Everpure (P) Q2 2027 earnings call transcript

Please go ahead Thank you. Good afternoon everyone and welcome to ever pure second quarter fiscal year 2027 earnings conference call on the call. We have Charlie Giancarlo chief executive officer Tarek Robiati chief financial officer and Rob Lee chief technology and growth officer following Charlie's and Tarek's prepared remarks We will take questions our press release was issued after close of market and is posted on our website where this call is being simultaneously webcast the slides of the company this webcast can be downloaded at investor dot ever pure data dot com on this call today We will make 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 Our ability to procure a sufficient supply of components and manage our supply chain or hyperscalar opportunity 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 as an indication of future performance Discussion of some of the risks and uncertainties related 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 gap measures other than revenue Remaining performance obligations or RPL and cash and investments Reconciliations to the most directly comparable gap measures are provided in our earnings press release and slides This call is being broadcast live on the ever pure 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 ever pure our third quarter fiscal 2027 quiet period begins at the close of business Friday October 16 2026 with that I'll turn it over to Charlie Thank you, Paul Good afternoon everyone and welcome to every pure is Q2 fiscal 2027 earnings call Q2 was another outstanding and remarkable quarter.

We exceeded our guidance range and all key company metrics revenue growth of 38% year-in-year continued our 30 plus percent growth performance since Q4 Operating profits surged 77% to 230 million year-on-year Growth was broad-based across all geographies products and business segments Strong sales momentum carried over from Q1 and continued to build throughout the quarter Additionally TCV for evergreen one has accelerated to a billion dollar run rate for fiscal year 27 Which indicates that our market share gain momentum is even greater than our revenue growth implies We have seen our revenue growth accelerate consistently and steadily over the last eight quarters And we now believe that this higher growth rate will be sustainable for some time Based on current demand signals and win rates We believe we will see sales and market share strength continue into next year as you will see in our revised full-year guidance Only some of our growth acceleration can be attributed to price increases as our growth is far beyond that of our legacy competitors We believe that we have entered into breakout territory in our core enterprise market Because of the steady progress we have made in building out our product line and architecture I'm going to speak to you today about four areas that underpin our confidence in our long-term growth First the cause and foundation for the acceleration of our growth and market share in our core market Second how the current pricing environment advantages our technology and company Third our growth opportunity in new areas of business such as AI data management and modern apps and virtualization and Fourth our growing hyperscale opportunity First, let's look at what's driving our growth Ever pure has spent the last decade expanding beyond our ground-breaking flash array product to serve every storage segment From backup to AI from terabytes to exabytes all on a single unified software foundation purity Purity unifies block file and object it drives direct flash and allows our customers to benefit from products that never grow old With its unique evergreen capability that promises non-disruptive upgrades forever For example, one of Europe's largest telecom operators a long-standing customer Enjoys flexible scaling without disruptive hardware refreshes significantly lowering their total cost of ownership During the last decade We also invested in the ability to have our capabilities offered as a service with evergreen one and offered on the cloud With ever pure cloud storage as a senior executive from a fast-growing global managed service provider status We chose evergreen one because it gives us predictable consumption based economics and lets us expand capacity and performance as customers demands change With ever-pure managing the underlying infrastructure and lifecycle our teams can spend less time Maintaining storage and more time delivering reliable high-value services to our customers That's why they have fully embraced our SLA backed evergreen one model We alone allow our customers to operate our systems as their own global enterprise data cloud with ever-pure fusion And now we are enabling our customers to contextualize their data to make it AI ready with data intelligence From our one-touch acquisition Since our very first product industry analysts have recognized ever-pure as an innovation and customer leader Just last week Gartner validated that momentum once again positioning ever-pure highest in execution and furthest in vision in their 2026 magic quadrant for enterprise storage platforms Alongside that innovation we have scaled and developed our go-to market engine and strategy to become a top-tier competitor across mid-market enterprise and government markets globally our Brand reputation has expanded to where every customer needs to consider ever-pure as a supplier in every area of data storage It is the combination of all of these factors that has brought us to this point Where our growth has re-accelerated and it gives us the confidence that this higher growth rate will endure for some time Next let's address the current pricing environment and why it directly advantages ever-pure The rapid increase in semiconductor demand and cost continues to affect our industry in multiple and complex ways This quarter we saw the predicted effect of increasing prices on both sales and demand Customers transacting now