Q1 2024 Pure Storage Inc Earnings Call
For evergreen one.
Speaker 1: highest all time sales for Evergreen One, our first sales of FlashBlade-E, which is experiencing the fastest first quarter pipeline growth for any new pure product.
Our largest single order since inception of almost eight digits for our Cloud Block Store product.
and the release of a major upgrade to our FlashArray unified block and file software.
We are especially pleased with the customer response to our E product line.
The E-Line is the first and only all-flash storage system that can address the secondary storage market at competitive prices to 7200 RPM hard disk systems.
but with only one tenth the power, space, cooling, and labor requirements.
As I've stated in the past, the days of hard disks are coming to an end. We predict that there will be no new hard disks sold in five years.
But beyond the benefits of the E product line itself, it enables Pure to now compete for our customers' entire storage environment.
It enables Pure for the first time to be our customer's complete storage partner, something that our customers have been asking for for years.
The operational and economic benefits of Pure's comprehensive storage portfolio are clear and overwhelming, and are based on sustainable technology and business model advantages.
In March, we gather a sales team for our annual sales kickoff, an event we had not held in person since 2020.
Everyone was energized by both the event and the training we conducted there.
This ongoing training focuses on honing sales skills with our expansion into the secondary storage market, advancing our as-a-service offerings, and improving our sales and marketing experience.
and selling in today's environment of constrained IT spending.
This valuable training is already bearing fruit and enabling us to reach new customers.
better support the needs of current customers.
and reduce sales cycles which have lengthened in this economic environment.
It's clear that our continued innovation strongly resonates with our customers.
whether it is for AI machine learning, rapid recovery from ransomware, high performance databases, electronic design automation and video editing, traditional or cloud native applications.
and now also for secondary storage environments such as content and media stores, enterprise imaging, and even traditional backup in archive.
We deliver unique outcomes that are highly valuable to our customers in every environment.
Compared to our all-flash competitors, we are 10 times more reliable. We are 2 to 5 times more power and space efficient.
and we require five to ten times less manual labor to operate, resulting overall in at least 50% lower total cost of ownership.
Also, our products never become obsolete and never require forklift upgrades because our Evergreen program provides continual hardware and software upgrades non-disruptively to the customer's application environment forever.
Products we sold 10 years ago are not only still in service, but have been continually modernized to our latest models without disruption or additional customer expense with our Evergreen subscription.
These capabilities are based upon four unique and sustainable competitive advantages.
One, our Purity software uniquely works directly with RAW Flash, while other competitors use more expensive, less efficient, and shorter-lived SSDs.
2.
Pure's highly consolidated product line consisting of our common operating system, Purity, and one management system, Pure One, operating on both a scale-up and a scale-out platform.
utilizing common direct flash modules.
while competitors require many disparate software and hardware platforms to cover the same breadth of use cases. 3. Pure's unique Evergreen technology and services, which guarantee that deployed products never become obsolete, never need to be replaced, and enable non-disruptive upgrades.
And four, Pure's cloud operating model, which enables customers to operate their storage the way that cloud customers operate theirs. Highly automated, orchestrated, and available as a service.
As we expected, Evergreen One is thriving in this economic environment.
Sales of Evergreen won more than doubled year over year.
As a reminder, Evergreen One is Pure's Storage as a Service offering that enables customers to access storage entirely through service level agreements with no capital expenditure, only paying for capacity as they use it.
Customers can place their data on-premise on Pure-owned infrastructure or on AWS or Azure with Pure's Cloud Block Store.
The customer only pays for what they use under a single contract for enterprise class capabilities.
for less than what they pay for raw cloud storage.
This past quarter, we saw the largest individual sale of Pure Cloud Blockstore.
at almost eight figures.
A Fortune 500 healthcare organization purchased Cloud Block Store because of its ability to securely store data in the cloud with enterprise features, reduced management overhead, and lower TCO.
By using Cloud Block Store, the organization is able to significantly reduce their cloud storage spent while getting the most out of their data. Our extraordinary lead in driving power, space, labor, and e-waste reduction...
both on-prem and in the cloud, has also garnered attention amid increased customer focus on these selection criteria.
The continued strength of Flasher AC and interest in FlashBlade E speaks to our customers demand for the TCO benefits of pure all flash products.
over competitive offerings now including both their flash and hard disk systems.
In particular, FlashBlade-E consumes approximately one tenth as much power in space as similar capacity hard disk systems that it replaces.
requiring up to one-tenth the labor and generates less than one-tenth the e-waste.
Only Pure's direct flash management and operational simplicity is able to deliver this operational performance.
As I mentioned, early interest in FlashBlade E is off the charts for a new product. FlashBlade E is the second in a series of products that can compete for the secondary tier and soon lower tiers of the storage market entirely dominated today by hard disks.
