Everpure, Inc. Class A common stock

Thank you. Good afternoon, everyone, and welcome to Peer's third quarter fiscal year 2025 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 that accompany this webcast can be downloaded in investor.peerstorage.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 today 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. The 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 revenue, remaining performance obligations, or RPO, and cash and investments. Reconciliations to the most directly comparable gap measures are provided in our earnings press release and slides. This call is being broadcast live on the Peer 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 Peer Storage. Our fourth quarter fiscal 2025 quiet period begins at the close of business Friday, January 17, 2025. With that, I'll turn it over to Charlie.

Good afternoon and welcome to our Q3 FY25 earnings call. Pure Storage delivered solid third quarter results with both revenues and operating income exceeding our guidance. As I have discussed in previous calls, we have been engaged on achieving a significant hyperscaler design win by year end. And I am pleased to announce that we signed a design win with a top four hyperscaler in the last few weeks. This is the first ever design win to provide flash for standard hyperscaler storage, and it is the vanguard for flash storage, providing all online storage in major hyperscale environments in the future. For reference, the hyperscale market is responsible today for 60 to 70% of all hard disk drives purchased globally. In addition to providing cost-effective data storage, this top four hyperscalers use of pure technology is expected to free up significant amounts of power and space in their data centers. It is also expected to significantly reduce the failure rates and maintenance costs associated with legacy disk storage while doubling the expected lifetime of their storage infrastructure. Pure Storage, Purity Software, and Direct Flash technology will provide this hyperscale customer the necessary price, performance, density, and power to deliver the cloud-based services with unparalleled performance and energy efficiency. The close engineering engagement between the companies and extended testing by this major hyperscaler has proven Pure's Direct Flash technology is now capable of providing cost-effective data storage at hyperscale capacity, even at low-cost bulk data price ranges. To fully outline the opportunity here, we are working with hyperscalers to utilize our technology with a single consistent architecture for all of their online storage, inclusive of low-price bulk storage, nearline, higher performance storage, as well as high speed storage for their most demanding use cases, including AI. To support the expected increase in flash demand for the hyperscale industry, we also announced today a deepening collaboration with Kioxia, a global leader in NAND flash technology. Kioxia has been a steadfast partner in our engagement with the hyperscale community. Our design win signals that Pure's direct flash technology is now ready to replace hard disks everywhere, and NAND vendors are taking notice and planning their opportunity to address this 700 exabyte per year market. As data volumes continue to increase, our combined technologies enable hyperscalers to meet the challenge of increasing data volumes while reducing power consumption, labor, and the physical footprint of hyperscale data centers. The work for the design win we announced today started over one year ago. While we have had sales of standard product into hyperscale customers, hyperscalers have developed their own software for their storage services, which operates on commodity-hard disk drives and SSDs. Our early outreach to hyperscalers was first met with skepticism that we could achieve the price and performance necessary to replace cheap hard drive storage. However, this hyperscaler was open to investigating us further and working together, Pure optimized the design of Purity and our direct flash technology to fit smoothly into their compute and storage architectures and optimize the economics to fit their financial targets. With this win, Pure is entering an exciting new hyperscale market. The design win itself signals that this top four hyperscalers future data centers are approved to use Pure's technology as their data storage standard. We expect early field trial build outs next year with large full production deployments on the order of double digit exabytes expected in calendar 2026. which corresponds to our fiscal 27. We continue in our dialogues with other major hyperscalers as well. Given the significant opportunity that exists for this and other hyperscalers, we anticipate increased investment in our hyperscale line of business over the next year, for which Kevin will provide additional details. I would like to turn now to another significant area of opportunity for Pure, namely artificial intelligence. AI creates several key opportunities for Pure. First, we continue to provide leading-edge, high-performance storage for public and private GPU farms in machine learning and training environments. This past quarter, we were officially certified for the NVIDIA DGX SuperPOD architecture designed to provide turnkey infrastructure for the world's largest training environments. We recently announced a strategic investment with CoreWeave, a specialized GPU cloud provider to better serve our AI customers. Building on our successful existing supercomputing scale deployment serving thousands of GPUs, we partnered with CoreWeave to make pure storage available as a standard option within the CoreWeave dedicated cloud environment. Second, many enterprises are considering inference engines and retrieval augmented generation, or RAG, environments as they look to apply commercial large language models to analyze their proprietary data. This quarter, we introduced the Pure Storage GenAI pod, a set of full-stack solutions which reduce the time, cost, and expertise required to deploy generative AI projects. In the quarter, we signed a deal with a medical device manufacturer who faced multi-million dollar interruptions because their legacy storage technology couldn't support a real-time AI imaging system to catch defective products. With Pure, they can now run AI analytics, capture metadata, and train their machines to identify and prevent defects, significantly improving their operations and their quality assurance. Third, AI