are paying more for less capacity while others are increasingly adopting our as-a-service model For example, this quarter the University of Western Australia expanded its evergreen one-foot print with us Enjoying the ability to scale its storage on demand while managing costs efficiently Evergreen one has grown substantially in this environment and is now on a total contract value or a TCV Run rate in excess of a billion dollars this year Ever-pure advantages in flash technology Lower operational labor costs and leadership in our storage as-a-service offerings are providing us with outsized market share gains in this high-cost environment and Our decision to honor our past and existing commitments Share the burden with our customers and operate at the lower end of our product gross margin range while components costs escalate Has solidified our relationships with both customers and channel partners Adjusting for the acceleration of evergreen one which dilutes reported near-term revenue growth numbers We are growing well above 40% year over year far exceeding the market and our data storage competitors Beyond our core portfolio We're opening up major new avenues for growth and expanding our market opportunity The growth of AI is focusing customers more than ever on how they manage their data At our June Accelerate user conference, we introduced the concept of data primacy Which will be the future of IT architectures in the AI era Data primacy posits that for organizations to streamline their operations and make their data AI ready They need to rationalize and structure their data into sources of truth and systems of record Data primacy will enable enterprises to take control of their own data Manage it strategically in their own data cloud and provide governed access to their data and its context to their chosen AI service providers Interest in ever-tured data intelligence which includes capabilities from our one-touch acquisition is off the charts Every customer we meet Identifies with the core issue facing them in their use of AI Namely that their internal data is far too fragmented to be immediately useful for the AI future Fragmented and inconsistent data leads to lots of manual reconciliation and incorrect results While a 95% accurate answer to an AI search prompt can be considered a great result a 95% accurate invoice is unacceptable Businesses require 100% accuracy in their financial and business operations 100% accuracy depends on data that is unambiguous Ever-fure data intelligence allows enterprises to find their distributed sources of data Discover their semantics and context and deliver a shared context between the different data sets It can find both the similarities and the discrepancies between individual data elements and make this available explicitly to the organization Most importantly it allows the enterprise to control these capabilities themselves Rather than trusting their data and context to third parties while enabling selective access to their AI service partners This puts the enterprise in control and gives them full sovereignty over their own data It is the first step to data primacy and it is an exciting new area of growth forever pure Our enterprise data cloud strategy continues to advance with over 2,000 of our 15,000 customers now enabled with the capability Customers appreciate the ability to set policy for their global storage fleet and have the systems Automatically and reliably configured to comply with their company policies without error our pure one co-pilot Let's customers monitor diagnose issues and deploy changes fleet-wide making global data management easier more consistent and more secure We continue to scale sales of our products supporting the AI needs of both enterprise and large-scale AI neo-clouds This quarter Samsung electronics chose Flashblade S to support its advanced AI and research initiatives and a major global bank selected Flashblade S to standardize their internal GPU as a service and agent development and deployment environments ever fewer data stream are Offering built on NVIDIA's AI data platform was released for general availability and saw its first sales this quarter one of the largest trial court systems in the US selected data stream to streamline and automate AI Accelerated analysis of petabytes of unstructured data saving hundreds of hours of specialized labor and Transforming decades of court records into an AI ready knowledge base while meeting the courts strict data privacy requirements Flashblade Exa designed for the highest performance needs of large-scale AI continues to expand an international high performance and AI computing provider selected Exa for their highest performance AI training environments and FTN a large AI managed service provider Expanded its flashblade exit investment to support growing customer demand Exa is STN the world's highest performance and scalability while simplifying operations Flashblade F and flashblade exit in combination uniquely positioned ever pure to meet customers AI needs from the smallest enterprise AI environments to the largest neo-clouds and everything in between We've seen a steady increase in GPU attachments for our flashblade products across the spectrum We see growing traction in our virtualization solutions as customers evolve their VM estates Ever pure continues to help customers optimize their VMware footprint with VCF While adoption for non-VM where modern virtualization solutions such as port works with red hat open shift and Nutanix virtualization continue to grow Ever pure has been named technology partner of the year by both red hat and Nutanix and Our VMware alternative solutions have grown to well over a $100 million per year run rate As we announced on August 10 We are pleased to have achieved a design win and signed a supply agreement with a second top five hyperscaler for our hyperscale products This newly signed agreement will begin to generate significant revenue in our FY28 and beyond as Discussed in previous quarters.

