Great. Thank you to everyone for joining. Needham's Growth Conference here. My name is Mike Cikos. I'm the lead analyst covering cybersecurity and infrastructure software. I'm pleased to say that we have with us Coz and Sandra from Pure Storage for this upcoming fireside chat. I have a list of prepared questions on my side we'll be going through, but we also have a Q&A function for you guys as well. If you have any questions, please send those in, and we'll try to get them to Coz while we have him here. I'm just going to go through some forward-looking statement disclosures, and then we can jump into it. Statements made in these discussions, which are not statements of historical fact, are forward-looking statements based upon current expectations.
Actual results could differ materially from those projected due to a number of factors, including those referenced in Pure Storage's most recent SEC filings on Forms 10-Q, 10-K, and 8-K. With that out of the way, thank you again for the time, guys, and Coz, really appreciate it. Maybe just a dust-off for the audience here, but could you just walk us through your background as well as a quick overview of Pure Storage for anyone who might be new to the name or revisiting the story here?
Sure. Thanks for inviting me, by the way, Mike, so I'm John Colgrove. Everybody knows me as Coz. I'm the founder of Pure. I've been in the storage industry a long time. Prior to Pure, I worked for many years at Veritas. I was one of the first engineers in Veritas and worked on the Veritas Storage Foundation products, and before that, I had worked at Amdahl on mainframes, doing storage stuff for them and at Bell Labs when I was growing up in New Jersey, so I've been around the storage industry quite a while. Pure, we started in 2009 in October, and we started with a fairly simple premise that disk had ceased to improve at the same rate.
Flash, meanwhile, driven by a whole ton of consumer devices and such, had achieved an economic scale where it was far faster and more adaptable and flexible, and it was time for flash to start replacing hard drives. We built the product or the company on sort of three simple things. One, leading the industry transition to all flash. Two, was building very simple and easy-to-use products. Enterprise tech was not known as being simple and easy to use, and we've really pioneered and pushed that, and when you think about easy-to-use products, one of the hallmarks of them as well is they are safer, more reliable, people make fewer mistakes. It's just a better way to build things, and you see that in every consumer device that everybody wants to buy. Enterprise tech should follow that, and then the third was our evergreen business model.
Evergreen is a fairly simple concept. When you purchase one of our products with Evergreen// Forever, we will refresh every component as it ages non-disruptively, plug-and-play hardware swaps, push-button software upgrades. And so the idea is that the product just continues to get better and better and better and stays fresh and new all the time so that you never have to rebuy it. In effect, you could argue it turns capital purchases after some years into subscription purchases as people continue on with it. And we do have, of the first 10 arrays we ever sold, a whole bunch of them are still in service. Through the magic of Evergreen, it's not that they look like 13-year-old arrays. They look like brand new arrays, and those customers have never had to rebuy. They've just expanded.
And then we follow that on now in our Evergreen// One storage as a service, which is even better. You don't buy the array in the first place. You just purchase a successful storage service from the beginning, and we have a set of SLAs and such. We went public 10 years ago now, and we're still continuing to build products and build the best products in the industry and move forward. So that's a brief history of Pure.
Excellent. And just jumping into Evergreen//One for a second, let's talk about that. Where is the market today in terms of willingness or desire to adopt? And the reason I ask is, obviously, you punched on a number of items there. You have the SLAs. You have the idea where instead of being on this CapEx cycle, you're shifting it to more of a subscription OpEx type purchase. There's multiple benefits there, but it feels like in some ways the market itself might need to shift as far as it's thinking about storage. So can you walk us through where the market is today in terms of Evergreen//One?
Yeah. Well, so there are a set of people who, I guess they view capital as very cheap. They're just used to buying capital purchases. And so there's a set of people that definitely buy CapEx and think they want to continue to buy CapEx. We believe that buying the Evergreen// One service is better, but we'll continue to offer customers the choice. Now, I think as prices continue to go up on NAND, as it becomes harder and harder to obtain new gear, I think that tends to move people more towards Evergreen// One, so we saw that before a few years ago, right? Depending on interest rates, financial outlook, et cetera, the demand between CapEx and Evergreen// One purchases may shift, and the other thing I would say is people shouldn't regard Evergreen// One as an OpEx way of purchasing the same thing.