Prior to FlashArray C and FlashBlade E,
All flash products were only price competitive for a high performance system.
and therefore Pure could only provide products for our customers tier 1 storage needs.
With the introduction of our E-Product line, Pure can now compete for customers' entire storage estate, enabling Pure to become their complete storage partner for the first time.
For years, customers have asked us for products that could address the remainder of their storage estate.
I have now had many customer visits since our introduction of FlashBlade E with senior IT executives.
describing our key advantages and our ability to provide flash solutions for their entire storage environment.
A common question from these senior executives is why aren't we doing this already?
In April , we announced a major update to our FlashArray unified block and file software, representing a significant expansion of our broader file strategy and portfolio.
I'm proud to share that we're now able to address customers' file needs across high performance, general purpose NAS, VMware over NFS, and dozens of other use cases.
allowing us to compete for all of a customer's file storage estate.
Best of all, FlashArray customers can simply upgrade to the latest software to get these capabilities without any additional expense.
This unified offering was a key component in the largest individual international market win in pure history last quarter.
offering was a key component in the largest individual international market win in pure history last quarter. Touching upon the most recent trends,
Generative AI and ChatGPT has brought artificial intelligence to the top of mind in all of our major customers.
and has become a focal part of literally every earnings script this quarter.
Pure saw the AI opportunity years ago and started innovating in this area with our introduction of FlashBlade in 2017.
and then with our AI-ready infrastructure ARRI product co-developed with NVIDIA.
We've continued to advance FlashBlade's high performance, parallel architecture.
Pure continues to be the go-to partner for storage on AI projects.
For instance, we support more than 10 leading autonomous vehicle development companies in managing and processing the massive amounts of data required for their machine learning activity.
In addition to our very successful position with META in their AI Research Supercluster, or RSC, the largest AI supercomputer in the world, PURE is the chosen vendor for AI environments across a broad range of industries.
including media and entertainment, pharma, healthcare, aerospace, transportation, and financial services.
We expect our leading role in AI
We expect our leading role in AI to continue to expand.
But we are equally excited that the requirements for big data will drive even more use of high-performance flash for traditional bulk data.
As we mentioned last quarter, we expect the current macro environment to continue through this fiscal year. And we continue to operate the company with our usual diligence, improving productivity and focusing investment on meaningful innovation and growth.
Our as-a-service offerings including Evergreen One and Evergreen Flex and our pure financing vehicles provide customers with a wide range of economic alternatives to address their business needs. For more information, visit www.fema.gov
Pure's superior TCO and flexible Evergreen offerings are making a difference in this challenging IT economy.
While we saw continuing caution by enterprise and cloud customers in Q1, similar to what we saw in Q4, we also experienced enhanced demand for our most cost-effective solutions.
especially Evergreen One.
Given all of our advantages, we remain confident that we will continue to increase our market share, outgrow our competitors, and pick up even greater momentum, especially as our new products and services gain mindshare.
I am confident that we are gaining recognition with both customers and prospects that Pure is the company to trust for their future data storage architectures.
We are years ahead of the competition in our ability to provide all storage needs with the most consistent, modern, and efficient storage solutions.
We enjoy a highly sustainable competitive advantage based on the only Direct-to-Flash operating system in Purity.
a simple, consistent product line with common management.
our evergreen technology to continually upgrade our products non disruptively to the current state of the art.
and our ability to provide our customers with a cloud operating model. Our new capability to compete for the full range of enterprise storage needs gives us even greater relevance to our enterprise accounts and enables us to deliver a full and far more integrated storage solution to our customers.
In closing, I am excited to share that in just a couple of weeks, we will be hosting our annual Accelerate User Conference in Las Vegas. We're looking forward to seeing customers, partners, and analysts from around the world to discuss the future of data storage and management.
I'll now turn the call over to Kevin.
Thank you, Charlie, and good afternoon, everyone. In Q1, we achieved revenue of $589 million and operating profit of nearly $20 million.
Thank you, Charlie, and good afternoon, everyone. In Q1, we achieved revenue of $589 million and operating profit of nearly $20 million, exceeding our expectations.
We also set an all-time record of Evergreen One subscription sales this quarter as demand was exceptional.
We were pleased that our U.S. enterprise business exceeded our expectations this quarter. Macro conditions continued to be challenging, consistent with what we saw in Q4.
Against this macro backdrop, our sales force and leadership are actively monitoring deals to get ahead of challenges, as well as continuing to focus conversations both on our business value and total cost of ownership advantages, which are unmatched against our competitors.
Our Subscription Service's annual recurring revenue grew 29% year-over-year to $1.2 billion. And Subscription Service's revenue of $280 million represented 48% of total revenue.
Remaining performance obligations or RPO grew 26% year-over-year to $1.8 billion.