We expect hyperscale product revenue to rise significantly in Q3 Growing in Q4 and in the years of head This win confirms direct flashes value proposition in massive scale environments with customers that build their own storage services Direct flash is software defined flash Streamlined efficient advanced software providing medium management resiliency performance quality and reliability paired with reliable hardware Moving the complexity out of black box SSDs and hard disks Let's hyperscalers optimize storage for their workloads delivering industry leading density power cooling and lifetime Direct flash provides customers the flexibility to evolve and qualify faster as their infrastructure scales and enables a resilient supply ecosystem across a range of flash technology With the second top five hyperscaler signed and other prospects in progress We will now refer to our sales and strength in this business in terms of our hyperscale solutions as a whole Rather than referring to any specific customer customer details or prospect timeframes We expect large hyperscaler order commitments for our direct flash solution to extend into calendar 2028 powering tens of exabytes of capacity representing a multiple of our expectations for this year our estimates and committed order volumes for total sales to hyperscalers through both fiscal year 27 and 28 Continue to grow and will be incorporated and consolidated into our product revenue and guidance reporting We look forward to providing more details on our product advancements particularly our core growth and expansion into new areas Including advanced data management at our upcoming international accelerate conferences starting in September as well as our financial analysts meeting scheduled for September 23rd here in Santa Clara We continue to operate in a very dynamic macro environment and a tight supply market Yet the man for our products is strong even amid substantial price increases across the industry This is yet another of many reasons why we feel fully confident in our growth our strategy and our future I'll now turn the call over to Tarek to provide greater insight into our performance and our expectations for the remainder of the year Tarek Thank you, Charlie Q2 with another outstanding quarter forever pure and represents an important milestone in our growth journey year over year revenue increased 38% While operating profit grew 77% with both metrics exceeding the high end of our guidance range In addition this marked our third consecutive quarter with performance above the rule of 40 On the scoring our ability to deliver both strong growth and profitability Importantly our performance was not driven by any single product customer or geography Growth was road-based across our business We strength across all major geographies product categories and business segments and the sale momentum we experienced in Q1 continued into Q2 As we look ahead, we believe the fundamentals supporting our business are more than ever firmly in place We're entering Q3 with a healthy pipeline strong customer engagement and continued momentum across the organization as a result We are raising our full year revenue growth guidance substantially to reflect the strength of our execution and the confidence We have in our outlook for the remainder of the fiscal year more on that later In addition to our excellent financial performance in Q2 on August 10 We announced that we secured the design win and supply agreement with a second top five hyperscaler This achievement represents a significant validation of our technology and strategy During a second top five hyperscaler Reinforces the compelling economic operational and performance advantages of our direct flash technology and Demonstrates the growing recognition of our differentiated architecture in the world's most demanding data infrastructure environments as we noted in our August 10 announcement We expect only a de minimisque revenue contribution in fiscal year 27 from this new agreement and Anticipate a meaningful ramp beginning in fiscal year 28 with revenue continuing to scale in subsequent years Importantly, this agreement marks another inflection point for our hyperscale products and provides another long-term growth opportunity for the business Now, let's deep dive into our Q2 performance the exceptional momentum we experienced in our core in Q2 was driven by a combination of pricing mix shift and capacity growth of setting lower system unit volumes our ability to implement price increases while continuing to drive demand and Demonstrates the strength of both our technology and our customer relationships We saw particularly strong demand from large established enterprise customers Many of whom were willing to absorb higher costs to secure access to our solutions In fact, we are operating at a pricing level that we have not seen in 10 years Even as we tested higher price points demand remained resilient Particularly among our top tier enterprise customers Reflecting both the mission critical nature of our solutions and the value customers place on our differentiated offerings But a revenue increased 54 percent a year over a year to 687 million dollars as expected hyperscale revenue contributed only minimally during Q2 It is worth noting a couple of observations that a test of the overall strength of demand for our products First customers are buying fewer solutions at higher prices Second we have observed a mix shift to higher performance configurations with terabyte capacity up across our portfolio Third in terms of deal sizes deal above five million dollars grew 59% and deals above 20 million dollars grew a whopping 385% year on year Finally sales of our every doing one solution have grown significantly higher than product sales Indicating even stronger growth than appears in our current revenue numbers Overall Q2 demonstrated the strength of our business model the durability of demand across our customer base and our ability to execute in a dynamic market environment We remain focused on sustaining this momentum as we continue to expand our market opportunity Deepen customer relationships and drive long-term profitable growth Turning to our storage as a service business.