continues to drive customers to modernize and break down infrastructure and data silos to enable easier access to data. Unlike with other vendors, Pure customers will not need to manage different storage operating environments to meet their varied AI needs. This quarter, one of the world's leading suppliers to the defense and aerospace industry chose Pure for their AI data storage infrastructure. This Fortune 200 customer chose Pure's platform to support a wide range of training, inference, and fine-tuning, sharing many data sets and storage environments seamlessly across multiple groups and AI activities. The Pure storage platform will be used to develop multiple AI technologies to enhance human capabilities, improve aviation safety, reduce pilot workload, and develop human-centric autonomous solutions. Expanding on the Pure platform and turning to the enterprise, Pure is driving the biggest shift in enterprise storage since Flash. With Pure Fusion, we are transforming enterprise data by virtualizing data management and storage and enabling enterprises to create their own data cloud environment across their global enterprise. Pure Fusion will be available this quarter as a non-disruptive, free upgrade to all existing pure block storage arrays and will be standard in all new pure block products and storage service offerings. Fusion will be extended to our file and object platforms early next year. Our advances in data storage innovation for enterprises and now hyperscalers are transforming the industry. Our experience and technology in optimizing flash storage for enterprises has now enabled us to begin to penetrate the largest hyperscalers with our purity-based direct flash technology at the largest scale. Because of their scale, hyperscalers manage their storage far differently than traditional enterprises. Traditional enterprises manage individual storage arrays, which are dedicated to specific workloads. Storage dedicated to a specific workload cannot be shared with other workloads. Therefore, Data stored for a particular workload is generally inaccessible for other workloads. Traditional enterprise storage architectures and products create data silos. By contrast, hyperscalers only have a small handful of storage environments segmented only by price performance levels, low, medium, and high, for instance. All data from all workloads and customers utilize the same storage environments. This makes data access far easier. Different storage capabilities are enabled by software, not dedicated hardware. Our experience in working with hyperscalers has allowed us to bring the best attributes of data cloud architectures to enterprise data centers with PureFusion version 2.0, which will be released this quarter. Pure now makes it possible for businesses to build their own enterprise data cloud, seamlessly combining on-prem and cloud environments to stay agile and competitive in the age of AI. Pure Fusion automates data management, simplifies operations, and enhances the DevOps developer experience. Fusion empowers enterprises to build their own enterprise data clouds that federates storage across both cloud and on-prem environments, enabling effortless scalability, global accessibility, automated job placement, load balancing, and importantly, AI-ready data access. Fusion allows organizations to define and standardize their own customized global data management classes, inclusive of performance, cost, resiliency, recovery, and location, and to automate delivery of data services to users via API and according to enterprise policy. Fusion fully unifies, automates, and delivers the cloud operating model across the Pure platform on premise and in the cloud. We have also deepened our partnership with major public cloud vendors for enterprise services. With the official preview of the PureFusion powered Pure Storage Cloud for Microsoft Azure VMware Service, or AVS for short, we simplify enterprise migrations from on-premise VMware environments to AVS, enabling independent scaling of storage from Azure compute nodes. This first of its kind solution ensures a smooth, efficient cloud transition with minimal IT disruption. boosting cost efficiency, data resilience, and storage simplicity. Turning now to the market and broader macro environment, we have not seen any meaningful change in the overall landscape, which remains relatively consistent with the muted IT spending and heightened competitive environments we have seen all year. Customers continue to contend with higher software, SaaS, and cloud costs, as well as AI spending uncertainty. placing unanticipated pressure on operating budgets. While I would have liked to have seen more strength from Evergreen One in the quarter, we are confident that we are strongly positioned across all of our segments. The cloud is not a location. It is an operating model enabling self-service, speed, consistent operations, and faster scaling with greater efficiency at lower costs. With Fusion and our data storage platform, we're turning the vision of an enterprise data cloud into a reality for enterprises. Our consistent innovation in our industry has been recognized annually by industry analysts, such as our recent 11th time leader position in the 2024 Gartner Magic Quadrant for primary storage platforms. And our fourth time leader position in the 2024 Magic Quadrant for file and object storage platforms. Energy availability is a global concern and has become a critical risk to hyperscalers operations. Some are even contracting with nuclear power plants to secure a reliable supply of electrical power. Hyperscalers no longer seek low cost power. They're looking for power at any cost. Expanding electricity production cannot add significant capacity for many years. Alternatively, replacing inefficient hard disk drive storage with Pure Direct Flash technology represents one of the largest power sources presently available to hyperscalers. As power limitations increasingly hinder data center growth, Pure Storage is the only company that can simultaneously enable hyperscalers to cost-effectively upgrade their data storage while simultaneously freeing vast amounts of electrical power and data center space for other applications, such as AI. Overall, we are very pleased with our progress on our hyperscale opportunity and with the expansion of our enterprise capabilities. I am personally more excited than ever about Pure's opportunity ahead as we drive a new era in data storage management. With that, I'll pass the mic to Kevin.

