guys, and congrats on the new role, Tarek. Aside from introducing a guidance range, how have you in any way changed the guidance philosophy? Or taken a different approach to how guidance is constructed?

Mike, no. I mean, my personal philosophy doesn't have any bearing on the way we guide. We guide based on the numbers, and our guidance is really based on what the numbers are telling us and read down the fairway of what we believe the realities are. And so the idea of introducing is a range as mentioned earlier in my script, is first to align with the rest of the industry, and second, it also to give us more flexibility to be able to capture opportunities that we see during the course of the year to continue to grow at an accelerated pace. But we are pretty confident about our momentum. And if you really look at our results, and particularly the lead indication elements such as the RPO, you can really derive comfort around our guidance and the way we set it up. Thank you, Matt. Next question, please.

Our next question comes from Jason Ader from William Blair. Please go ahead. Your line is open.

Yes. Good afternoon. Hi, guys. Ask about the partnership that you guys have established with Nutanix. Charlie, can you just talk about whether this is a significant partnership? What some of the I know it's not available yet, but what is some of the kind of the buzz out there in the field from customers that are aware of this and maybe interested in pursuing a hypervisor switch while continuing to use Pure arrays?

So as you are hinting at, there's a strong interest by customers in looking at alternatives for their virtualization environment as they go forward. And Nutanix is a strong player in that environment. Nutanix traditionally, as you well know, has been a hyper environment. That is that it's storage, compute, networking all in one, you know, ours will be the first true connection to external storage that they'll be supporting, which will also turn them into much more of a traditional hypervisor type environment. So we're very excited about it. For several reasons. One is it gets customers excited. Two is because they're going to be integrating into Fusion. That is to say, into our enterprise data cloud. And so it's going to give them greater scalability than a traditional hyper-converged architecture will bring. So they're excited by it. We're excited by it. Our customers are excited by it. And so, yeah, we have a actually, we're oversubscribed in terms of early field trials that are being demanded by customers. So you know, it looks like what can I say? Oh, one last thing I'll mention is our plan right now is to be general availability by the end of the year. So, hopefully, available very soon. Thank you, Jason. Next question, please.

Our next question comes from Eddie from TD Cowen. Please go ahead. Your line is open.

Hey, guys. This is Eddie for Chris here. Congrats on great results. I have a question on the early engagements with other type hyperscalers you highlighted. My understanding is this has been going on for a while now. And I wonder if you can share how these engagements evolved over the last three months. Like, are we still in the first innings there, or are we progressing more towards, like, second and third? Thank you.

Yeah. Thanks, Eddie. This is Rob. I'll take that one. You know, as we've said and as we've anticipated, the progress with our first hyperscaler customer really has accelerated our engagements with both other hyperscaler prospects as well as suppliers alike. And I think really has caused the industry to take notice of the value we can deliver into these environments with direct flash. In our software technology. You know, these early-stage engagements are progressing well. As Charlie mentioned in his prepared remarks, with early testing and technology assessment well underway. And with multiple proofs of concept that, you know, are, again, underway. You know, as we've discussed before, the process towards placing our technology into these environments is very unlike a traditional sales cycle. It's really much more of a co-engineering motion with several phases to it. You know, technology, assessment selection, some testing of that, ultimately leading to design win where that technology is chosen, as kind of a plan of record. And then, you know, progressive validation testing on the way to pilot and then eventually scaling to production. We do expect, based on our learnings with our first customer in the space as well as incorporating those learnings into the core technology. We do expect that some phases of that will accelerate in future engagements, you know, but I would still describe our status with the next customers as early in early stage in this case. Thank you, Eddie. Next question, please.

Our next question comes from Simon Leopold from Raymond James. Please go ahead. Your line is open.

Thank you very much for taking the question. I wanted to get a better understanding of your longer-term expectations for Meta. Clearly, it sounds like it's nicely accretive to margin. And I did hear that you highlighted that it wasn't a big factor this quarter. So how are you thinking about the Meta contribution to the financial model in October? And then how should we think about it over a longer term? Thank you.

So let me start, and then Tarek will fill in with some level of detail. So we are expecting, you know, to go down this path of one to two. As Tarek mentioned, one to two exabytes this year. We continue to believe that we can be in the double digits next year. Albeit, obviously, all of that is as I said, based on our read of the situation and plans. You know, from an economic standpoint, currently, the way it works is as royalty-based. There is a significant investment that's made against that royalty. But, yes, it does come in as, as I said, well above 90% gross margin.

Yes. Simon, hi. It's Tarek here, Josh. To add to what Charlie and also Rob said earlier on, we're pleased with how the relationship is evolving. We are standing by the one to two exabytes by the end of this year. Possibly more. It really hinges on visibility on forecasts. We are getting better at that. And we don't forecast for fiscal year 2026 that the revenue from hyperscalers will be material to Pure, but we do believe that we have a reasonably good visibility at this stage for the end of this fiscal year. And for next fiscal year, we'll continue to work on it. Thank you, Simon. Next question, please.