We continue to see exceptional momentum particularly with evergreen one Evergreen one total contract value or TCB has accelerated to an annualized run rate of above one billion dollars for fiscal year 27 Evergreen one performance in Q2 was driven by a combination of both velocity deals Those below five million dollars and large enterprise agreements highlighting broad-based customer adoption The current pricing environment has further strengthened the value proposition of evergreen one Unlike traditional product sales, which can be more directly affected by component cost fluctuations Evergreen one is built on long-term customer commitments with lower upfront capital requirements With evergreen one customers can ramp into growth and are built on a consumption basis Which allows them to better match expense outlays to the growth of their solutions?

These characteristics provide customers with a more predictable and cost efficient operating model Importantly and because we control the configurations of the solutions that underpin the evergreen one SLA based contracts We're able to contain price increases for evergreen one well below the price increases of traditional product purchases Making the offering even more compelling in the current environment as a result TCB for our storage as a service portfolio, which includes evergreen one increased 121% year over year to 277 million dollars in Q2 The continued acceleration we're seeing reinforces our belief that customers increasingly value consumption-based infrastructure models that provide greater flexibility and cost Predictability turning to our broader subscription business subscription services revenue in Q2 increased 20% year over year To four hundred and ninety nine million dollars and represented 42% of total company revenue Annual recurring revenue or ARR increased 20% year over year to more than two billion dollars during primarily by the continued growth of evergreen one and strong renewal activity during the quarter Remaining performance obligations or RPO increased 44% year over year to more than four billion dollars Growth in RPO was driven by strong bookings across our core business Including offerings attached to evergreen forever as well as continued momentum with evergreen one I'd like to briefly address the relationship between RPO and ARR as differences in the timing of these metrics Can't create variations in their respective growth rates from quarter to quarter?

