Q4 2023 Pure Storage Inc Earnings Call
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At this time I would like to turn the call over to a pool of Zions Vice President of Investor Relations. Please go ahead.
Thank you good afternoon, everyone and welcome to Fluor's fourth quarter fiscal 2023 earnings conference call on the call. We have Charlie Giancarlo Chief Executive Officer, Kevin Chrysler, Chief Financial Officer, and Rob Lee Chief Technology Officer. Following Charlie's in Kevin'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 slides that accompany this webcast can be downloaded at investor day pure storage 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 in operations, our strategy technology and.
Its advantages are 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 as 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 revenues remaining performance obligations or <unk> and cash and investments reconciliations to the most directly comparable GAAP measures are provided in our earnings 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 web site and is the property of pure storage, our first quarter fiscal 'twenty four quiet period begins at the close of business Friday April 21, 2023 with that I'll turn it over to Charlie.
Thank you Paul.
Hello, everyone and welcome to our Q4 and fiscal year 2023 call. We were pleased with our Q4 year over year revenue growth of 14% and we're very pleased with our annual revenue growth of 26% and annual subscription <unk> growth of 30%.
Especially considering the challenges of the steadily increasing global economic slowdown.
Revenue growth operating leverage and operating discipline helped drive strong annual profit and cash flow in FY 'twenty, three with operating cash flow up over 85% and non-GAAP operating income up almost 100% for the full year.
We achieved solid growth as we continue to take share driven by our best in class portfolio of products and services, our innovative evergreen business model and leading customer centricity proven by our industry, leading net promoter score and.
In FY 'twenty, three we expanded our core product offerings with the new flash blade us fewer fusion and <unk> data services offerings.
We also expanded our as a service offerings, adding more service tiers, and SLA guarantees to evergreen, one and extending our as a service model across the full suite of Port works solutions.
George sustainable competitive advantage lies in our highly consistent product lines all based on our purity operating system direct flash modules pure one cloud management and evergreen subscription model.
Competitors have tried for years to imitate our differentiated evergreen business model, but have been unable to deliver the combined benefits of continual non disruptive upgrades and forever flash through a transparent and flattened fair subscription agreement.
Sure for the first time had a presence at the World Economic Forum in Davos. This past January the.
The largest topics at Davos this year, where the war over Ukraine digital currencies and sustainability.
Our participation focused on promoting the important role that pure will play in reducing technologies and it is demand for energy and its production of E waste.
Just prior to the event the World Economic Forum produced the study, stating that digital electronics of all types contribute 4% to 5% of all carbon emissions.
Other studies identify that data centers use between one and 2% of all electrical power generated in the world.
It is further estimated that data storage accounts for 20% to 25% of datacenter power usage, increasing it to as much as 40% by the end of the decade.
The vast majority of data data centers over 80% remains trapped on magnetic hard disks.
As we have stated for the past year, George Flash optimized systems generally use between two and five times less power than competitive SSD based systems and between five and 10 times less power than the hard disk systems, we'd replace.
Simple math, then shows that replacing that 80% of hard disk storage and data centers with pure flash based storage can reduce total data center power utilization by approximately 20%.
That same math shows that both data center space and E. Waste would also be reduced by similar amounts with reduced labor costs and increase reliability as additional benefits.
Reducing the world's datacenter power space and E waste by 20% is a very significant reduction in the world of sustainability and needs to be recognized and amplified.
This opportunity is resonating not only within the highly specialized field of data storage teams, but now also with the entire C suite, including <unk> CFO of <unk> and even Ceos.
While our product and technology leadership remains the primary reason by which customers select pure.
The competitive sustainability of our products continues to grow in importance with customers in.
In Q4, we saw more customers, citing energy efficiency as a reason they chose pure than in any previous quarter to date.
Beyond just the environmental benefits, we provide customers are increasingly compelled by their ability to get more out of their storage at a lower total cost of ownership given the backdrop of increasing energy prices.
This simple step of replacing hard disk with tours flash optimized storage has significant benefits to any organization, but has been out of reach economically for the majority of secondary tier data because of the higher cost of solid state flash technology compared to the lowest cost hard disk drives.
Large unstructured data repository is continue to be dominated by 7200 RPM disc despite their difficulty to manage relatively low reliability and there are substantial power space in cooling.
Because superior all flash systems were too expensive.
Well I am pleased to announce that our founders vision of the all Flash data Center is finally here and the days of hard disk dominance of data coming to a close.
Today, your announced flash Brady.
Scale out unstructured data repository built for large capacity data stores, which provides a lower total operating costs compared to secondary tier Jess.
Flash Blade E will ship late this quarter.
Flash Brady will be priced under 20 cents per gigabyte at a system level.
And cost even less when measured on effective capacity.