That is not what it is. When you buy with Evergreen//One, you get a set of SLAs where we're guaranteeing the availability of the performance, but you also get SLAs around things like ransomware protection. If you suffer a ransomware attack, we will roll in new gear for you to recover on, and you have guarantees around your power rack space and all sorts of other things. It is a better and different product because you are buying a set of success, guaranteed performance, guaranteed availability, and all of the other SLAs that go with it, and so people shouldn't just say, "Oh, hey, the cost of capital is higher now. I'm going to go with a subscription." They need to recognize the subscription is better. It's a better product to buy.
But I do think as financial things vary back and forth, it does increase the demand for the subscription.
I should have started if we take a step back and think about the overall market. Maybe you can provide an update as far as the market's view or adoption of flash over hard disk drives or solid-state drives. How are customers going through that economic decision from a procurement standpoint?
Well, so again, the key to flash is looking at the total cost of ownership, not looking at buying the actual bits. Now, and again, you have to remember all the time, a hard drive might be cheaper on the actual bits, but you put that hard drive into a storage system, and the extra sheet metal, the extra power, the extra administration that it takes because it is more fragile and there are more hard drives and things like that, all costs extra. And so when you look at the long term, and the flash lasts longer, we guarantee our Direct Flash modules for 10 years. And so you sort of get twice the lifetime you get with a hard drive or even more. And so when you look at that total cost of ownership, it's far more equal.
Now, that said, prices of NAND have been going up a lot recently due to the demand shortages. Prices of hard drives have gone up a little, not to the same extent as NAND, but hard drives are also sold out. You can't get them. And so those factors play in as well. Right now, I would expect that there are fewer people in the market looking and saying, "I'm going to replace my hard drives with NAND" than there were a year ago. And I think when prices swing back, again, you'll see a big uptake in that. But right now, as prices on NAND stay higher, you probably just see fewer people thinking that way because people tend not to think differently. They think the traditional way they always have.
And on that NAND element too, I know you've spoken about it a couple of times already here. Can you talk about how Pure Storage has historically navigated movements in NAND prices and the knock-on effect to your business model?
So generally, what's happened in the past, and we've been through three pretty significant cycles of NAND prices increasing a lot and also NAND prices dropping a lot. When prices go up, people do pay more dollars per gigabyte. They buy fewer gigabytes. But the net result is when prices go up, generally speaking, in the past, that has been a slight tailwind to our revenue. Margin stays pretty consistent because, again, the price people pay per gigabyte goes up, but the higher prices have generally acted as a slight tailwind to our revenue. And actually, similarly, when prices are falling through the floor, people buy a lot more, but they pay a lot less per gigabyte. And that's actually been a little bit more of a headwind for us. And it's not some gigantic overriding factor.
Think of it as it'll increase or decrease the growth by a few points, usually. And we've seen all our competitors take prices up. That's good because we have a better product in the market. Competitors usually do their best by going to ridiculously low prices against us. And when they take prices up, that means they're not going to do that as much.
One of the things, just cycling back to the commentary on hard disk drives and spinning the heat, I think about that in the context of this AI era, the energy crunch that we're seeing across the broader industry. Is that increasingly a point when you guys are going out and selling? I know you've always had this TCO angle. We are able to talk about energy consumption in the data center, but is that an additional tailwind? Do you find that that is resonating to a degree that maybe it has not historically?
I'd say that's still more sort of organization by organization. There are a set of companies that really buy through their purchasing department who just ignores all that stuff because they're not gold on it. They're gold on what's their purchase price. And you do see, again, the worries about energy, energy supply, energy cost rises and falls a little bit over time. Right now, I'd say that's down a little bit. It will probably swing around again. Europe has decided that they're slightly more afraid of missing out on AI than the energy issues. So they've backed off just a little bit overall on the energy focus. And their power prices are just way higher than here in the U.S. So it is an important thing to them. But again, the AI is driving data centers and power consumption through the roof.
And so in the long run, that's again, it's a trend that's really in our favor. And like everything, it's not a straight line. It varies slightly from year- to- year.