Similar to the remarks we've made in previous quarters, our RPO included an outstanding commitment with one of our global system integrators.
you and supporting our—our commitment. rend Q1 th OVERGisne
When excluding the impact of the past outstanding commitment from our global system integrator, RPO grew 31%.
Our headcount increased slightly to approximately 5,270 employees in Q1, and we remain disciplined in managing our costs, including hiring.
Incremental investments in headcount remains focused on quota carrying sales capacity and critical business hires. As I previously mentioned, total revenue in Q1 was $589 million and product revenue was $309 million.
As we noted in previous earnings calls, Q1 revenue last year included $60 million of product revenue that was contemplated in the second half of last year.
Excluding this impact, Q1 total revenue grew approximately 5%.
US revenue for Q1 was $427 million, and international revenue was $162 million.
We also acquired 276 new customers during the quarter. We were pleased with our continued strong gross margin performance in Q1 of 72.2%, with product gross margins of 70.8% and subscription services gross margin of 73.7%.
Q1 operating profit of nearly $20 million exceeded expectations and included higher year-over-year costs for salaries and our first sales kickoff event since 2020.
PIRS balance sheet and liquidity remained very strong, including $1.2 billion in cash and investments.
In April , we reduced our overall debt, paying off $575 million in convertible notes using $475 million in cash and $100 million from a revolving line of credit. Cash flow from operations during the quarter was $173 million.
and capital expenditures told $51 million. In Q1, we repurchased 2.9 million shares of stock, returning nearly $70 million to our shareholders, and have approximately $211 million remaining on our existing $250 million repurchase authorization.
Now turning to guidance. We are reiterating our annual guidance for FY24 with revenue growth in the mid to high single digits and expect an operating margin of 15%.
Our annual revenue guidance assumes that macro conditions will continue to be challenging and will be consistent with what we have seen over the last couple of quarters.
We expect continued momentum of our Evergreen subscription services, in particular Evergreen One. The strength of our Evergreen One offering has been contemplated in our annual revenue guide, as the recurring revenue for these services is recognized over time.
Also, as Charlie mentioned, early customer response to FlashBlade E, which became generally available in late April , has exceeded our expectations.
Our FY24 annual revenue guidance that we provided last quarter assumed a modest revenue ramp during the second half of the year from sales of FlashBlade E.
While we are very pleased with the early response to FlashBlade E, our FY24 revenue guidance continues to assume a modest revenue ramp during the second half of the year.
Moving to Q2 guidance, we expect Q2 revenue of $680 million, representing an increase of approximately 5% year-over-year. Our Q2 revenue guidance implies continued strong subscription revenue growth and a slight year-over-year decline in product revenue. We also expect Q2 operating profit of $90 million as we remain focused on the future.
to deliver significant business value while reducing our customers' total cost of ownership, including labor, energy, and real estate.
It's a pleasure to also invite you to join us for our product and technology focused financial analyst meeting at Accelerate on June 15.
either in person at Las Vegas or virtually through our investor relations website.
With that, I will turn it back to Paul for Q&A. Thanks, Kevin. Before we begin the Q&A session, I'll ask you to 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 if time allows.
Alex, let's get started.
Thank you. If you'd like to ask a question, please press star, followed by 1 on your telephone keypad. If for any reason you would like to remove that question, please press star, followed by 2. Again, to ask a question, please press star, 1.
As a reminder, if you are using a speakerphone, please remember to pick up your handset before asking your question. We will pause here briefly as questions are registered.
Evercore ISI. I'll make the lines now open, please go ahead.
Armistice Alliance now open, please go ahead.
Thanks a lot, and congrats on a really strong friend here despite the tough macro environment. Charlie, I was hoping to talk a little bit more about what are you seeing from an AI infrastructure investment perspective from your customers? You folks obviously have a good engagement with Metta that's been doing well I think. I'm lucky to know how your customers are thinking about this.
well we've been doing AI as a great opportunity for us and representing you know a reasonable you know portion of our sales now for multiple years especially with the introduction of our FlashBlade product five years ago and we've continued to expand that area we do believe that we are the go-to partner as I mentioned
for AI projects and we literally support, you know, well over a half dozen to a dozen different industries in their AI activities. The majority of AI now continues to be part of what we, as a industry and what everyone on the call.
had known of AI for many years, you know, whether that's genomic research or, you know, advanced analysis, financial analysis, or self-driving cars and so forth. Now what's happening, of course, is every company is looking at
large language models, chat GPT, et cetera, trying to determine exactly what it means.
them. We've seen some interest in that area, but it still remains a minority, the majority being traditional, much, if I can use that word, with AI, traditional AI projects. What we're most excited by is both the opportunity for a high performance of FlashBlade systems, but frankly,
we are at least as excited that customers now more and more are going to want to put their data that is in cold, hard to reach, you know, hard disk systems and make that available for analysis by putting it in much more higher performance flash based systems.