Let me repeat that flashed Lady will be priced under <unk> per gigabyte at a system level inclusive of the first three years of subscription which directly competes with lower performance all hard disk systems.
<unk> operating cost per flash blade E are significantly lower than the hard disk systems that will replace with its five to 10 X reduction in cost for power space cooling and labor.
Flash Blade E. The second in our series a cost optimized products. After flash array <unk> opens up a massive new opportunity for us and allows us to expand further into our total available market.
Slash blade E enables pure to significantly penetrate many segments of the storage market currently dominated by desk, which is been inaccessible to pure until now.
<unk> is a perfect example of how we are investing our R&D dollars in a focused and strategic manner to maximize long term growth opportunities and one of the worlds largest categories.
We are extremely excited about how this new product complements our innovative portfolio and strengthens our opportunity to drive <unk> growth over the long term.
While we are excited about the prospects for our products and the competitiveness of our organization. We are also well aware of the challenges of the current economic environment and the strength that it places on our customers since our Q2 earnings call. We are discussing instances of longer sales cycles and caution with large purchases.
Especially in the enterprise segment.
As expected. These conditions continued through Q4 and close rates of our advanced stage deals continued to be consistent with the earlier quarters.
While we were able to generate considerable new opportunities and pipeline during Q4, the development and progression of these new opportunities slowed substantially, especially in our enterprise segment.
This recent slowdown in customers' purchasing expectations in conjunction with heightened concerns around further tightening monetary actions by the fed and other central banks and governments has impacted our growth outlook for the coming year.
We also believe that our successful sales motion over the last few years, we will need to adapt to the additional scrutiny that customers are now placing on purchases.
We are therefore, adjusting our sales motion for the additional economic analysis that customers need to justify purchases with tightened budgets.
In particular, focusing our efforts on steps our customers can take to reduce their costs, both capital as well as operational while improving their human productivity.
Evergreen one flash Brady and flash array C will all play a large role in this new economy.
We have high confidence in our long term growth and strategy, but have made operational changes for what we believe will be near term economic headwinds.
We have already taken action to reduce spending across the company and have reduced our spending and budgetary growth plans for FY 'twenty four until we see improvements in the environment as Kevin will cover in a few moments we are maintaining our operating margin guidance for FY 'twenty four even after taking into account <unk>.
Lower revenue growth expectations than previously anticipated. We are very excited about the innovation, we delivered in the year and are particularly excited about the introduction of flash blade E, which will further fuel our ability to make the all flash data center, a reality a benefit for both our customers and our planet.
We expect to continue to be share takers in FY 'twenty four.
What we provide in terms of energy efficiency total cost of ownership and best in class technology strongly resonates with our customers.
Especially in the current environment, where organizations need to do more with less.
Despite the lower than anticipated revenue guide for fiscal year 'twenty four.
We are confident that we will continue to grow faster than the overall storage market and continue to take share from our key competitors. We will continue to lead the market and meaningful innovation in data storage and management.
We will increase our relevance and opportunities with the worlds largest technology companies.
And we will further leverage our leadership position to accelerate the drive to the all Flash data center.
I'll now turn it over to Kevin to cover our financial performance and outlook in more detail.
Thank you Charlie and good afternoon, we delivered strong financial results in Q4 with revenue growing 14% and operating margin of 19, 6%, while navigating the increased challenges of the macroeconomic environment.
As a reminder for comparability our Q4 last year included an additional week of revenue and expenses for the year. We grew revenue, 26% to $2 8 billion and substantially expanded our operating margins from 10, 8% to 16, 6%.
Subscription annual recurring revenue or subscription IRR continues to be strong exceeding $1 1 billion up 30% year over year Evergreen one once again represented a key driver of our subscription IRR growth in Q4, and resonate strongly with customers as they.
Get tighter it budgets without having to compromise performance and value.
Also consistent with last year, our subscription net dollar retention or India at the end of the year exceeded 120% compared to our long term target of 115% as a result of expansion from existing customers.
Remaining performance obligations or <unk> grew 24% to $1 8 billion similar.
Similar to the remarks, we have made in previous quarters, our <unk> growth is impacted by product shipments for an outstanding commitment with one of our global system integrators. Excluding these product shipments RPM grew 28% year over year.
Our head count increased to approximately 5100 employees.
As the macro backdrop persists, our investment and incremental head count next year will be focused on quota carrying and critical business hires.
International revenue in Q4 grew 39% to $258 million and U S revenue of $552 million grew 6% year over year.
U S revenue growth reflects caution in spending that customers are exercising most notably in the enterprise segment.
Q4 product revenue grew 11% and subscription services revenue increased 23% year over year and comprised approximately one third of total revenue for the quarter.
Adjusting for the extra week in Q4 last year subscription services revenue would have grown 31% year over year.
We acquired approximately 490, new customers during the quarter, which was strong despite the challenges of the macro backdrop.