Our next question comes from Samik Chatterjee from JPMorgan. Please go ahead. Your line is open.

I guess if I can just go back to the engagement you have with the hyperscalers outside of Meta. Gave a fair amount of details there. But in terms of any sort of high indications you're getting from them of what a ramp would look like once you convert that into a win. Is it going to look very similar to what the Meta is, like, one to two going to double-digit exabytes? Or do you have a sense if that's going to be more solid ramp in terms of deployments just given that you'll have more of a test bed already with the existing hyperscaler? Any thoughts around sort of the deployment piece there? Thank you.

Yeah. Samik, this is Rob. I'll take that. Look. At this point, you know, we're just squarely focused on making our existing customer successful in ramping and, you know, working through the technology validation process and early proof of concepts with the future customers. It's a bit early at this stage to comment on expectations of ramp with those customers. I think as we get closer to, further down the track and get closer to design win, we'll have a bit more visibility on future customers. Thank you, Samik. Next question, please.

Our next question comes from Eric Woodring from Morgan Stanley. Please go ahead. Your line is open.

Hey, guys. Thank you so much for taking my question. I'm looking forward to working together with all of you guys. And then, Tarek, nice to work together again. I was just wondering if you could, Tarek, kind of mentioned it earlier, but it's great to see the deployments for Meta this quarter. I'd love if you could maybe just double click on when you say the potential for possibly more than one to two exabytes for Meta this year. Like, what exactly does that mean, and what exactly influences that comment? Thank you so much.

Look. I think right now, what you have to take away from the use of the words possibly more is that we're confident about the one to two range for year '26. We're still working with Meta. Like I said earlier, for a prior question, we don't expect that revenue contribution this year will be material to the results of Pure. But so far so good. You know? We just have to take it one step at a time. Still have to deliver the third quarter and the full year guidance. And then we will update you all about the ramp and how this materializes as we execute on Q3 and Q4. Thank you, Eric. Next question, please.

Our next question comes from Wamsi Mohan from Bank of America. Please go ahead. Your line is open.

It's Ruplu filling in for Wamsi today. Tarek, good to have you on board. My follow-up is on product gross margins. Can you talk about the strength of FlashBlade E in the quarter and did that impact product gross margins? And Charlie, you've talked about a higher level of investment that you need to make this year because of growth with hyperscalers. Does that in any way impact your density roadmap for DFM modules? And is that impacting gross product gross margins? Thank you.

Yeah. This is Rob. I'll take that one on you. Look. You know, I think we look at, you know, the product strength that we saw in the quarter is consistent with Charlie and Tarek's prepared remarks. You know, the key takeaway is broad-based strength across the board. Certainly, we didn't see strength in the E family. But as well, you know, our higher performance offerings as well as our software offerings. And then, you know, specific to gross margin, again, echoing one of Tarek's earlier comments on the call, I really attribute the strength there to a number of factors, the broad-based strength, good mix across the product and software portfolio, as well as the sales teams are doing a really nice job in terms of holding value and discounting discipline. Right? Then as far as the roadmap for density on the direct flash modules, that absolute especially at the low end, that especially does affect gross margins. But in addition, so does our software. So just as an example, what we announced in terms of our the latest version of Purity is it is enhanced data reduction. And data reduction enhances profitability by effectively providing customers more effective storage the same amount of cogs on our side. And we expect that to continue as well. So it's both a software and a hardware phenomenon. Thank you. Next question, please.

Our next question comes from Eric Martinuzzi from Lake Street. Please go ahead. Your line is open.

Yeah. I wanted to follow-up on one of your comments regarding Q3 highlights with the early-stage engagements with the hyperscalers. I can see the, you know, looking to replace the hard disk side of their legacy investments, but the SSD-based investments, your comment that you're looking to replace those SSD-based investments, does that mean they are kind of rip and replace with direct flash, or is that they're kind of hold with what they've got and they'll operate in kind of a multi-vendor environment for Flash?

Yeah. So it's a great question. But to remind really, the audience is that the hyperscalers generally don't do rip and replace. Unless it's the entire data center. You know, after about five, six, seven years of use, they'll completely, you know, they'll clear out the entire data center, including all the power supplies, the air conditioning, everything else, and start brand new with the new design. And that would be true on storage as well. So yeah, there's no rip and replace. It's always about the new builds, if you will. And, you know, in our case, you know, we are able to provide, you know, better performance and higher reliability and longer durability. Of our flash that's more consistent across the different tiers of their storage using our direct flash technology. So, you know, think of it as one technology to rule them all, you know, whether it's hard disk or SSD. You know, regardless of the tier, if you will, of storage. Thank you, Eric. Next question, please.

Next question comes from Asiya Merchant from Citibank Group. Please go ahead. Your line is open.