And both our FlashArray C and FlashBlade E are perfect repositories for that. So we think it's coming out at a perfect time. And let me just, you know, let me go back to Meta. You know, we continue to have an excellent relationship around AI with Meta. They recently, you know, fully turned on the first two phases of their research supercluster, which they announced just a few weeks ago.
a few weeks back and we look forward to continuing to work with them on that project as they continue to build it out. But also on other projects that they are contemplating in the other parts of the of the company.
Rob, anything to add? No, yeah, I mean, I think a couple things. Number one, Amit, as Charlie mentioned, we're very excited about really what we see as two sets of opportunities that AI creates for us.
I think are very constructive for Pure, supporting the AI training environments themselves, as well supporting our enterprise customers as they look to connect their datasets to AI powered applications. You know, one set of demands, which Charlie discussed is, hey, this needs to go and store larger and larger amounts of data. It can't be cold data. And so it's a perfect fit for C and our E products.
But then equally so, enterprises are going to need to connect data from all across the organizations and all across different silos of infrastructure into these applications. They can no longer be islands of their own.
relegated to silos that the infrastructure had held them to. And if you step back from it, those are the hallmarks of a private cloud experience for storage and is exactly what we're delivering with a cloud operating model.
So NetNet, we think this is very constructive for us, both in supporting the high performance and large scale training environments, certainly with our secondary tier disk takeout product end, but also in what we're delivering with the cloud operating model.
Thank you Amit. Next question please. Thank you. Our next question comes from Meeta Marshall of Morgan Stanley . Your line is now open, please go ahead.
Great, thanks. Maybe the first question, you know, you noted that you had some flashlight sales had begun. Just wondering if there was any kind of surprise and where that uptake has been. And then, you know, maybe as a follow-up question, you noted kind of the eight-figure block store deal. Just wondering kind of how long that deal had been in the works and kind of how long
what were the ultimate decision-making factors for that. Appreciate it. Thanks.
You bet. Thanks, Mita. You know, in terms of the, let me start with the Cloud Block Store. As you know, we introduced that product about two and a half years ago, approximately, and continued to work with major customers in terms of their efforts to so-called lift and shift their traditional apps into the cloud.
that progress of lifting and shifting traditional apps to the cloud has probably taken longer than any of our customers expected, perhaps a bit longer than we expected as well. That being said, now that that has started and they're seeing some of the bills coming back from the cloud vendors for the storage.
of those large amounts of data for traditional apps. They now really start to become even more curious about Cloud Block Store. This particular deal, we had talked to them about a year and a half ago before they moved into the cloud. And they, at that time, they were so busy moving into the cloud and they didn't really.
I don't think they really appreciated what it would cost them as they started to deploy a production environment. As they deployed that production environment and started to see the costs, they came back to us and said, we really would like to understand better the Cloud Block Store. And I would say from that point where they came back to us.
to the sale was probably only about three months. So a relatively short period of time.
Thank you, Mita. Next question, please. Thank you. Our next question for today comes from Tim Long of Barclays. Tim, your line is now open. Please go ahead.
Thank you. Charlie, I was hoping you could talk a little bit about visibility, a lot of talk of macro and obviously last quarter there was a little bit more challenging environment but pretty positive that you guys are keeping the full year here. So can you just touch on
kind of how your visibility compares to a few months ago, and what are the kind of factors that can kind of swing the numbers into the second half or into next fiscal year, maybe from a product standpoint or where there could be upside. Thank you.
You bet. You know, what we saw, if I go back to Q4, we saw a fairly sharp degradation, you know, midway through Q4. And what we saw in Q1 was, if you will, a stabilization to what we saw at the end of Q4. So, it didn't get any better, but it didn't get any worse either.
The visibility is basically just the way we're handicapping, if you will, how, you know, what we see, you know, in terms of, you know, from our sales team and the length of time that we believe accounts will close. And I think our sales teams have become much better at really understanding what the full
gamut, if you will, of signatures and approvals that they're going to need to get in each account and therefore have also become better at handicapping and staging, if you will, the deals. So I would say that, you know, in general, the current environment we see as stable. We would hope for improvement towards the year, but we're not counting on it at the moment.
an improvement towards the end of your beginning of next. Tim, I probably would add a couple things. This is Kevin as well. You know, we did indicate the fact that our enterprise business performed better than expectations, and again, I think that's a testament to to our field.
really adjusting to our customers' buying behavior. So that's a plus for us. I think the other two key highlights for us that came across as incremental strengths, if you will, would be Evergreen One performance, which we alluded to. Again, that strength was much stronger than we were even anticipating, and we were already anticipating in this environment.
our Evergreen One Storage as Service sales would be strong coming into this type of environment. And then FlashBlade E again is a highlight for us early, but customer response has been fantastic. And Charlie, I don't know if you want to say a few words on FlashBlade E2 in terms of what we're seeing there.