RPO reflects a dual value of contracted revenue that has yet to be recognized while ARR measures the analyzed value of recurring revenue currently contributing to the business Because multi-year contracts are included in RPO when they are signed RPO often serves as a leading indicator for future ARR growth As a result ARR can temporarily lag RPO during periods of strong bookings activity particularly when large multi-year contracts are signed Given the acceleration we're seeing in RPO we would expect ARR growth to continue over the next several quarters as these contracts begin contributing recurring revenue Turning to gross margins total gross margin was 69.9 percent Product gross margin stood at 66.2 percent in line with our long-term range of 65 to 70 percent Representing an increase of 70 basis points sequentially while subscription services margin was relatively unchanged at 74.9 As predicted on our last earning call the revenue contribution from our hyperscale business was minimal in Q2 And we continue to expect the majority of hyperscaler revenue to be recognized in the second half of fiscal year 27 Hyperscale product deployments yields margins in the range of 75 to 85 And therefore should provide an incremental benefit to total product gross margins as volumes begin to ramp in the second half of fiscal year Let me address product revenue growth and gross margins excluding hyperscaler revenues The pricing actions we've implemented in Q2 have largely offset the increases we've seen in component costs so far We continue to monitor component costs to maintain stable pricing and margins Second, it's important to emphasize that our pricing strategy remains focused on balancing near-term profitability with our long-term growth and market share We have approach pricing in a measured and disciplined manner Remaining consistent with our commitments to customers while preserving the long-term strength of our franchise Our goal here is not simply to maximize margins in the current environment We intend to continue to operate at the low end of our 65 to 70 Product revenue gross margin range to drive top line growth and market share gains while maintaining strong customer relationships Ultimately our plan is to allow our product gross margins to return to the upper end of the long-term range of 65 to 70 One semiconductor costs begin to stabilize and return close to original levels This balanced approach is clearly paying off as we're driving higher levels of top line growth and operating leverage as our operating profit growth attests Our operating profit of 230 million dollars grew 77 percent year over year Resulting in an operating margin of 19.4 percent Revenue outperformance and pricing management discipline drove this excellent result With respect to our geographic mix of revenues US revenue was six hundred and eighty eight million dollars Growing 19 percent and international revenue was four hundred and ninety eight million dollars growing 75 percent year over year International revenue represented 42 percent of total revenue in q2 Notably this marks our highest international revenue contribution to date Scaling our international presence remains a significant opportunity and a key strategic focus for the company And we are very pleased with the team's execution this quarter Moving on to our balance sheet our liquidity remains robust with over one billion dollar in cash and investments at the end of the quarter Cash flow from operations was negative 136 million in the quarter Primarily reflecting strategic component purchases made to support customer demand and secure components supply to fuel strong growth of our core business These purchases consistent primarily of NAND and other key components that were intentionally made To mitigate the impact of continued cost inflation and further increases in component pricing These actions are consistent with our long-standing approach to supply chain management And reflect prudent operational planning to meet the strong demand across our portfolio While these purchases created a temporary headwind to operating cash flow in the quarter We expect operating cash flow to normalize over the next two quarters Capital expenditures were one hundred and one million dollars representing approximately nine percent of revenue for the quarter Our capital investments continue to support the continued scaling of our hyperscale business and to accelerate growth of our evergreen one subscription offering While also reflecting the higher price of components As a result free cash flow was negative 238 million dollars And we expect free cash flow to track back to operating margins during the course of the year And expect free cash flow for fiscal year 27 to be between six hundred million and eight hundred million dollars Into two we repurchased 932,000 shares returning approximately 69 million dollars to shareholders We also paid 74 million dollars in withholding taxes on employee awards Offsetting dilution of approximately 1 million shares We currently have about 176 million dollars remaining under our existing 400 million dollar Repurchase authorization announcing q4 26 Finally our headcount increased sequentially by 282 employees bring our total headcount to 6,900 employees Now turning on to guidance.

I would like to take the opportunity to explain the rationale for our guidance raised As mentioned in the prior q1 earnings announcement on May 27, 2026 We were unsure about sustainability of demand as market participants had to adjust to unprecedented price increases That had not been experienced in years Equally the supply environment was tight and allocation driven The combination of these two factors led us to argue that it was too early to call for further upside to our guide in the second half of 2027 Today, although market prices have increased to levels not experienced in 2017 Demand remains strong and we have anticipated continuous supply tightness with further strategic bias Also as we are past a half-year point We have now two quarters of visibility towards the end of fiscal year 27 With this new backdrop, we are now in position to significantly increase our guidance for the second half of the year For q3 we anticipate revenue to be in the range of 1 billion 325 million dollars to 1 billion 8% increase year over year at the midpoint We expect operating profit to be in the range of 265 to 275 million dollars representing approximately also a 38% year over year increase at the midpoint The outstanding strength of our q2 results good short-term pipeline visibility and continued momentum We are seeing across our customer base gives us confidence in our full-year guidance Again, I would like to remind everyone for prior guidance that we continue to expect significant hyperscale product revenue in q3 and q4 Based on order commitments through the hyperscale supply chain for DFM solutions for fiscal year 27 we anticipate revenue to be in the range of 5 billion 30 million dollars to 5 billion 70 million dollars Representing at the midpoint an increase of more than 500 million dollars relative to prior fiscal year 27 guidance In growth term, we expect revenue growth in on year to be at 38% at the midpoint This is an increase of 75% in growth rate from prior guidance We expect operating profit to be in the range of 940 million dollars to 960 million dollars Representing approximately at the midpoint an increase of 110 million dollars relative to prior fiscal year 27 guidance In growth term, we expect operating profit growth in on year to be at 50% at the midpoint This is an increase of 54% in growth rate from prior guidance As Charlie mentioned, we look forward to providing you with an update on every pure's long-term strategy Path to growth and long-term financial framework at our upcoming financial analyst meeting that will be held on Wednesdays at number 23rd At our center Clara campus with that and now turn the call back to pull for q&a Thanks, Terrick 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.