Great. Thanks for taking my questions and nice to engage with you again, Tarek. Just if I can, based on your guide, how we think about the split between product versus subscriptions, you know, and related to that, not just on the revenue side, but thinking about gross margins as well, should we expect continued momentum here in gross margin? Above and beyond where it was last year on the subscription gross margins? Thank you.

Well, thank you very much, Asiya, for asking the question. This is a really, really good one. I'll say to you what you have to evaluate is the pace at which product revenue growth materializes. And in that, in itself, there is a substantial mix effect that comes from recognizing royalty revenue from hyperscalers, recognizing software revenue from our offerings on Portworx. Us managing the product mix, and also making sure that we continue to be price effective yet disciplined in the way we price. So product revenue at, you know, 11% year on year, is a good result for Q2. It's right below our subscription revenue growth of 15%. There is going to be a continuous growth in product revenue moving forward. And also, if you look at our RPO, you can draw comfort that subscription revenue will also be growing moving forward. So it's those two growth on a relative basis that dictate how our gross margin will evolve. Knowing that subscription gross margin is obviously higher than product revenue gross margin so far. But we do intend to grow both product and subscription revenue moving forward and maximize the margins of each.

Asiya, I might add that it has been very challenging to accurately forecast the mix between the as a service that is Evergreen One and product sales of the product. And, unfortunately, one substitutes for the other but not in recognized revenue. At least not in the quarter. And so you're asking a question that's even difficult for us to be able to properly forecast. Thank you, Asiya. Next question, please.

Our next question comes from James Fish from Piper Sandler. Please go ahead. Your line is open.

Hi. This is Caden on for Fish. So VaaS is going and hiring reps and hyperscalers. What are you seeing competitively from them and other players in the space around the hyperscalers and neo clouds? Thanks.

Yeah. This is Rob. I'll take that one. You know, as you know, we compete well in the AI space, and whether that's in the enterprise, or, as we've discussed quite a bit with this group, the hyperscalers, and then with FlashBlade Exa, we'll be opening up quite a bit more, in the Neo Clouds. You know, specific to other competitors, you know, that you've mentioned, look. We do see them in a small number of deals, mostly focused around AI and HP-specific environments. You know, I think the takeaway, though, is, you know, unlike some niche players out there, AI and HPC is an important market for us. It's one we compete well in, but it's one of many that we're playing for. And if I step back, right, and I look at the broader set of offerings we bring to the table, both certainly across the board, in terms of high-performance offerings, but then all the way down, to block file and object and cost-effective capacity offerings, you know, we're the only players out there that are going to be able to meet the entirety of not just an enterprise's storage needs, but increasingly as well. What we're seeing in a lot of these GPU as a service or Neo Cloud environments. You know, point in fact, in the quarter, we did have several wins with GPU as a service providers. Not just servicing their GPU DirectDPU attached footprint, but as well, some of their backup and data protection needs, and VM and block needs. And so you know, having a breadth of portfolio to be able to offer is a significant advantage for us in this space. Thank you, Caden. Our next question will be our last question.

And our last question will come from David Voigt from UBS. Please go ahead. Your line is open.

Great. Thanks, guys, for squeezing me in. So Charlie and Tarek, I think you both separately kind of referenced strength in the quarter. Both from a clouds clearing perspective. And I think Tarek mentioned, Chris, more was helped by product mix. Can you kind of help us understand kind of the demand drivers in the quarter? And what I mean by that is how did the macro progress as you walk through the quarter? Did demand strengthen? And maybe can you touch on some of the different verticals where you saw strengthening demand throughout the quarter to get a sense for how we should think about the second half of the year?

Yeah. I would say that the quarter was fairly steady. You know, traditional typical linearity, but above typical linearity throughout the quarter. So strength throughout the quarter, yeah, which is always a good sign. It indicates both strong macro, but also, you know, a strong competitive environment that is our competitive environment in the quarter. We are seeing, you know, increased pipeline of large deals. It's always a good thing. You know, in our environment. So you know, good demand signals, if you will, from the customer base. As well as an increasing willingness of the customer base to bring us into a broader array of their needs. So expansion a lot of expansion opportunities. So that indicates both secular strength as well as macro strength. Thank you, David. Before we finish, I think Charlie has some closing comments.

Thank you, everyone, for taking the time to join today on the earnings call. I just want to reemphasize our enterprise data cloud architecture and how it's transforming the ways that enterprises are thinking about managing their data. And I believe it's one of the primary things that's driving demand for our platform both and interestingly, both in the commercial and the enterprise markets. By virtualizing enterprise storage, we're enabling customers to better manage their growing global data estate. I want to express my sincere appreciation to our customers, our employees, our partners, our investors, and our suppliers. We greatly value continued support and commitment. We'll see you all next quarter. Thank you. And, hopefully, some of you as well, September 25 in New York.