As we mentioned, it's a very fast pipeline build. I've been in front of dozens of customers now and the excitement with customers around this product line and with the listussy, really movements,
with the prospect of replacing their disks, which are troublesome, with all flash products has been very high. And as I mentioned, I think what's most exciting is that we're seeing customers appreciate the fact that we can address the majority of their storage needs, and to be able to do that with the simplicity, the power, the ease.
and the reliability of pure products. So that's, I have to say it's the enthusiasm that when any one of us go in with the new pitch, if you will, to our customers.
that we feel coming out of it is really palpable. Thank you, Tim. Next question, please.
Our next question comes from Pendulum Bora of JP Morgan. Your line is now open, please go ahead. Oh great, hey, thanks for taking the question and congrats on the strong quarter. One question for Kevin.
Subscription obviously is very strong and you kind of highlighted the potential headwind to revenue because of that. Is it possible to quantify that? You've kind of beaten the guidance by 29 million. You're kind of keeping the full year which I appreciate, but I'm sure there is a little bit of conservatism there too. I'm trying to understand what
For the year, what do you kind of circle as a potential year real growth headwind from that evergreen one strength? Yeah, look, we won't get into specifics there, Pendulum, you know, consistent with our practice of really talking about the subscription portfolio in total as well as from a performance standpoint we do the same.
on that. But again, you know, from a scale perspective as well, you know, we've already had over a third of our revenues or subscriptions.
you know, that the headwind isn't as, you know, intensive as one would expect, though it does have a consideration for us and it has been contemplated in our annual guide, which we reiterated.
Thank you, Bingellum. Next question, please. Our next question comes from Wamsie Mohan of Bank of America. Your line is now open. Please go ahead. Hi, yes, thank you so much. I was wondering, just to clarify, are you embedding anything from meta in your...
of fiscal 24. Or maybe a different way to think about the same thing is you are going to see competitors particularly be able to take advantage of this low cost land environment for maybe a prolonged period of time.
Do you think that closes any of the competitive gap at all or pressure to margin in the second half? Thank you so much. Yeah, maybe we can talk about the competitive advantages first, Charlie, if you want to take that around our direct to flash management advantages, which really I think are sustaining and we'll hit that first and then we'll hit meta.
Absolutely. Well, you know, the interesting thing here, Wamsie, is that we believe that our advantage, based on the purity operating system, and our continuing advancement of what we call our direct flash modules, is going to allow us to accelerate our advantage over SSDs.
ask Rob to jump in and give you some detail there. Yeah, absolutely. You know, Wamsie, I think we've been pretty clear with our view that the disk is, well, a dead technology spinning, so to speak, but our view on SSDs, frankly, isn't that much rosier. We think it's, you know, SSDs are gonna fall further and further behind, and that's really driven by our ability to out-distance SSDs with our direct flash technology. You know, if I step back, certainly SSDs have played an important role.
SSDs are going to find it harder and harder to keep up with a rate of improvement that we're forging down. You know, if we think about it, NAND flash, it's getting harder and harder to work with. That's creating pressure for what the SSD has to do technology from a technology perspective. Trying to build larger capacity SSDs only exacerbates that.
And then, you know, I think you have an economic barrier around, hey, is there consumer demand that's going to drive, you know, the same and follow the same type of roadmap that we're going to drive with our direct flash technology.
And so you net it out. I think we're very bullish here that we've got a three to five year structural and sustained competitive advantage over, frankly, the rest of the field that I think is trapped on SSD technology. And we're going to be pretty aggressive about going after that. And then bringing this back to meta, right? I think that our engagement meta.
is a great example and proof point of the value that we're able to deliver based on this technology.
as we've discussed in prior calls, one of the, well really the key reason that we won that engagement was our ability, our sole ability to deliver the balance of performance, cost efficiency, as well as power, space, and cooling savings. And that traces its roots directly back to the direct flash technology.
So then, Walmsley, I do think, you know, just to answer your question specifically around our product gross margins, look, I think the pricing environment clearly we're seeing heightened competitiveness around the pricing environment. Probably not a lot different than what we've seen historically. That's always been an area where where competitors compete with us.
But even despite that, you saw the favorability in product gross margins, which again is the testament to what Rob and Charlie were talking about, specific to our direct-to-flash management advantages, which again I think are sustaining despite what the competition will do from a pricing competitiveness perspective.
Thank you, Wamsi. Next question, please. Thank you. Our next question comes from Krish Sankar of Cowan. Krish, your line is now open. Please go ahead.
