Release Date: August 28, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Pure Storage Inc (PSTG, Financial) reported Q2 revenue growth of 11% year over year, indicating strong market performance.
- The company introduced the next generation of Fusion, a first-of-its-kind storage cloud architecture, enhancing its product offerings.
- Evergreen//One service offering remains strong, providing flexibility and efficiency in terms of capital costs, energy, and labor.
- Pure Storage Inc (PSTG) continues to see strong deal activity in the AI market, with significant interest from customers.
- The company has a robust financial position with $1.8 billion in cash and investments at the end of Q2.
Negative Points
- Lengthening of large enterprise deal times impacted Evergreen//One growth in the first half of the fiscal year.
- The company experienced extended closing timelines for larger Evergreen//One opportunities, affecting year-over-year RPO growth.
- Pure Storage Inc (PSTG) lowered its Evergreen//One TCV target from $600 million to $500 million, reflecting slower-than-expected deal closures.
- There is a modest strategic decline expected in product gross margins during the second half of the fiscal year.
- The competitive environment remains tough, with legacy competitors intensifying their efforts against Pure Storage Inc (PSTG).
Q & A Highlights
Pure Storage Inc (PSTG) Q2 FY25 Earnings Call Highlights
Q: The Evergreen//One TCV target has been lowered from $600 million to $500 million. Can you explain the reasons behind this adjustment and its impact on your revenue guidance?
A: (Charles Giancarlo, CEO) The adjustment is due to large Evergreen//One opportunities taking longer to close, rather than customers switching to CapEx deals. This lengthening is likely due to customer caution and increased scrutiny on subscription expenses. (Kevan Krysler, CFO) We did see some large deals close this quarter, but the overall impact on annual revenue guidance remains unchanged as these opportunities are still being actively worked on.
Q: Can you provide more details on the hyperscale opportunity and any progress made?
A: (Charles Giancarlo, CEO) The lead prospect is progressing well, with extensive testing and detailed contractual negotiations ongoing. The hurdles are mostly logistical and aligning business models. (Rob Lee, CTO) Engagements are advancing through various testing phases, and we are now in detailed performance and operational testing.
Q: With the lowered as-a-service TCV sales estimate but unchanged total revenue outlook, is there increased risk in the product line?
A: (Charles Giancarlo, CEO) CapEx sales are continuing as expected, and the base Evergreen//One sales are progressing well. The delay is specifically in large Evergreen//One deals, which have not switched to CapEx but are taking longer to close. (Kevan Krysler, CFO) There is no significant change in demand that would affect our annual guide.
Q: How has customer interest been in the new Fusion offering, and do you see it unifying storage for AI?
A: (Rob Lee, CTO) Early interest has been great, with customers looking forward to the new release later this year, which will allow them to manage their storage environments more efficiently. (Charles Giancarlo, CEO) Beta users have shown strong interest, and both large and small customers see significant benefits.
Q: Can you comment on the competitive environment, particularly with the rise of QLC-based arrays from competitors?
A: (Charles Giancarlo, CEO) Our lead in QLC remains strong, and our //E family of products targeting the low end has been very successful. Competition is tough, but our position as a top competitor is solid. (Kevan Krysler, CFO) The volatility in NAND pricing highlights our differentiated advantages, and we are successfully winning workloads across price-sensitive environments.
Q: What gives you confidence in the Evergreen//One ramp expected in the second half?
A: (Kevan Krysler, CFO) The adjusted forecast of $500 million in TCV sales is achievable, considering the strong velocity business and the expected ramp in the second half. The implied ramp is only slightly higher than our traditional seasonality.
Q: How does the order book for the 150-terabyte flash module compare to previous upgrade cycles?
A: (Charles Giancarlo, CEO) The 150-terabyte module opens new opportunities at lower price points and reduces our costs, enhancing margins and allowing us to compete more aggressively in cost-sensitive environments. (Rob Lee, CTO) Each density improvement reduces power and space requirements, enabling us to target lower-cost disc-based systems and hyperscaler environments.
Q: Can you provide an update on the percentage of revenue and order book related to AI?
A: (Charles Giancarlo, CEO) We haven't broken out AI-specific revenue, but we see three major segments: training environments, enterprise inference, and up-leveling existing storage for AI. The training environment is currently generating real revenue, while the other two areas are still developing.
Q: What are the key factors influencing the gross margin commentary for the product?
A: (Kevan Krysler, CFO) Our product gross margins are in the high-60s, driven by strong demand for our cost-sensitive all-flash solutions. We expect a modest sequential decline in the second half due to continued sales growth in these areas, which has been factored into our annual guidance.
Q: Can you elaborate on the hyperscaler opportunity and the types of workloads they are considering for your solutions?
A: (Charles Giancarlo, CEO) Hyperscalers are considering a broad architectural shift, replacing both high and low-performance workloads, including disc. The discussions are extensive and cover various performance and architectural replacement points. (Rob Lee, CTO) Hyperscalers seek economies of scale by standardizing infrastructure, and we see opportunities to provide value across their workloads.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
