Everpure, Inc. Q4 FY2025 earnings call

• Achieved a design win with a top four hyperscaler, with Pure's DirectFlash technology enabling consistent architecture across performance tiers.
• Launched 150 terabyte DirectFlash module, on track to deliver 300 terabyte DFM late 2025.
• Expanded and grew the E family to address AI-driven unstructured data growth, offering better economics than disk.
• GA release of Fusion v.2 transformed data storage architecture from silos to enterprise data clouds, with positive customer feedback.
• Portworx saw strong growth in FY '25 due to AI analytics and Cloud-native platform use cases, with two Fortune 50 companies transitioning to modern virtualization environments using Portworx.
• Activity in AI continues to grow, with plans to showcase latest AI advancements at NVIDIA GPU Technology Conference.
• Developed contingency plans for geopolitical uncertainty and tariff scenarios, with globally distributed and diversified supply chains.

In FY '25, Pure Storage achieved total revenue of $3.2 billion, growing 12%. In Q4, total revenue increased by 11%. Record sales were seen in Flashblade, FlashArray XL, Portworx, the E family, and renewals of Evergreen subscriptions. Q4 product gross margin was 62.9%, supported by a robust subscription services margin of 77.2%. For the year, total gross margin was 71.8%. Q4 subscription services revenue was $385 million, increasing 17%, and subscription services annual recurring revenue (ARR) grew 21% to $1.7 billion. Subscription services net dollar retention (NDR) at the end of the year was 117%. International revenue in Q4 was $261 million, down 3% year-over-year, but FY '25 international revenue increased by 13%. FY '26 is expected to have product gross margins in the mid 60s.

• FY '26 expected double-digit revenue growth, increasing by 11% to just over $3.5 billion. Q1 revenue expected at $770 million, up 11% year-over-year.
• Expect operating margin in FY '26 of approximately 17%, translating to operating profit of around $595 million. Q1 operating profit guided at $80 million, with an operating margin of 10.4%.
• Leveraging hyperscale design win through incremental investments to scale operations for large production and deployments starting in FY '27 and accelerating density in DirectFlash modules.

• Geopolitical uncertainty contributing to a dynamic environment, affecting business operations.
• Tariff-related risks, with contingency plans developed but uncertainty around specific tariffs and their impact.
• Immaturity of the market in understanding and adopting as-a-service offerings, leading to longer and more challenging sales cycles for Evergreen//One and other service-based products.

Q: Mike Cikos asked about signs of customers adopting Fusion showing faster expansions or stickiness.

A: Charlie Giancarlo responded that dozens of companies have downloaded and turned on Fusion, with positive feedback on using presets for policy management, though it's early with a network effect expected after several quarters of use.

Q: Aaron Rakers inquired about progression of the hyperscale opportunity and discussions with other hyperscalers.

A: Charlie Giancarlo said the conversation is evolving with more advanced testing and co-development, and Rob Lee added that engagements with other hyperscalers are progressing faster.

Q: Amit Daryanani asked about investments needed for the hyperscale design win to production.

A: Robert Lee said it's an ongoing co-development with the hyperscaler, requiring work on software, hardware architectures, and qualifying NAND suppliers and DirectFlash modules, with Kevan Krysler summarizing it into integrating software, accelerating DirectFlash density, qualifying NAND suppliers, and expanding supply chain capabilities.

Q: Howard Ma asked about product gross margin decline cause.

A: Charlie Giancarlo said it's entirely attributable to the E family, with E family being a higher percentage of mix and competing against disk where NAND prices affected margins, expected to moderate as NAND prices come down.

Q: Krish Sankar asked about RPO growth rate decline.

A: Kevan Krysler said it's derivative of Evergreen//One TCV sales, with Q4 Evergreen//One performance at 20% and excited about the offering's value realization.

Q: Jason Ader asked about hyperscaler business margin and revenue guidance.

A: Charlie Giancarlo said it's dynamic with updates expected when rollout plans firm up, and Kevan Krysler added it's consistent with previous quarter's design win discussion from a financial perspective.

Q: Simon Leopold asked about enterprise adoption of AI initiatives affecting business.

A: Charlie Giancarlo said AI is multifaceted, with Fusion helping in data management for AI, and Rob Lee added that AI segment is playing out as expected with more engagements in inference and RAG deployment phases.

Q: Quinton Gabrielli asked about tariffs and hyperscaler investment.

A: Charlie Giancarlo discussed supply chain flexibility and contingency plans for tariffs, and Kevan Krysler talked about building out hyperscaler ecosystem and supply chain for scale.

Q: Wamsi Mohan asked about lack of reacceleration in revenue with E family aggression.

A: Charlie Giancarlo said it's due to expecting return to growth in Evergreen//One and considering macro environment and political uncertainties, with Kevan Krysler adding guide considers consistent IT spending and normalization of Evergreen//One conversion tailwinds.

Q: Meta Marshall asked about customers' appetite for CapEx vs OpEx.

A: Charlie Giancarlo said market is immature in as-a-service offering understanding, making sales complex with longer and challenging cycles, expected to stabilize as market matures.

Q: Asiya Merchant asked about NAND pre buys for product gross margin improvement.

A: Charlie Giancarlo said Pure is skilled at buying in market, taking advantage of opportunities when beneficial.

Q: Tim Long asked about HDD advancements and ROI.

A: Charlie Giancarlo said competing with HDD systems, pricing and margins depend more on NAND prices vs HDD systems, and Rob Lee added disks are struggling, and Pure systems are advantaged on TCO basis with QLC prices expected to decline long-term.

Q: Max Michaelis asked about peer-specific risks to FY '26 guide.

A: Charlie Giancarlo said no specific peer risks seen blocking 11% guide, and Kevan Krysler added guide considers consistent IT spending and Evergreen//One growth.

Q: Ari Terjanian asked about GTC conference and AI training.

A: Charlie Giancarlo said Pure modified product to address HPC performance characteristics, proud of team's work to deliver at GTC.

Q: David Vogt asked about Portworx customers migrating from VMware.

A: Charlie Giancarlo said customers are looking towards Kubernetes and containers, with KubeVirt making it compelling to move to consolidated application management environment.

Q: Howard Ma asked if FY '26 guidance bakes in hyperscaler shipments.

A: Kevan Krysler said it does, contemplating in guide as discussed last quarter.