Hey guys, this is Eddie for Krush on CD Pro and thanks for taking my question and congrats on strong results. Going back to the AI question, of course, just at a high level, what is the predominant storage solution for AI today? That's it.
hybrid storage or flash storage? Like when you go to a customer already working on AI applications, what kind of systems do you usually replace? A competing offline solution or a hybrid storage system?
Yeah, I'll take that. Well, AI systems are typically new, so they're greenfield. So we're not generally replacing. What we're competing with are solely all flash systems.
you know, hard disk systems just can't provide the kind of performance necessary for sophisticated AI environments. Of course, you still have hard disk systems in there for some analytics environments where the performance is not generally as required. But for anything that's machine learning or real-time AI oriented,
It's only all flash systems and we compete on the basis largely of our FlashBlade product, which has been in place for five years now and now augmented by the latest generation FlashBlade S.
Yeah, Christian, you know, just this is Rob, just to add on to that, you know, as Charlie said, AI early insight earlier in cycle generally in the training environments, you know, are net new and all flash. I think the broader brownfield opportunity we see is, hey, so what are the large corpus of data that enterprises have been collecting for sometimes decades?
They've been throwing in the corner on hard disk based systems that have generally been very, very cold and haven't had a need to access that data. Well now with AI technology, there's now a demand to apply AI or AI applications to those large data sets. Well now all of a sudden those large pools of data need to be accessible. They need to be to a degree perform-
Thank you. Thank you.
Thank you very much. I wanted to ask about operating income and margin.
Given the outperformance this quarter, I know you didn't really change your guidance for the full year, but I'm wondering, assuming there may be some upside, are there areas that you would look to vest further? Or is this something where, you know, if revenue upside grew, we should expect perhaps greater than 15% operating margins through the year given the opportunity for leverage? Thank you.
Yeah, Shannon, I'll take this and let Charlie comment as well. But yeah, please with obviously our Q1 results, including, you know, better than expectations, both on top line, as well as operating profits, you know, we we are continuing to be disciplined in terms of spending.
sequentially from Q1 to Q2 in terms of our operating profit and again reiterating the 15% operating margin for the year which we feel comfortable with. Charlie, any other commentary you would have? Yeah, it's a bit early in the year to be speculating, I think, on this topic. What I would say is we think 15% really represents the best.
compromise, if you will, between continued growth and profitability. And we continue to invest in growth overall as a company. I would say that that's where our mindset is at the moment, but it's another long three quarters ahead of us.
Well, we may, you know, we'll look downstream before we update you on that. Thank you, Shannon. Next question, please. Thank you. Our next question comes from Sidney Ho of Deutsche Bank. Your line is now open. Please go ahead.
Great, thank you. I have a question on subscription revenue. Your subscription ARR and revenue has grown pretty consistently 30% a year.
Are there any risks that growth will start to slow down over the next few quarters when product sales are actually going through a correction in the last quarter and maybe in the next couple quarters? Thanks. Yeah, it's a great question and look we don't specifically guide to subscription ARR, but they really do view this metric as important in measuring the overall health of our subscription businesses.
one offering. And obviously that's really offset any reductions you might have on other Evergreen offerings that might be attached to CapEx sales. So look, I think we're continuing to see strength in terms of our subscription ARR growth.
The value of Evergreen is really resonating with our customers due to flexibility that these offerings provide. And of course, there's incredible value for customers in being able to use critical data storage infrastructure that frankly stays modernized and you don't have to pull out and refresh. So therefore, yeah, I think we're continuing to see strong subscription growth.
able to save on on cash outlays and capex. And when the economy is strong and they move to capex, we get it with the Evergreen attached subscription. So, I think there's some balance there and it'll vary a little bit, but I think it's gonna be.
it's a fairly stable number. Thank you Sydney. Next question please. Thank you. Our next question comes from Jason Aida from William Blair. Your line is now open. Please go ahead. Yeah thank you. My question is on Portworx. I haven't talked about that one in a bit.
I'd love to hear thoughts on, I guess, two years in, something like that, you know, how that product is doing. And just, you know, what are some of the dynamics out there, you know, some of the puts and takes relative to the point in time when you acquired the asset? Yeah, Portbrick, you know, had a good quarter. So we're very pleased with the progress overall.
All applications will be designed in a cloud native environment with containers and Kubernetes, so we're very confident about the future. We remain the best-in-class product in that area. According to numerous analyst reports as well as we track sales of competitive products, we're number one in that space and we expect that to continue.
So overall, please, maybe the market a little bit slower this past year than we might have expected, but overall, very bullish on the segment. And Jason, this is Rob. Let me just add a few thoughts to that. Charlie mentioned we saw a strong quarter from Portworx and I would call it in particular strength in seeing customers expand with us.