Thank you You bet and thanks for the question just to set the record straight We were We repeated multiple times in the last call that we weren't saying there was going to be a deceleration We simply said that we were not updating The annual guidance beyond what we had already seen So it was the lack of an update now. Why is that and you're you're absolutely correct what change Well, first of all as you well know and for people who listed this call all the time though We generally operate with one to two quarters of a visibility not not a full year So we I don't I cannot remember a time when we raise guidance after a q1 other than Just the performance that we had in q1 plus q2 So but things did change over the last quarter.

So your question is is absolutely Appropriate two things went away The concern about our ability to source components to be able to deliver And the second was the understanding of what our customers and market participants would do under the scenario of far higher prices As you may remember price increases were implemented in q1 But really didn't fall into the customer environment until q2 So this is the first full quarter that we've seen of higher higher prices And we now have a much better understanding of Of how customers are responding to the higher prices and we also have now two quarters of visibility So, you know two things went away concerned about the higher prices and the effect The concern around supply chain, which we feel now we are very much on top of And then one thing a new information that came in which is actual Experience in how customers are responding to the higher prices.

I hope that answers your question. Um, and Thank you.

So let me start with that. Uh, we I want to make it really clear We are very intentional with our gross margins I feel that we are in complete control of our gross margins And we are choosing to operate at the lower end of our of our normal range in order to help customers Uh to share the pain with the customers to help customers through this very difficult transition That that is going on in the industry through no fault of their own. I mean the the demand for semiconductors has completely outstrips supply That's driving at semiconductor prices higher across the board from the smallest of largest most complex Uh, and it affects us as someone who Assembles those semiconductors into equipment.

Terrick, I'll leave it to you to the other Part of the question of how it affects.

Yes. Uh, thank you charlie. I would add to that that You know, I'd like to add some color and intentionality that charlie has referred to a moment ago Um, our goal is not to maximize cross margin in percentage term Our goal is to seize the opportunity To accelerate the growth and continue to gain market share We are deliberately choosing to operate at the bottom end of our product gross margin long-term range of 65 to 70 And this strategy is paying off. It's paying off Visibly in terms of operating leverage and you can see two things number one the top line growth that we're driving that I consider to be very impressive At 38 percent, but also at the bottom line at the operating profit level We're driving substantial growth in operating profit 77 percent year on year Uh, because we could see that acceleration outpacing the acceleration of our opx Cost in totality.

I'll leave that one for a check So look the way I like to phrase it is very simple Which is there is elasticity in the market and when prices go up elasticity works against the volume side of it the so the The increase in revenues that we're seeing is not in proportion The proportion of Capacity total capacity shipped with however you calculate that Does not has not kept up, you know is less and far less than the amount of total revenue dollars that are shipped And you know as we see As we see prices start to stabilize which I would hope to see towards the end of the year I think we'll start to see volume I'll start to come back up, but um The character you want to Sure on my further.

Thank you charlie.

Thank you harvard for the the question. I won't comment on the second part of your question I would simply say to you that there are four things that have given up performance in q2 price mix um Unit of systems and also capacity so overall System units are down We see customers being More for systems at the high end of our portfolio. That's also Explainable by the mix shift and capacity in the systems that they buy has gone up So it is only the units of systems that has not grown and that's why we have observed across our portfolio And that is in a sense of very good results considering that in q1 as also was anticipated There were some pulins and we were Transparent in the fact that when you have substantial price increases customers tend to bring forward some purchases And that's why we had pulins in q1 but in q2.

This is no longer the case Pulins did not play any role and we don't anticipate any Further impact from so-called pulins in the rest of the year We feel very good about our guidance as it stands And I think that um, you know, if you really look at our top line growth at 38 You would have to adjust that also for the growth of evergreen one evergreen one has grown spectacularly well in q2 We as charlie remarked it's a In excess of a one billion dollar run rate so our total growth once you normalize for the evergreen one contribution is well North up 40% approaching the 50s Thank you Howard next question, please Our next question comes from mike secos from needham and company.

I think what customers see is that you know, it's a much they can They're able to Plan on lower prices over a longer period of time with the as a service Environment and they appreciate that stability So and and you know, we've seen this in the past that when prices go up We see relatively more demand forevergreen one, which is great because part of the Challenge in and as a service business when it's on-prem is that customers weren't used to it So we really welcome The additional attention it's getting but also when prices go down then customers may arbitrage and and look to buy Product rather than then go with a service. So we'll see both sides of that Thank you, Matt.

