Everpure, Inc. Class A common stock

Good day and welcome to the Pure Storage fourth quarter fiscal year 2023 earnings conference call. Today's conference is being recorded. All lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end. If you'd like to ask a question, please press star one on your telephone keypad. At this time, I'd like to turn the call over to Paul Zayas, Vice President of Investor Relations. Please go ahead.

Thank you. Good afternoon, everyone, and welcome to Pure's fourth quarter fiscal 2023 earnings conference call. On the call, we have Charlie Giancarlo, Chief Executive Officer, Kevin Kreisler, Chief Financial Officer, and Rob Lee, Chief Technology Officer. Following Charlie's and 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. The slides of the company in this webcast can be downloaded at investor.purestorage.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 and operations, our strategy, technology, and its advantages, our 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 RPL, and cash and investments. Reconciliations to the most directly comparable gap 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 website and is the property of Pure Storage. Our first quarter fiscal 24 quiet period begins at the close of business Friday, April 21st, 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 ARR growth of 30%, especially considering the challenges of the steadily increasing global economic slowdown. Revenue growth, operating leverage, and operating discipline help drive strong annual profit and cash flow in FY23, with operating cash flow up over 85% and non-GAAP operating income up almost 100% for the full year. We achieve 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. In FY23, we expanded our core product offerings with the new FlashBlade S, Pure Fusion, and Portworx 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 Portworx solutions. Pure's 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 flat and fair subscription agreement. Pure, for the first time, had a presence at the World Economic Forum in Davos this past January. The largest topics at Davos this year were 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's demand for energy and its production of e-waste. Just prior to the event, the World Economic Forum produced a study stating that digital electronics of all types contribute 4% to 5% of all carbon emissions. Other studies identify that data centers use between 1% and 2% of all electrical power generated in the world. It is further estimated that data storage accounts for 20% to 25% of data center power usage, increasing to as much as 40% by the end of the decade. The vast majority of data centers, over 80%, remains trapped on magnetic hard disks. As we have stated for the past year, Pure's 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 in data centers with Pure's 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 increased reliability as additional benefits. Reducing the world's data center 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 IT data storage teams, but now also with the entire C-suite, including CIOs, CFOs, 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 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 disks with Pure's 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 repositories continue to be dominated by 7,200 RPM disks, despite their difficulty to manage, relatively low reliability, and their substantial power, space, and cooling needs. because superior all-flash systems were too expensive. Well, I'm pleased to announce that our founder's vision of the all-flash data center is finally here, and the days of hard disk dominance of data are coming to a close. Today, Pure announced FlashBlade E, a scale-out unstructured data repository built for large-capacity data stores, which provides a lower total operating cost compared to secondary-tier disks. FlashBlade E will ship late this quarter. FlashBlade E 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. FlashBlade E will be priced under 20 cents per gigabyte at a system level inclusive of the first three years of subscription, which directly competes with lower performance all hard disk systems. And operating costs for FlashBlade E are significantly lower than the hard disk systems that are all replaced, with its 5 to 10x reduction in cost for power, space, cooling, and labor. FlashBlade E, the second in our series of cost-optimized products after FlashArray C, opens up a massive new opportunity for us and allows us to expand further into our total available market. FlashBlade E enables Pure to significantly penetrate many segments of the storage market currently dominated by disk, which has been inaccessible to Pure until now. FlashBlade E 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 in one of the world's largest IT categories. We are extremely excited about how this new product complements our innovative portfolio and strengthens our opportunity to drive Pure's 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 strains that it places on our customers. Since our Q2 earnings call, we have discussed seeing 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 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, FlashBlade E, and Flasher AC 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 FY24 until we see improvements in the environment. As Kevin will cover in a few moments, We are maintaining our operating margin guidance for FY24, even after taking into account lower revenue growth expectations than previously anticipated. We are very excited about the innovations we delivered in the year and are particularly excited about the introduction of FlashBlade 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 FY24. 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 24, 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 in meaningful innovation in data storage and management. We will increase our relevance and opportunities with the world's 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.