I think that to a degree this is natural as we see this idea of platform engineering, the evolution of DevOps really starting to take hold. We believe this is driving more customers to look to Portworx for really the complete enterprise and scale ready solutions for their cloud native applications. I'll also point out that I think we're starting to hear stories back from customers that want to use it especially on their home subsystems, and then finding the standard way for developing the cloud knowning decision making issues with those features that we have today are just of people Flowers' Graham hordes who are to to try to
hey, Portworx is saving them a lot of money in terms of whether that's optimizing, helping them optimize their virtualization strategy, optimize their cloud storage and compute costs and spend, or just speeding up their overall time to market. And so, as we've discussed with other elements of the portfolio, I think there's definitely a focus.
of North and Capital Markets. Your line is now open. Please go ahead.
Yeah, thank you and congrats on a strong quarter. I wanted to ask about the media again that you guys cited last week in a press release. And specifically, you guys cited the shortening of voice recognition modeling cycles in six months to two weeks, which is definitely seen in order of magnitude improvement.
So a few questions on this question. First, is this applicable generative for recommendation AI case study? And then is the voice recognition modeling another way of saying basically the training period? And then finally, is this the typical level of benefit to customers who are seeing IE in order of magnitude of performance improvement? And it sounds like the typical texture that's being contained with is indeed all flash arrays with the...
AI cases. Thanks for the multi-part question Nihal. We're going to try to consider it a one question and condense the answer. Please go ahead Charlie. As Nihal mentioned, we actually had two press releases last quarter associated with, or recently I should say.
recently with first quarter wins in the AI space, MediaZen and Crater Labs. These were releases that these organizations themselves put out. So we're very pleased to see it. In each case, dramatic improvements in the overall speed of training of their various environments. I'm gonna have Rob speak in more detail on MediaZen, which was the focus of your question.
Yeah, Nihal, I think what MediaZen saw is not atypical from customers that are scaling their AI training environments, which is as they started down the AI path, they're doing a lot of training on smaller datasets. Those datasets might be sitting directly on the GPU servers.
you know, a small scale that works really well. The issue, of course, is, as you know, to produce very good results with AI, you need to apply it to very, very large sets of data. And immediately what customers run into is this challenge of, hey, how do I get a subset of my large, large pool of data which might be sitting on?
cold-tier systems over to my GPU servers so I can go and crunch on them and feed them GPUs. And so I think what they saw was again not atypical, they were spending a ton of time waiting for data to move back and forth between these disparate systems. What Pure FlashBlade was able to do for them is essentially collapse those systems and allow them to train directly off of other shared storage thus removing a not just
long manual steps, but just reducing the overall time to training. To your first part, or maybe it's the third part of your multi-part question, these types of results are I would say are not atypical as AI projects start to scale beyond what they're able to achieve with...
the overall time to training and to your first part or maybe the third part of your multi-part question you know these types of results are I would say are not atypical as you know as AI projects start to scale beyond what they're able to achieve with a small-scale infrastructure.
Thank you, Nihal. Next question, please. Thank you. Our next question comes from Tom Blakey of KeyBank Capital Markets. Your line is now open. Please go ahead. Hey, everyone. Thanks for taking my question here. I think I'm going to go back to Port Prospera so we can advance as well actually just
the DDB announcement that you had in the first release. I'm just wondering what the driving force there, just in terms of market demand was there, what does it incrementally bring to Pure and the Portworx, the data services platform, many kind of updates on details you've laid into the partnership, you know, is Mongo serving as a channel, you know, is this consumption based, et cetera. And if I could squeeze one more in Paul, don't get mad at me, but I don't know if I heard the answer to Wansi's question about meta and hyperscale in the fiscal 20 poor guy from.
Kevin, if that'd be helpful. Thanks guys. Appreciate it. I think we're going to need to take the meta question. We're running out of time and we have quite a few people left in the queue. So, I'm sorry everybody, but we do need to stick to our policy. Great yeah, and then Tom on meta our annual guide continues to exclude new meta orders and in particular future phases, i.e. phases 3 and 4.
of the RC environment. So no changes from our annual guide, which again, we have reiterated this quarter. Thank you, Tom. Next question, please.
Thank you. Our next question comes from Simon Leopold of Raymond James. Your line is now open, please go ahead.
Thanks for taking the question. I was interested in Charlie's comment about the demise of hearts several years out and just wanted to see what you're thinking is, or your take on the, the hardest technology known as. Heat assisted magnetic recording or hammer, whether that's a competitive threat or or how you think about that in the landscape. Thank you.