Yeah So I'll start I'm gonna hand it then over to Rob who you know, it works this extensively But you know at a top level, you're correct We are mainly at this point in time replacing ssd's now our solution can be extended down to HDDs when the when the pricing comes back into Into line, but in the meantime we replace ssd's and you might ask but what is our benefit over ssd's?

Well quite simply it's everything from power performance to absolute performance to ease of use because we have one software solution for any size any scale any Any performance level longer longer lifetimes lower failure rate and then I'm going to hand it over to Rob Yeah, Eric just that onto that, you know, Charlie's enumerated a number of the benefits of the direct flash technology Which obviously our enterprise customers are well familiar with and have you know been able to be beneficiaries of for some time You know where the hyperscalers are now seeing You know a lot of promise for the technology is as they're looking at to your point Now some of these ssd's states comparing the benefits they can get in those areas that Charlie enumerated versus ssd's and the dramatic effects that has on reducing their overall cost and Just call it headache of operations at hyperscale when you think about You know just to put some numbers for comparison when you think about the significant reliability benefits That direct flash drives versus ssd's five times more reliability on a component basis When you think about the density benefits the fact that we can be two three five times as dense When you multiply those out and you look at the you know the overall Reliability benefits that that drives you're you're getting into 25 50x You know type of benefits when you look at efficiency when you look at power savings similarly outsized Amounts of benefits and as compelling as those are in the enterprise You now think about this at hyperscale and you know those benefits are are very very significant So look I think it's very early days.

We're very pleased to be able to announce the second major design win But more so it's just great validation that Either direct flash software has you know a lot of a lot of room to run In this new market that we're opening up Thank you, eric next question, please Our next question comes from Jason ador from william blare.

In the guidance for this year versus what you had baked in last quarter So starting off with that on the On what's baked in it's mostly baked in there's been slight modification to it, but nothing nothing worth the nothing worth calling out It is on track. It should be stated. It's very much on track according to what we had indicated at the beginning of the year You know with with two hyperscalers now It creates a little bit of if you will Greater confidentiality, but not a lot. So we're going to still say, you know fairly Keep it fairly abstract in terms of guidance. You know we've indicated You know the rough rough size of exit bites that would be shipping this year We said next year be multiples multiples of that we're staying on that right now as the as the guide but Yeah, we can't go further.

Once the the the business gets to be bigger than it is today Hopefully with the with more customers than we have today We'd be able to then become a bit more specific in terms of the overall scale of the business Thank you, Jason.

Thank you Yeah, I want to identify one thing that was different in the if you will the closing if you will of the deal and then i'll hand it to Rob on the technology side of it One of the things about this deal and the reason why it took longer than we anticipated was that this a particular hyperscaler didn't want to Vote award the design win until they also had a contract a supply contract in place and so while we had strong indications of a Of a design win quite some time ago We didn't have an official one until we had the supply contract.

So that that was one of the things that was different about this one So rob bill. Yeah, and Simon just to add on maybe to get back to your back to your original question I look if I step back from it without getting into two specific details What I'd say is that the general design You know the the environment the integration the packaging of our technology in this second environment is substantially similar To the first customer You know as with the first design win, you know, their focus is initially going to be in the warmer and higher performance tiers As we spoke about earlier during the call But as well this customer is you know very interested in over time having this consistent architecture be able to be applied across multiple And lower performance tiers as well and again similar to the to the First customer environment and what we're seeing You know in our ongoing conversations across the board very horizontal storage environments across all workloads including AI But as well serving end customer platform as a service and infrastructure services always will be some fit and finish integrations As with any large customized environment But what's really nice to see and validates our strategy here is that the core IP the core packaging the core implementation of solution Very very similar as well as not just the solution from a technology point of view But a business model point of view all right as we have had conversations with a financial community over the last four to five quarters As we ramped up our experience with our first customer Really nicely landed on a business model that worked well for both parties mutually taking advantage of rip are the hyperscaler Supply chain capabilities and our contract manufacturer relationships Thank you, simon.

