Release Date: May 29, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Pure Storage Inc (PSTG, Financial) returned to double-digit revenue growth in Q1 FY 2025.
- The company saw strong customer demand for its FlashBlade solutions, including FlashBlade E.
- Subscription services annual recurring revenue (ARR) grew 25% to over $1.4 billion.
- Pure Storage Inc (PSTG) achieved a new high record for Q1 operating profit at $100 million.
- The company continues to make significant progress in penetrating the hyperscaler market with its Purity and DirectFlash technology.
Negative Points
- The macro spending environment remains uncertain, with no major inflection in IT spending observed.
- Q1 TCV sales for storage as a service offerings were $56 million, which was slower than expected.
- Headcount decreased slightly to approximately 5,500 employees, raising concerns about sales capacity.
- Gross margins may face pressure from aggressive pricing in secondary and lower storage tiers.
- The company did not repurchase shares of stock during Q1 due to trading restrictions.
Q & A Highlights
Q: Can you talk more about the cloud opportunity going forward?
A: We categorize our opportunities into AI, cloud, and hyperscaler segments. AI wins, whether in enterprise or GPU cloud, are distinct from hyperscaler design wins, which pertain to standard storage for compute and customer environments. Cloud refers to our capabilities to operate like a cloud in the enterprise and our software on hyperscalers. AI presents immediate opportunities in machine learning and drives customers to upgrade their entire data storage, which we can address with our platform strategy.
Q: How are you thinking about gross margin with increasing NAND prices?
A: Storage operates in a dynamic pricing environment, and NAND prices generally don't significantly affect our gross margins. While NAND prices rising might be a tailwind, customers have set budgets, so overall, it shouldn't impact our or the industry's gross margins significantly.
Q: How would you characterize the demand environment relative to last fiscal year?
A: The demand environment has improved over last year, but we haven't seen a major inflection point. AI has caused customers to reconsider their spending, but overall, it's a modest recovery from last year.
Q: Can you provide more color on the potential design win at a hyperscaler by year-end?
A: We are having conversations with multiple hyperscalers, including the top ten beyond the three public clouds. The quantity and quality of these discussions have improved, and we are now experiencing both testing and commercial discussions, leading us to believe in a design win this year.
Q: Why did your headcount decline slightly this quarter?
A: We continue to invest in sales capacity given the opportunities we see. The slight decline is due to a focus on the quality of new customer adds and expansions in existing accounts. We expect customer acquisition to moderate as we have a significant customer base now.
Q: How did adoption or growth of Evergreen One and Flex track versus your expectations?
A: Q1 adoption was slightly lower than expected, mainly due to the absence of large deals. However, we saw strong demand and pipeline build throughout Q1 and expect to achieve $600 million in TCV sales for the year.
Q: How should we think about product versus subscription services revenue trajectory for fiscal '25?
A: We expect mid-teens growth in total revenue, with product revenue showing strong growth in Q1. Subscription services revenue will continue to grow, and we expect it to approach 50% of total revenue.
Q: Why are you not changing your fiscal year guidance despite strong Q1 results?
A: We believe reiterating our annual guide is appropriate. Q1 performance provides confidence, but it's generally our slowest quarter. We also want to see how TCV sales for storage as a service offerings play out.
Q: How do you view customer concentration and its outlook?
A: Customer concentration remains consistent, and we did not have a 10% customer this quarter. We do not provide an outlook on concentration.
Q: Can you discuss the demand for AI training environments and the roadmap for higher capacity SSDs?
A: The storage attach for AI training environments is in the 5-10% range of the total cost. We estimate about $1 billion was spent on storage for AI training in the past 12 months. Larger capacity SSDs are being deployed in specific environments due to power and efficiency benefits, enabled by our DirectFlash software.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