Contributions from both product and subscription services gross margin continued to be strong as total gross margins were nearly 71% in Q4, we expect that product margins will continue to be resilient benefiting from our ability to leverage raw flash and our increasing mix of <unk> flash.
We are also pleased with the strength of subscription services gross margin of 74% for the quarter and nearly 73% for the year driven by increasing efficiencies as we grow and scale, our evergreen subscription offerings.
We remain focused on profitability as reflected in our strong Q4 operating profit of nearly $160 million and.
Getting margin of 19, 6%.
We are very pleased with our substantial operating margin expansion. This year and we will continue to be very focused on our spending.
Approximately two points of our operating margin in FY2023 was attributable to tailwind that we do not expect will occur next year.
This included higher attrition and slower than planned hiring that we experienced during the first half of FY 'twenty, three as well as lower than expected sales costs in Q4.
We have a very strong balance sheet that includes approximately $1 6 billion in cash and investments we generated significant cash flows from operations during the quarter of approximately $230 million and approximately $770 million for the year as a result of strong collections and increasing profits.
<unk> <unk>.
Capital expenditures in Q4 were $60 million and during the year represented approximately 6% of revenue.
<unk> driving our higher capital expenditures include the strength of our evergreen one solution as well as test systems for our new product offerings.
In Q4, we repurchased over two 4 million shares of stock returning approximately $67 $5 million to our shareholders.
For the year, we repurchased approximately seven 8 million shares returning nearly $219 million in capital to our shareholders.
We have approximately $31 million remaining on our existing $250 million repurchase authorization and we are announcing today, a new share repurchase authorization of an additional $250 million.
Turning to revenue guidance for FY 'twenty four we believe the current macro uncertainties will continue to persist creating headwinds to enterprise it spending.
And as such we expect revenue growth to be in the mid to high single digits.
This revenue guidance considers the macro backdrop and uncertainties that we're currently seeing today.
As Charlie mentioned, the progression of new and early stage sales opportunities are taking a longer period of time to close due to increased customer diligence approvals and tightening budgets.
We expect this to continue through FY 'twenty four with some moderation later in the year as our sales teams adjust their selling motions to more closely align with evolving customer buying motions.
During Q4, we do not receive new product orders from meta and this is reflected in our forecasted growth rate for next year.
Also our FY 'twenty for revenue guidance assumes a modest ramp during the second half of the year from sales of our newest flash blade E offering.
Turning to operating margin guidance for FY 'twenty four we remain very focused on profitable growth, while continuing to support our highest long term growth opportunities such as our announcement today of flash plating.
As a reminder, last quarter, we shared a preliminary view of operating margins in the range of 14% to 15% for FY 'twenty four.
At the time, our preliminary view contemplated key considerations, including higher revenue growth assumptions.
With our expectations of slower revenue growth, we adjusted our spending budgets for next year to align with an expected operating margin of 15% representing the high end of the range of our preliminary view.
We expect to achieve this operating margin by exercising strong focus and discipline on both hiring and spend management.
Now turning to revenue guidance for Q1.
As we have mentioned on multiple occasions in prior earnings calls Q1 of last year reflected $60 million of product revenue impacting seasonality as this revenue had been contemplated for the second half of FY2023.
Excluding the seasonality impact to product revenue of $60 million. We expect that Q1 revenue. This year will be flat at $560 million when compared to Q1 of last year.
Our Q1 revenue guide of $560 million takes into consideration that newer early stage opportunities will require a longer period of time to close.
Again, we expect this impact will moderate later in the year.
While we are confident and committed to achieving 15% operating margin for the year, we expect that our operating profit in Q1 will be approximately $10 million operating.
Operating profit in Q1 reflects a significant investment for our first in person sales kickoff event since 2020.
As well as higher cost as a result of our planned hiring in both Q3 and Q4 of last year.
In closing I'd like to thank our customers partners and employees for an incredibly strong FY2023.
Although the current macro backdrop presents its challenges pure is uniquely positioned to help our customers navigate these challenges leveraging our innovative high performance solutions, while providing financial flexibility through evergreen and reducing total cost of ownership and energy consumption.
As we look forward, we are confident in our strategy and ability to continue taking market share and deliver strong operating margin of 15% in FY 'twenty four.
That I will turn it to Paul for Q&A.
Thanks, Kevin.
Four we begin the Q&A session I will ask you to please limit yourselves to one question consisting of one part so we can get to as many people as possible.
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Our first question for stay comes from Amit <unk> of Evercore ISI.
Your line is now open. Please go ahead.
Thanks for taking my question I guess there'll be a fair bit of focus on this fiscal 'twenty revenue guide for mid to high single digit growth.
I think last quarter you can obviously you have a formal guide, but I think the expectations would be around double digit growth or thereabouts. So I'd love to understand whats changed in the last 90 days and to the extent you can talk about how much of this guide adjustment is due to macro worries worst this perhaps something that's more company specific.