And you guys are also building out. I know a big theme for this year at Accelerate, the Analyst Day, was the data cloud. And so I'm thinking about the stack that you guys have built out, but maybe you can talk about how this platform is positioned to benefit customers from an AI standpoint. Where is the company investing to accrue additional value on that front?
Yeah, so there's a couple of things there. So the Enterprise Data Cloud, which is a major strategic thrust, and it will continue to be for several years. The goal of the Enterprise Data Cloud, if you think about when somebody contracts with a cloud-based service, they operate differently, so when you're buying virtual machines from Amazon or whatever, you don't think at all about the physical infrastructure. And you have a very service-oriented thing. "Oh, hey, I've got my credit card here. I can just buy five more VMs when I need it, and I'm kind of." It's very flexible and adaptable. That's what draws people to the cloud, is that flexibility and adaptability, so with the Enterprise Data Cloud, what we're doing, we're starting with our own products.
We do intend eventually to bring other products in there, but we're allowing people to create a fleet and run all of the Pure products as simply and easily as if they're a single cloud service. And so instead of going and provisioning storage and every time deciding where you're going to provision it and things, you provision it by having some people who have defined service-level offerings that you will offer to your internal customers. And then they say, "Okay, I need 10 TB of tier one storage," or, "I need 10 TB of Oracle storage," or whatever thing. And it's planned. It's much more organized, and therefore it is much simpler and easier.
And it also has the benefit for us that when a customer has a single Pure array, now when they get a second Pure array or a third or a fifth or a tenth, you just add it into that service, and it's far simpler and easier to bring new products on board. So that's the Enterprise Data Cloud. Now, what that does for a customer as well is it increases their ability to follow governance models, data sovereignty models, AI access restrictions, or connecting up the data to AI both ways, making it easier to do that, but also easier to make sure that the AI is not operating on data it shouldn't. It increases their agility. And the biggest thing that's happening right now is the world is changing, right?
AI is changing what people want to do with their data so rapidly, and the Enterprise Data Cloud gives them a ton of agility with that. Now, we're also going after AI with our FlashBlade// Exa product, which is a new significant thrust. I would argue a lot of the hyperscale sales that we've had and interest is going more to AI than we had originally thought because, again, the performance, the flexibility of the solution all helps with AI. So there's a whole lot we're doing down the AI path as well. But the Enterprise Data Cloud, the big thing it does, increases agility, increases consistency, increases the ability of people to govern their data and their systems.
I apologize that it didn't dawn on me, but with the Enterprise Data Cloud that we're talking to here, I think you had said, "Hey, we're starting with our own product, but over time, you'll actually allow other products to come inside that." How does that look or what is the timeline for that? I'm just curious.
The timeline for the other products is probably at least a couple of years out before you do much with that. We have a lot of great stuff to do with our own products first. And so we want to do that. But when you think about the Enterprise Data Cloud and you think of the value that that brings, yeah, getting eventually your other resources in there is important too. And we'll do things sooner like allow people to integrate with their backup products and their other things.
The other storage products will be a little further out, but being able to, when you're creating a definition of a service level, you want to talk about your data protection and your backup and your cyber resiliency and your security and your location and such, as well as the performance and other things you might think of as just being strictly with regard to a particular storage array.
I know, I guess we were talking about the AI opportunity, but curious, just given the number of Neo clouds, if you will, that are starting to crop up, where is Pure Storage as far as engaging and selling with these Neo clouds? And can you also help us think through what that opportunity looks like? Because I imagine scoping and working alongside them is going to take a different angle versus a more traditional enterprise organization.
Yeah, no, it is very different, and that's why we created the Exa product. The way we think about AI, you really have the hyperscalers who have all the layers of software, and for the hyperscalers, the product we sell in there, what we call our Hydrogen appliance, which is really selling DirectFlash on an Open Compute or on their particular server in there is the approach that you want to take because they don't want to buy a packaged product. They don't want to buy something like a FlashArray or a FlashBlade. They want to buy the closer to the raw bits, we'll call it, and then on the enterprises, we've been strong. The FlashBlade// S500 can support a good number of GPUs. It's the right kind of thing for them.