Yes, absolutely, Simon. Well, look, the density of hard drives will continue to increase. You know, that's a logarithmic curve that hasn't failed for over 40 years. Unfortunately, what's not going to increase is the I.O. speed on and off of these disks, which is now becoming more important. What's also not going to change, you know, is the overall weight and failure ratios of these devices.
and as systems become larger and more dense, flash is just accelerating its performance curve beyond hard disk at an amazing rate. So, you know, when we say that we're able to replace hard disk systems that exist today at one tenth the space power and cooling.
Even with these new hard disk technology, we're still five times better and we'll accelerate beyond that. So I think it's going to be very hard for the hard disk to keep up. One last thing to remember is, you know, the last refuge for hard disks now is in the secondary and tertiary tier. And now we're able to reach price parity with them at a procurement cost and yet have much lower total cost of ownership.
and be smaller and be more reliable.
So that's the last there's no other markets that are going to hold revenue for hard disks that flash won't penetrate.
And what that means is just lesser revenue and therefore lesser investment in ongoing development of hard disks. That's also going to be a problem for the vendors. So, you know, it's unfortunate. I don't hold any malice. But, you know, similar to markets in the past, you know, you're just when these transitions take place.
CDs over vinyl or DVDs over VHS, there's just no stopping progress. Thank you, Simon. We're going to actually run over by a couple of minutes. We're going to try to get in these three more questions if we could. So next question, please. Thank you. The next question comes from Aaron Rakers of Wells Fargo.
Your line is now open. Please go ahead. Hi, this is Jake on for Aaron. Thanks for taking the question. I was just hoping you could talk a little bit about your views on component pricing for the rest of the year and maybe its effect on Flashible ADE's RAM. Yeah, I would say that we're seeing...
And we believe that's going to it's it as we said we were offering it now at the same price as hard disk systems for near line and we expect our improvements in density Regardless of flash pricing to allow us to accelerate as we go into next year meaning
Meaning that we can penetrate ever deeper into lower and lower cost tiers of discs while maintaining the kind of margins that we expect to the company.
that we can penetrate ever deeper into lower and lower cost tiers of disk while maintaining the kind of margins that we expect as a company. So I hope that answers your question.
Thank you. Next question, please. Thank you. Our next question comes from David Vogt of UBS. Your line is now open. Please go ahead. Great. Thanks, guys, for squeezing me in. Charlie, I just wanted to go back to your product roadmap and how you're seeing it developed going forward. I know you're shipping DFM up to 48 terabytes today, but given the likely exponential growth in data going forward,
We expect that to double next year and to double again by the year after that. So, you know, it's an incredibly, it's not, you know, we believe that that's not an ambitious roadmap. We believe that's eminently doable.
And there's, if you, if you look at the roadmaps for hard disk vendors, they can't get close to that. And certainly not at the same power weight, power size.
space cooling envelope that will be fitting in. Yeah and this is Rob just to add on to that you know to Charlie's point you know that roadmap is you know we have very high confidence in it it's based on effectively existing technology we don't you know no new physics needs to be invented to make that happen and and I think that's a roadmap that again it's my earlier discussion.
think vastly distances us from the hard disk roadmaps but as well the SSD manufacturers right we just do not believe that the SSDs are going to be able to keep pace with where we're headed and and that's one of the reasons why we're so bullish about our advantage here. Thank you David. Let's take one more question please so this will be the last question.
Thank you. Our final question for today comes from Eric Martineuze of Lake Street. Your line is now open. Please go ahead. Yeah, curious on the CapEx. I'm looking at it year over year there for Q1 versus Q1 a year ago. It looks like we're up.
about 18 million or so. I understand you called out the capitalized software investments up a couple minutes. What else is driving that increased CapEx spend here Q1 versus a year ago? What are you expecting for Q2? Great question. There are two drivers for that. It's really around our equipment for new product releases. Obviously, we've
Come out with with flash blade E, and we've got a lot of stuff in the work. So we've got some test equipment investments associated with that. And then we're moving into our new headquarters. And so we've got some additional capex associated with that as well.
But again, when we look at it in terms of our capex rate, we'll see a little bump this year against as a percentage of revenue, but around 6 to 7% is what we're thinking. Thank you, Eric before we conclude. Charlie has a few.
Comments to make thanks. Thank you, Paul. And thank you all for joining us on today's call. We continue to pace the industry, I think, as you can see from our commentary and innovation, and the advantages now in total cost of ownership. Energy efficiency, price performance.
are really setting the pace in the data center and really make us the preferred choice now for global organizations. I do thank our employees for their dedication.
to our partners and suppliers to their ongoing partnership, and to our customers for entrusting Pure Storage with their data storage and management needs. And as a reminder, we all look forward to seeing you at Accelerate, whether that is physical or virtual, so you can hear more about our continued momentum and the future of data storage and the data center. Thank you.
Thank you. That concludes the Pure Storage First Quarter Fiscal Year 2024 Earnings Conference School. Thank you for your participation. You may now disconnect your lines.