Um, so with respect to the Very nan price is obviously have a very significant effect on the business both in terms of where the technology is targeted and also frankly, you know in terms of You know our our Because we do manage Uh, we're very deeply involved in the supply chains that deliver the nan to the customer So you know, we're that it also affects how we have to engage You know at that level overall. So I would say nan prices do affect You know our business in a very significant way and christen do uh right we're speaking the second part of the question We're we're not going to be speaking about Individual customers and speculating about timing of design wins moving forward now with a second customer with the repeatability We'll be speaking about looking at this product category as a whole moving forward Thank you, krish next question, please Our next question comes from joseph cardozo from jp morgan, please go ahead your line is open Hi, thanks for the questions and i'll echo my congrats here as well You know, maybe can you just touch on the pre buys that you highlighted in the prepared remarks?

Like how should we be thinking about the duration or how many quarters of supply you've now locked in and any thoughts in terms of how we Should think about the implications for margins or is the expectation here that you can pass through that through um pricing.

Thanks Well, thank you for the question and welcome. I think this is your first call with us. So glad to hear your voice um Look, you know, we we executed those strategic purchases to continue to support the growth of our core Our core is growing extremely solidly and we have now sufficient supply coverage for the foreseeable future. I won't go into the details because it is commercially sensitive as you can expect We also now have a reach the point in time where Pricing has roughly caught up with the costs of uh roll materials And this is really helping the management of the gross margins moving forward But like i said to your colleague earlier on the call We continue to want to operate at the low end of our product gross margin range of 65 to 70 50 that is to Continue to accelerate top line growth and gross market share and drive higher levels of operating leverage.

Hopefully this helps Thank you.

Um beyond beyond the next couple of waters wamji, it's tariq. Thank you for the question We executed those strategic buys for our core Not for the hyperscaler business. We do not procure the nance for the hyperscaler business The hyperscalers procure the nance for their business through their supply chain And what charlie was referring to before is as we executed the second agreement with the hyperscaler The hyperscaler was waiting to secure his own purchase agreements before signing the agreement with us That is the distinction We don't procure the nant for hyperscalers.

Yeah, uh, well. Thank you for the for the question. So, um we As I mentioned at the beginning We generally operate on about two quarters of good visibility of good pipeline that we uh, you know That allows us to forecast roughly two quarters in the future. And so that's what we're doing right now Now you're correct. I'm referencing that I believe that our momentum has increased and that we're picking up share faster Than we have in the past or at least in the the most recent past And because of that we're more confident as we go into FY28 Because the momentum that we have we feel is much stronger than we've had in the lat You know in for multiple years and the reasons I gave at the very beginning of my opening remarks Uh is the basis of that that that is to say that we've completed building our products across the entire Um, the application use case space of of data storage We're leading the industry the gartner magic quadrant is another example of that Uh, we continue to expand what customers can do with their data and how they can protect it and how they can leverage it for AI And we think that is benefiting us with outsized market share demands and that momentum we think will carry going forward But I wouldn't be very clear that you know on a forecast or guide basis We really only have about two quarters of of visibility generally and that's what we guide on is what Is you know that is the our best prediction of the near future that we can have Thank you.

I'm sorry that just let me answer that's just the second part of the question on subscription gross margins Look, there are many um small factors that have Uh That are behind the performance in this quarter, but the main one is being price increases in components Replacement costs for our forever program And that is a good thing and the reason why it's a good thing is that what we know from customers who take on forever is that their churn is lower And so this helps in the long run our business and we will continue to make Investments to fuel our evergreen forever program. Thank you Thank you.

Thank you Well, we believe that um, we're going to you know our we've been operating at a roughly a 30 plus international Share of our total revenues Which is a bit low for and it's an area that we've been investing in for a long time So we do expect that to continue to go up, but I will say on a quarter-by-quarter basis It's better measured on an annual basis quarter-by-quarter Remember, it's all based on shipments rather than on on bookings and both shipments and bookings vary over time. So Uh, you really better measured on an annual basis, but yes, we hope to see that continued increase over time Thank you, Tim before we conclude charlie.

I think he has a final comment Yeah, before we close I do want to thank our customers employees our partners our investors and our suppliers through Going with us through this very challenging period of time our continued success is made possible by your trust and your commitment So thank you all very much Speak to you next quarter That concludes the ever pure second quarter fiscal 2027 financial results conference call Thank you for your participation.