The other thing I would say with most enterprises, people are not going to use AI by saying, "We're going to take every database we have, from healthcare, every patient record and everything, and suck it out of the storage I'm currently using into some other AI training environment and go do everything there." They need the Oracles or the NetSuites or the SAPs or the Epics or all those things that are controlling that. And so they're going to, in essence, use the FlashArrays and FlashBlades that they've been purchasing and just expect more performance and more flexibility out of them. And that's where we shine over some of the competitor arrays. So then the Neo Clouds and a few of what we call the Tech Titans who aren't hyperscalers, they fall in between that.
And they want far more performance than a product like a straight FlashBlade is going to bring and more scale. And that's where the FlashBlade// Exa product is designed for. And Exa, what we've done is we've said, "Okay, because this is moving so fast, you want to be able to take advantage of the hottest SSDs, the hottest performing CPUs, the hottest performing CXL, HBM, any of those things as they evolve." So FlashBlade// Exa takes the metadata engine of FlashBlade and then has a whole set of data servers that are actually not our box. They can bring your own servers from the customer or a few server partners that we would specify with. And you can build up to almost any level of performance you want. The file system or the object store is controlled by the FlashBlade.
The metadata lives there, and the data access goes directly to the data servers. And it lets you scale performance up, like I said, to practically any number you wish, just based on how many servers you buy. That's the right answer for the GPU clouds. That's the right answer for the tech titans that aren't quite hyperscalers.
And so I want to be clear here too. I know that from a go-to-market standpoint, the management team has been targeting hyperscale type organizations. And so when we're talking about tech titans or neo clouds, is that falling within that hyperscale bucket? Is that what I should be thinking about?
No, no, no. That's a separate bucket.
Yeah. Okay. I want to make sure that we're clear.
Yeah. So think of the hyperscale bucket. There's like the five biggest hyperscalers who it's easy to figure out what those five names are. And then there's another 50, 100 sort of second-tier hyperscalers, we'll call it, that are far smaller, but they're not doing the GPU clouds. We separate from those, from that second-tier hyperscaler. So you have the hyperscalers, the big ones, and then the second-tier. They have a different kind of approach that they want from the tech titans and the GPU clouds and then enterprises. And those are sort of the three segments we have. So just to be clear, anytime I say hyperscaler or anytime, anyone at Pure says hyperscaler, we do not mean the GPU clouds.
Okay. And just on the hyperscaler vein, you guys had announced a hyperscale win. This has been a big year as far as working through the co-engineering, co-development. I think the latest update we've received is that initially you expected to ship one to two EB. Now we are projecting more than two EB worth of shipments this year. Can you walk us through how the relationship has progressed? What is driving that incremental volume and how is the partnership evolving?
The relationship's going well. It's going as we expected. The deployment's going well. I think like everyone else, AI is driving it even more. The main hyperscaler and the tier two hyperscaler we've shipped to, more stuff being driven by AI than we had originally thought would be. But everything's going well there, so we're happy with it.
Is that AI color? Is that one of the reasons why the exabyte shipments are actually coming in above initial projections, or is it, no, this partnership is actually growing faster than expected or sooner than expected? I'm trying to figure that out.
Yeah. So I would say that you could say both.
Okay. And how should we think about, I think you guys have been pretty consistent, but maybe for the audience, the scale or volume of shipments as we flip over into fiscal 27? I know there's been color commentary from the management team as we've gone through this process, but I do believe that there's a consensus view now that fiscal 27, we will go into production. So how is that shaping up? And just as a reminder, what should we expect in terms of volume commitments?
Given that I don't remember exactly what we've publicly said on that, and I'm not going to say anything about the volume shipments and such on that, so listen to our earnings call.
Low double digits.
For any updates.
Low double digits.
Okay. Sandra's reminding me we said low double digits. I'll go that far.
Excellent.
Yeah.
And then if I come to competition for a second, again, just given the evolution of the storage market and this need for where we are, I think it's invited a host of new competitors, new entrants. And then there are others that are just meaningfully growing at scale. Are those new entrants actually coming up in competitive bake-offs more frequently? And is that in any way changing how Pure Storage is going to market?