Do we worry about competition or share gain trajectory kind of thing is I'd love to understand the downtick, you're seeing how much is macro versus company specific that'd be really helpful. Thank you.
Thanks, Amit absolutely this is Charlie.
Good to hear from you first let's just say that as we went into last quarter, we were expecting double digit for Q4, and we were able to deliver on that and feel really proud about about the team and what they're able to do and that really represented the.
A good close rate of our advanced stage opportunities, which continued through the quarter.
What did change is especially as we came into the new calendar year was a slowing down of progression of.
The pipeline of the of the staged opportunities, meaning the progression that we had typically seen in earlier quarters of movement from early stage to later stage in the progression of that that has slowed down since the beginning of the year and we have to assume that that'll be true for at least a couple of quarters going forward and so that.
Change the outlook, if you will for the year as we go forward that being said we are.
We're positive on the year overall, we are positive on our on our.
Our competitiveness in the market what the other thing that has perhaps changed is that we do notice a change in the way that the customers are evaluating their purchases a lot more focus on economic analyses, especially on near term operating costs and thats.
Of course, we're responding to that now by changing the way our sales teams go about.
Working with the customer on evaluating our products in a much more <unk>.
Greater focus on near term operational cost as a justification for making the choice to proceed forward with a project versus maybe other projects that they have.
In their consideration.
Charlie did you want to mention anything about the expectation to continue to gain share.
I think both Kevin and I mentioned that but as we have done.
Certainly every year in almost every single quarter, we continue to gain share against our competitors everybody is affected by the macro.
We're no different than that.
But the goal is obviously to continue to outpace the rest of the rest of the field great.
Great. Thank you. Thank you Amit next question please.
Our next question comes from Aaron Rakers of Wells, followed by Aaron. Your line is now open. Please go ahead.
Yes, thanks for taking the question guys.
I just wanted to unpack the guidance a little bit in the current quarter and just understand what's implied subsequent of that so.
560 million it sounds like obviously adjusting for the the item you had the year ago quarter, if I take that on our product revenue.
It seems to imply an extremely sharp decline sequentially in the subscription revenue so I guess the.
The first part of that is is that necessarily how youre thinking about that or am I missing something that and why would subscription necessarily decline that much and I guess, if I take at face value of the mid to high single digit for the year.
To be the mid single digit the assumption would be is that your growth actually in the subsequent quarters. It looks like it's even high single even double digit returning I'm just curious of how you kind of bridge the seasonality after the first quarter guide to get to that mid <unk>.
High single digit full year guidance. Thank you.
Aaron This is Kevin and I appreciate the question and Youre right with the first point.
Around the $60 million that they really was seasonality and really should be excluded in terms of how we're thinking about the comparability of our product revenue is that $60 million. If you recall, we had mentioned that on previous earning calls that was really planned for the second half of the year. So that's really impacting seasonality.
So then after you adjust the $60 million you still have for Q1 of last year, a very strong year over year growth of 37%. So that does set up for a tough compare.
And then the macro backdrop.
Charlie mentioned, and I mentioned, which really resulted in longer than expected sales progression of new and early opportunities.
Did add additional headwind to that tough compare that we're thinking about specific to Q1.
And that's what's leading to the Q1 revenue outlook of flat year over year, when excluding the impact of seasonality, but look at it really does generally align in terms of seasonality. When we think about Q1 and when we think about our overall guide for revenue in the mid to high single digits.
Larry is aligning with our seasonality that we saw with FY 'twenty two so we actually feel pretty comfortable with that.
Yes, Okay, I think I was missing the point on the flat. Thank you.
Yes. Thank you.
Aaron next question please.
Thank you next question comes from meta Marshall of Morgan Stanley . Your line is now open. Please go ahead.
Great. Thanks.
Just on kind of some of the sales marketing changes that you guys are planning on making just.
When did you start making some of those changes those even last quarter you would've started to kind of see some of those cost sensitivity and just kind of what gives you confidence that those changes will be kind of impactful towards the back half of the fiscal year.
Yes. Thank you. Thank you meter well you are correct I mean, obviously as we proceeded from Q3 into Q4, we knew that economic concerns would be higher and we started adding some additional.
Training to the sales force, we do have next week our first.
Full in person sales kickoff in three years since 2020.
And a lot of what we've done is prepare the training for that for this new economic reality. So we haven't had enough.
For warning, if you will and we.
<unk> planned early enough.
So that the way that the training is working out for our sales kick off is going to be very much in the mode of of selling and creating value propositions.
In an environment, where customers are much more focused on near term cost savings rather than let's say long term.
Advantage or long term cost savings so that's a clear change in the.
In the training that we're putting place in our field.