Thank you, Charlie. We are pleased with our Q3 financial results, exceeding both our revenue and operating profit guidance. Revenue of $831 million grew 9% year over year, while also delivering strong operating profits of $167 million. Strong demand continues for our eFamily and Flasher AC solutions, enabling customers to move their cost-sensitive workloads to all flash. Additionally, renewals of our Evergreen subscriptions across our install base remained robust, demonstrating strong year-over-year growth. Total contract value, or TCV, sales for our storage-as-a-service offerings during Q3 was $96 million, reaching $253 million for the nine months of FY25. Conversion of larger evergreen one opportunities valued greater than 5 million is consistent based on our expectations that we reduced last quarter. Higher velocity evergreen one pipeline that we define as less than 5 million is strong, though in Q3 we experienced a meaningful increase in these opportunities converting to a traditional sale. This contributed to higher than expected product revenues in Q3 while also resulting in lower than expected TCV sales of Evergreen One. Subscription services annual recurring revenue or ARR grew 22% to 1.57 billion. Total RPO exiting Q3, which includes both subscription services and product orders grew 16% year over year to $2.4 billion. RPO excluding product orders and associated exclusively with our subscription service offerings grew by 17%. RPO growth is impacted by lower than expected TCV sales of our Evergreen One offering. U.S. revenue for Q3 was $562 million, and international revenue was $269 million. Our new customer acquisition grew by 340 customers during Q3, and we continue to serve 62% of the Fortune 500. In Q3, total gross margin remained strong at 71.9%, reflecting strong subscription services gross margin at 77.4% and solid product gross margin at 67.4%. As anticipated, product gross margin was influenced by our strategic efforts to help customers transition cost-sensitive workloads to our eFamily and Flasher AC solutions. This approach, while resulting in a modest decline in product gross margin, underscores our commitment to delivering cost-effective, high-value solutions for our customers across our data storage platform. Looking ahead to Q4, we expect continued strong growth of our eFamily and Flasher AC solutions. resulting in a sequential modest decline in product gross margin similar to the trend observed from Q2 to Q3. Operating profit of $167 million and operating margin of 20.1% during Q3 were positively impacted by revenue overachievement, strong gross margin performance, and continued operating expense discipline. Our headcount increased sequentially by nearly 140 to approximately 5,900 employees. Pure's balance sheet and liquidity is strong, including $1.6 billion in cash and investments at the end of Q3. Cash flow from operations during the quarter was $97 million and reflects a large upfront payment for new software technology that we licensed. Capital expenditures were $62 million and include significant investments to scale operations for our hyperscale opportunities. During Q3, we repurchased 3.6 million shares, returning approximately $182 million to our shareholders. We also paid $55 million of withholding taxes due on employee equity awards. which also offset dilution by approximately 1.1 million shares. We have approximately $213 million remaining on our existing repurchase authorizations. Turning to guidance, we are raising our FY25 revenue expectations to 3.15 billion, representing approximately 11.5% year-over-year growth. The raise to our FY25 revenue expectation is the result of seeing an increase in Evergreen One opportunities under 5 million converting to a traditional sale. While this dynamic increases product revenue expectations, it also reduces FY25 TCV sales growth expectations for our as-a-service offerings. With lower TCV sales growth for our as-a-service offerings we do not expect the growth of our consumption and subscription offerings will have a significant impact on our FY25 revenue growth. As such, we are not updating our FY25 TCV sales guidance for our as-a-service offerings. For Q4, we anticipate revenue of $867 million, reflecting 9.7% year-over-year growth. Now moving to operating profit expectations. Aligned with our increased FY25 revenue guidance, we are also raising our FY25 operating profit expectations to approximately 540 million, reflecting an operating margin of 17%. For Q4, we are guiding operating profit of 135 million and operating margin of 15.6%. Before closing, I'd like to share some preliminary thoughts on our first transformative design win with a top four hyperscaler to help inform your models. The commercial framework for this design win involves licensing our technology and delivering support services. Hardware will not be included as part of our sale to the hyperscaler. We anticipate meaningful revenue contribution and operating margin expansion from this win beginning in FY27. which aligns with our expectations for full-scale production deployments reaching double-digit exabyte capacities by that time. To capitalize on this milestone, we will increase operating investments in FY26 aimed at scaling operations and accelerating our opportunity to deliver PURES differentiated technology for hyperscale storage. When considering these investments, we expect FY26 operating margin will be approximately 17%, consistent with our FY25 operating margin guidance. In closing, as we look ahead, our strategic investments and innovation position Pure as a leader in transforming the data storage landscape. We remain focused on execution while navigating a persistently muted IT spending environment. The growth opportunities ahead are fueled by our advancements across our data storage platform, empowering organizations to unlock greater efficiency, scalability, and resilience in their operations. We are excited about what lies ahead and confident in our ability to drive sustained growth and innovation. With that, I'll turn it back to Paul for Q&A.