So I would say they're only coming up in very limited cases. So for example, the GPU clouds. There's a couple of. There's a competitor that's been around for far longer than Pure in there who's never been in the enterprise. And there's a couple of new ones. And the GPU clouds is a different environment. In the traditional enterprise market, which is the bulk of our business, it's the same competitors. You hardly ever see one of the newer entrants there. And there, I think our competitors, their biggest weapon against us has always been price or bundling their servers in with their storage and things. And as prices have gone up and they've all talked about increasing prices, I think that just it helps emphasize how much more efficient we are. Our products have always tended to be smaller, denser, more efficient than their products.
And so I think we're in a better shape competitively at this point in time in that market. Like I said, in the GPU clouds and sort of that aspect of the market, yes, that's where you see a bunch of competition from some of the new people. It's a little bit different because in that sense, we're the bigger, safer choice there as opposed to we're the upstart in the enterprise space. We're the bigger one there in the GPU clouds. And so we'll get a share there, but others will get a share there too. The products, though, for the GPU clouds aren't really suitable for the enterprise.
I guess when you do come against some of those less traditional competitors, let's say, do win rates materially change one way or the other, or have they changed?
The win rates are good, but because it's sort of, let's call it fewer deals overall with fewer companies, you can't look at the win rates as being as stable. When I have 1,000, 5,000 deals in traditional stuff, and I can sort of, you can say, "Oh, our win rate's going to be X%," and yeah, quarter- over- quarter, year- over- year, I can compare it. In the GPU clouds and things like that, it's just a far smaller number, and so therefore, one or two things flipping has a material impact on the win rates, but I think our win rates are fine there. I think we'll do better because, to be honest, FlashBlade//Exa is a new product.
Therefore, we're sort of, in one sense, we've been serving this market a little bit less than others, and we're coming in, and we're going to take a good share.
Right. And just on the product point as well, if I think about Evergreen// One and again, the demand for storage here, is it fair to assume that those Evergreen// One deals, are they actually increasing as far as size? Do you have visibility into that?
There's definitely a set of large ones, but there's also a bunch of smaller run rate stuff. I think when prices go up, when availability becomes a question, I think it makes Evergreen//One look more attractive to people. I honestly think it's a better offering, and it should be more attractive all the time. But people look at it more when things are tight, when prices are high, or when they can't get supply. And so yeah, I think Evergreen//One will do well in the current environment.
Another element we haven't touched on yet is KubeVirt and Portworx, two separate pieces of the platform here. Is that resonating more with customers in the current environment? Especially I think about some industry M&A and the potential benefit or tailwind, if you will, for those two items in the Pure Storage platform.
Yeah. No, definitely. It's resonating more. Everybody's looking at their alternatives for VMware. And KubeVirt, what we call modern virtualization, KubeVirt and Portworx is, I think, probably the best alternative solution for people. And it's a forward-looking one because it's a direction they already were planning to go towards containers. And so yeah, that's definitely getting more traction.
And then probably the last question we'll have time for. I did get one from the audience I want to make sure we're getting to. It's about the NVIDIA new rack design. And the question is, if NVIDIA is bringing more storage to, I guess, AI deployment, what is the potential impact to Pure Storage?
Well, so the NVIDIA rack designs and things, again, they more go into the GPU clouds and things like that rather than the traditional enterprise storage. We're a storage partner of NVIDIA, just like some of the competitors that we see in the GPU clouds. It's interesting. NVIDIA is evolving what they're doing so rapidly. It is difficult for everyone to keep up. So they come out with one of these rack designs. Before it can achieve real momentum, they come out with the next one and the next one because they're evolving so rapidly. And so a number of these things that NVIDIA is pushing, I think you'll see effectively. I'll call it fail in the market because they're moving on to the next thing so quickly. But we're a partner of theirs. Like I said, the competitors are a partner of theirs, and we're following along.
And so I think as NVIDIA continues to come out with this, again, it's opportunity for us to capture stuff in all of the GPU clouds and tech titans.
All right. Awesome. Well, we'll leave it there, but thank you to the audience and thank you to the team here, Coz, Sandra. Thank you very much.
Thank you. Thank you, Mike.
Thanks a lot, Mike.
Bye.
Bye.
Talk soon. Bye guys.