Yeah, and I think that's a great great point, Charlie and maybe what we can add to his thoughts around peers unique positioning even in this environment and then connecting that with the field as well, which I think is going be really important while our development of flash blade. He was not done in anticipation of a recession that couldnt come at a better time.
Its operating costs well below.
The operating costs of our hard disk environment that will be replacing.
And evergreen one we Shouldnt mentioned evergreen one we did see significant increase in evergreen one versus capital.
<unk> last quarter every time, we see some economic slowdown whether it was the early COVID-19 days or now this we see a pickup in interest in evergreen one so we've already seen that and we can expect that I think for the next several quarters.
We will have both short term long term effects overall, good for the company but.
A transition to evergreen one from a capital also has.
Reduction of.
Of the of the revenue line Yep, that's great and I would add a couple more to that as well, which as you know flash or a C continues to get traction and really is resonating with customers in this environment.
And we introduced last year, Evergreen flex, which is starting to pick up some traction and interest as well and we do expect some more momentum on that front, but where it really what it is getting at is that we've got a lot of solutions for our customers that provide a lot of flexibility both in terms of consumption and financial and I think.
It's really going to resonate with customers as we navigate this environment.
Thank you meta great next question please.
Thank you. Our next question comes from Sidney Ho of Deutsche Bank, Sydney, alongside what open. Please go ahead.
Great. Thank you for taking the question first of all I want to clarify to an earlier answer it's really a question.
Fiscal first quarter guidance, what are you expecting for your subscription services revenue could do on a year over year basis.
I'll ask a follow up question here.
The subscription <unk> has been growing quite steadily at 30% a year, how does that growth rate change if any if the hardware sales slowed down in the near term is there a lack in fact that we should consider.
Yes definitely.
Thanks.
Yeah. It's a great question. This is Kevin again, we've been very pleased obviously with the strength of our subscription business Youll see that again in our subscription.
Our growth rate, we see that continuing to be strong as we progress through the year Charlie pointed out the strength that we saw in evergreen one in Q3 and Q4 of last year, we expect that to continue so that's going to be a benefit for us as we continue to navigate and look I do expect that.
Overall, our renewals have evergreen solutions will continue to be very strong.
During this time.
Customers are valuing in a significant way the ability to have their solutions and power solutions modernize through the evergreen offerings and so we do expect that to continue to be strong offset somewhat slightly by the attach of evergreen to new product.
Given the slowdown that we've communicated.
Thank you Sydney next question please.
Thank you. Our next question comes from Wednesday Mohan from Bank of America. Your line is now open. Please go ahead.
Yes. Thank you so much.
Charlie These growth rates are some of the lowest the pure has seen probably just excluding COVID-19 and that was a very very difficult.
Uncertain economic environment.
Youre guiding fiscal 'twenty for the low end, maybe two to three points about those growth rates.
How can we get confidence that this is purely just macro.
When these growth rates are historically, something that you have well outperformed.
Taking massive amounts of share historically is there something happening either between pricing are between your ability to take incremental share I mean, youre arguably a $1 billion $1 2 billion larger company than hold it too so.
What are the different factors that we should be thinking about especially with respect to NAND Flash prize.
And.
The ability to take incremental share.
Yes. Thank you.
Consistently grown roughly 10% to 15% higher than our competition in the market as a whole on an annual basis.
Obviously every quarter is a little bit different but.
On an annual basis, 10% to 15% I expect that this year as well, it's just a measure a matter of calling out the year the.
Overall market as a whole.
I think that.
We also are not forecasting matter, because we don't forecast until we get a.
In actual order and that obviously had an effect on both of our last two years.
And we do have.
Significant large high tech customers and as others have reported those are those are down a bit but they always they always come back so.
I was.
I think everyone on this call knows that I look at this business on a long term basis I have no no.
Loss of confidence.
Every bit as confident about our long term projections.
As.
As I've had in quarters and years past.
Evergreen I'm sorry.
Flash Blade E. I think is going to be a barn burner. Obviously, we're just getting it started and it's going to be early days.
But it opens up a major new part of the market for us.
Our field teams have been strong year in and year out and we're only making them stronger with some of the new products the.
The new programs, we're putting in place for this fiscal year, and our and our sales kickoff that'll be that'll be next week, so no loss of confidence.
In terms of our overall ability to perform.
But we are facing a very uncertain year.
As as is everybody else on a variety of fronts and as we hopefully as we go through the year, we'll pick up confidence as we go along.
One thing I think the only thing I would add to Charlie's answer is the strength. We're seeing on evergreen won an evergreen flex is significant and is really resonating with our customer base and obviously if that mix changes significantly that that would have a short term headwind.
On revenue as well.
So that's another factor to be considering when youre thinking about our guide and outlook for revenue next year.
Thank you <unk> next question please.
Thank you. Our next question comes from that pendulum Bora of J P. Morgan. Your line is now open. Please go ahead.
Hey, guys. Thanks for taking the questions I wanted to go back to the guidance.
Then just one more time.
Maybe talk about the assumptions behind seems like the pipeline is good is it mainly a factor of the close rates that's kind of driving that are you expecting to the last point that you made a higher shift towards evergreen one or subscriptions that that might put potential pressure is that baked into the guidance.
Certainly more evergreen one relative to the overall is baked into the guidance.
As we mentioned, we're not including meta at all.
What we did see that was.
A significant shift was the amount of time it takes to go from early stage.
Bright and early stage opportunity in the pipeline to a later stage in the pipeline.
The close rates of later stage had been.
<unk> I would say.
But it's that progression.
As you go through a pipeline funnel, that's taking longer.
And then I would add onto that just that were also contemplating.
Moderate second half ramp of flash slate E.
As well and we do expect that to ramp in a manner similar to what we saw with flash array.
Thank you pendulum next question please.
Thank you next question for today comes from Anthony <unk> of Northland Capital markets. Your line is now.
Please go ahead.
Yes. Thank you.
Hey.
Incredible free cash flow margin quarter and year Youre now at 20 plus percent free cash flow margin at your last analyst day implied to get to a rule of 40 benchmark in due course.
At this free cash flow margin would require about 20% overall growth rate. So the question is that do you believe youre already there if it was not for a macroeconomic impact.
Alright, Thanks, Neal and it's a great question and obviously made great progress.
Really across the board in terms of performance on both the expansion.
Our operating margin as well as our free cash flow.
And yes, Youre right I do think the headwinds that we'll navigate associated with the macro backdrop, what would be the one factor, which is then driving our outlook our near term outlook for FY 'twenty four for revenue growth, but.
But when we think about our free cash flow performance.
We're very pleased with that and we do believe that we will continue to outpace our free cash flow margin will continue to outpace our operating margin slightly now we will have some pressure if you will due to the lower outlook growth for product revenue, which will have some impact on.
That as well as the continued strength of evergreen one.
It will add to our capex needs as we continue to expand but overall really happy with the.
The direction, we're headed in.
Thank you Nicole next question please.
Thank you. Our next question comes from Simon Leopold from Raymond James Your line is now open. Please go ahead.
Thanks for taking the question I wanted to see if maybe you could address a longer term opportunity around artificial intelligence and machine learning.
I think that was sort of the route of the use case for meta.
And wondering particularly with the introduction.
E platform for unstructured data, how we should think about that particular use case broadly affecting pure storage over the longer term. Thank you.
Yes, Simon this is Rob I'll take that one.
Yes, I mean, certainly as we've talked about in prior calls.
Broader space of analytics and AI continues to be a strong one for us certainly with meta but also the broader customer base.
And then certainly within the last several months a lot of news in that space around new developments generative II technology, so and so forth.
At the end of the day, we very much believe that this entire space technology is extremely dependent on data on very large corpus of data and if you step back and you look at where our customers are largely housing those sorts of data today altogether way too often it's sitting in bulk repositories trapped on very.
Very inefficient pools of disk and this is precisely the opportunity that we developed fluctuate E to go and attack.
So I think we feel long term that this is a it does present a very significant.
The bulk data space overall, and certainly the focus of AI to go and capitalize on those sets of data presents a very significant opportunity for us and we're going to go pursue that very aggressively as we're now are really the only ones that are going to be able to take flash technology and go to modernize those environments.
And finally I might add onto that.
Listeners may recall that the the meta.
Architecture was flash blade for the high performance side, which was approximately in terms of of.
Bytes stored about 10% of the bytes stored and then flash array C for 90% of the bytes stored which are let's say in hot standby.
With <unk>, providing the high performance side of it and the flash array sea providing the.
The warm storage for data that's about to be processed well, what we see with flash blade is the opportunity to expand that even even further so it's a great.
Architecture that you have to provide both performance and then lower cost for the warm tier.
And so we can get into an all flash environment as well as in all pure environment and these customers rather than having to have a high performance tier that flash and then a low performance lower performance lower cost here that as hard disk.
Thank you Simon. Thank you. The next question please.
Thank you. Our next question comes from Matt Sheerin of Stifel.
Your line is now open. Please go ahead.
Yes. Thank you I had another question regarding your strong free cash flow beyond the incremental buyback you announced today, how should we think about your use of cash.
Typically on M&A, you continue to see opportunities there.
We're always evaluating M&A as we should.
And we want to make sure that we always have enough cash in reserve to be able to make especially tuck ins, but small M&A acquisitions.
Obviously, if we were to consider a larger one.
That would probably require.
A more complex transaction, but yes, we continue to continue.
Continue to consider M&A, and we think that as.
The current venture environment starts to become much more let's say reasonable in terms of expectations that those types of opportunities will come up a bit more often.
We'll say however that we are extremely fortunate as a company and being very rich in organic opportunities and that continues to be our preference.
And Matt one other point just to raise in terms of use of cash.
We've got our converts coming up for maturity.
And use of cash will be contemplated as we work through that as well in April so another consideration there.
Thank you Matt.
Next question please.
Thank you. Our next question comes from Tim Long of Barclays Timmy alone. Its final open. Please go ahead.
Hey, guys. This is actually George Wang on for Tim.
Just I have a couple of questions first of all maybe you can kind of unpack gave some update on the telco customers in prior quarters. So you guys talked about opportunities kind of shifting to a telco customers for the <unk> deployment. Just curious if you have any latest update on this particular vertical.
I don't have any to call out, but we did have <unk>.
Shipments in the quarter.
And it continues to be an area of <unk>.
Strong focus and attention for US we are we do have a presence in Barcelona.
Weak.
And getting a fair amount of attention there.
Thank you George next question please.
Thank you. Our next question comes from Chris <unk> from Cowen Crush. Your line is now open. Please go ahead.
Hey, guys. This is Eddie for Chris. Thanks for taking my question are you contemplating any impact from lower prices on your Asp's in your fiscal 'twenty guidance and I have a follow up please.
Let me start with that and then Kevin maybe can provide some additional color there as always.
ASP effect from pricing on flash as you know we operate in a market where the.
The price per gigabyte.
Generally declines every year and thats good for us because it allows us to penetrate increasingly the disc markets that being said I would say that currently we expect to.
Take advantage of what has been some lower NAND prices.
And as callers who are people, who have followed US know we tend to have an advantage in timing with early reductions in in.
NAND pricing and that eventually gets follows through to the rest of the market and then.
It.
It comes back into equal equilibrium, but I think overall.
The pricing of NAND is going to operate to our favor as we go through the year, Yeah, and I think that's without a doubt Charlie.
Asps.
<unk> to be strong.
It's certainly going to give us the NAND pricing will give us a significant advantage.
As we move out and aggressively market Flash blade E as well as flash array C.
When we think about it in terms of product gross margins, we do consider that as an overall favorable factor for us as we navigate.
We navigate through next year.
And again to Charlie's point, it's all about us being able to take full advantage of raw NAND and flash instead of our competitors, who are having to still rely on SSD drives, but we do expect some balance.
With the favorability will get on NAND.
Again, given the aggressive nature will pursue flash Lady and flash array.
And Krish.
Our request.
Like to ask if you'd please get back in queue and hopefully we will have time to take your second question.
Thank you very much next question please.
Thank you. Our next question comes from Eric Matson Newsy of Lake Street.
It is now open. Please go ahead.
Yes, I wanted to get some color just sort of a month by month basis. The Q4 linearity and then with February on the books.
Obviously.
November on the books when you talked about the Q4 guide.
When you're starting to see the slowdown was that in December was that in January and then if you could characterize.
The.
The advancement of the pipeline of February versus January .
Yeah, I would say that it was most noticeable as we turned the the year the calendar year that is.
As we mentioned we were able to close the advanced stage deals and as we went into the new year and.
To some extent I feel that it probably has to do with the resetting of.
Budgets by our customers as they entered their new.
Most customers, obviously are operating on a calendar year basis.
Debt as they entered their new year.
Perhaps it's a reconsideration of that perhaps are going into our planning mode.
That may be slowing things down or perhaps it may be simply tighter budgets are being held to tighter budget restrictions are doing greater analysis, a little bit we're still trying to diagnosis I would say.
Very hard to say in the first few weeks of February and a sense of that.
As I said, we're having our sales kick off all of the new.
Quota and territory assignments are going out so it's a little bit hard for us to to get intelligence in the first few weeks of the fiscal year, but by going through the last month of the <unk>.
Last fiscal year that was when we really started to.
To see this effect, yet and Eric I'm going to add onto this a little bit. So I think a couple of takeaways. When we think about how things developed through Q4, and then obviously up and through to when we're talking to you today.
As Charlie mentioned, our conversion of advanced stage opportunities where were actually consistent with what we've historically seen so that I view that as a significant positive as we think about navigating through Q4. The other significant positive for us as we saw strong volume of new opportunities through Q4.
What the change was is really that to Charlie's point that the sales progression of those new opportunities and early stage opportunities, that's what substantially slowed down and that's what we saw are really in January and February which is giving rise to the outlook that we're providing to you today.
Thank you Erik got it. Thanks next question please.
Thank you next question comes from David <unk>.
UBS David Your line is now open. Please go ahead.
Great. Thank you guys.
I just want to go back to the guidance and not to belabor the point, but presumably the $60 million in the first quarter of last year that was pulled forward.
A large percentage of that would have fallen into the fourth quarter and so if I make that adjustment it sounds like Youre <unk> guide is about four to five points below seasonal.
If that's the case would you need to have mid teens growth in the second half he follow sort of normal seasonality in the second quarter of <unk>.
Yes, I think it's a great question and I think youre thinking about the $60 million right, although I would clarify that a little bit I would put that more in the second half category. So Q3, Q4, I wouldn't I wouldn't put that all into Q4.
Seasonality Q1 to Q1, a little bit of pressure as we think about it but again, that's really as a result of the sales progression of these early opportunities and early stage that we've highlighted on multiple occasions I think our assumption is that that will start to moderate some weight somewhat as we progressed through the.
A year in addition to that we're layering on some moderate contribution for flash Lady in the second half as well.
Thank you David next question please.
Thank you. Our next question comes from Ashley Ellis of Credit Suisse.
Your line is now open. Please go ahead.
Hi, Thank you for taking my question I was wondering could you discuss a little bit more of the changes youre, making.
Is this just kind of a change in the pets are you, making any structural changes and then.
Is it primarily given the weaker macro customers.
Longer to make a decision or are you seeing some incremental competitive pressures that are making you change the way you wanted to touch customers. Thanks.
Yeah, I'll start with the second part, we're not seeing any different behavior by the competitors. So.
Not seeing additional competitive pressures and win rates are holding.
Basically steady so.
No concern there it's changing both the pitch but also.
We're not making the second part was we're not making any major structural changes to the sales force either so no major changes there we are introducing a lot more training and enablement, but this has been on the books now for quite some time as well as more.
Detailed information down to the down all the way down to the DM level. So they can manage their their operations better we are expecting to see improvement in that overall.
As you might imagine during times like this inspection gets tighter and so we are <unk>.
Planning for some much more detailed inspection of deals, especially as they progressed through this.
Through the.
The different stages of <unk>.
The pipeline as you might imagine given this new environment, but outside of that I would say, it's just general.
Improvement in general operational discipline right.
Things as I had mentioned that had been on the books for a while.
One thing to that which is I think we are as we work with our sales teams.
Coming to our sales kick off next week are really going to be working with them to highlight the cost savings benefits of our products and services and so whether that's with flush where I see the new fluctuate E and really just the potential that that offers customers go and reduce their operating cost or energy cost their footprint.
Highlighting the benefits of the entire evergreen portfolio, specifically as we look at evergreen, one and a reflex to create that.
That optionality.
And flexibility for customers.
It's an area, we're going to be really focusing on articulating the benefits of the portfolio.
Thank you Ashley and it looks like we have time for one more question and I think the last question is from a person who's rejoined the cube. So the last question. Please.
Thank you our final question for today comes from Aaron Rakers of Wells Fargo.
Your line is now open. Please go ahead.
Yes.
I'll just ask a real quick follow up on the lastly E product as you think about the engagement somebody asked I think Simon asked about AI earlier in the call I'm just curious of how your dialogue is involved with other potential cloud opportunities, whether or not it's related to AI or.
Bulk storage and I'll, let the E series product is out.
Yes, let me give it a start and then.
Rob who is very engaged in those conversations.
Interest level around energy to energy and space savings is very high.
There is always a question of doing it.
That is in hyperscale or in particular doing it internally versus using using a vendor in our system a system level, but the conversations continue which is very promising.
I would say that outside of the three hyperscale or.
The conversations in other where you might call cloud service providers and SaaS providers are very promising for <unk>.
Both flash array as well as a pure fusion, which is getting a lot of it a lot of attention to enable these cloud service providers to operate much more like the hyperscale or as in terms of the operations as well as being able to provide storage as a service to their customer and I'll just.
Add on to that Erinn I think the conversations we are having with the top hyperscale is definitely to continue to progress.
The introduction of all the continued success, we're seeing in fluctuate C. In the last fiscal year, but now certainly with the introduction of Flash Blade E. Just further proof points highlighting our significant leadership.
Our leadership position in being able to work directly with NAND Flash I think that really is having.
A positive effect for us as we go and pursue those early stage conversations with the Hyperscale.
I think another factor potentially is that.
The.
<unk>.
The ability for some of these firms to potentially go in.
Ah.
I tried to address their needs directly.
As perhaps reduced so a little bit more willingness to kind of engage and see hey, how can we go and help accelerate their plans to transition to flash so net net.
All very positive and certainly.
The introduction of E is only going to move that along.
Thank you Aaron before we conclude I think Charlie has a few final comments.
I want to thank you all for joining us on today's call and I of course want to thank our employees for creating and driving our vision and constantly improving our operations and our culture. Thank you to our long term investors for your support and being part of our mission and special thanks to our customers and partners for continuing to choose pure for their business data storage and management need.
Goodbye.
Thank you that concludes the <unk> fourth quarter fiscal year 2023 earnings conference call. Thank you for your participation you may now disconnect your lines.
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