Earnings call transcript: Pure Storage Q2 2025 beats expectations, stock rises

Pure Storage Inc. (PSTG) reported its fiscal second-quarter earnings on August 27, 2025, surpassing analyst expectations with an earnings per share (EPS) of $0.43, compared to the forecast of $0.39. The company also reported revenue of $861 million, exceeding the projected $846.2 million. Following the announcement, Pure Storage’s stock rose by 3.93% in aftermarket trading, closing at $59.

Key Takeaways

• Pure Storage achieved a 13% year-over-year increase in revenue.
• Subscription services revenue grew by 15%, contributing significantly to the company’s earnings.
• The stock price increased by 3.93% in after-hours trading following the earnings announcement.
• New product launches and strategic partnerships are driving innovation and growth.
• The company maintains strong engagement with major clients like Meta.

Company Performance

Pure Storage demonstrated robust performance in the second quarter of fiscal 2025, with a notable 13% increase in revenue compared to the same period last year, maintaining its five-year revenue CAGR of 14%. The company continues to strengthen its position in the all-flash storage market, supported by innovative product offerings and strategic partnerships. The addition of over 300 new customers and a 22% increase in total remaining performance obligations underscore its expanding market presence. InvestingPro analysis reveals the company holds more cash than debt on its balance sheet, with a healthy current ratio of 1.61, indicating strong operational efficiency.

Financial Highlights

• Revenue: $861 million, up 13% year-over-year
• EPS: $0.43, surpassing the forecast of $0.39
• Operating profit: $130 million, representing a 15.1% margin
• Subscription services revenue: $415 million, a 15% increase year-over-year
• Annual recurring revenue: $1.8 billion, an 18% rise year-over-year

Earnings vs. Forecast

Pure Storage outperformed expectations with an EPS of $0.43, a 10.26% surprise over the forecasted $0.39. Revenue also exceeded projections, reaching $861 million against an expected $846.2 million, marking a 1.75% surprise. This performance reflects the company’s consistent growth trajectory and effective execution of its business strategy.

Market Reaction

Following the earnings announcement, Pure Storage’s stock price increased by 3.93% in aftermarket trading, reaching $59. This rise reflects investor confidence in the company’s strong quarterly performance and positive outlook. The stock is now trading closer to its 52-week high of $73.67, with analyst price targets ranging from $50 to $93. InvestingPro subscribers have access to detailed valuation metrics, including 12+ additional ProTips and comprehensive financial analysis that can help investors make more informed decisions about PSTG’s current valuation levels.

Outlook & Guidance

Looking ahead, Pure Storage provided an optimistic revenue guidance for fiscal year 2026, projecting between $3.60 billion and $3.63 billion, a 14% increase from the previous year. With a market capitalization of $19.95 billion and a gross profit margin of 69.25%, the company demonstrates strong fundamentals despite trading at elevated multiples. Discover more detailed insights and access Pure Storage’s comprehensive Pro Research Report, along with 1,400+ other top stocks, exclusively on InvestingPro. The company anticipates continued strong engagement with hyperscalers like Meta, targeting up to two exabytes by the year’s end. For the upcoming third quarter, revenue is expected to range between $950 million and $960 million.

Executive Commentary

CEO Charlie Giancarlo emphasized the strategic importance of Pure Storage’s enterprise data cloud architecture, stating, "By virtualizing enterprise storage, Pure enables organizations to stop managing infrastructure and start managing data as a strategic asset." CFO Tarek Robbiati highlighted the company’s ambitious targets, affirming, "We are standing by the one to two exabytes by the end of this year, possibly more."

Risks and Challenges

• Supply chain disruptions could impact production and delivery timelines.
• Intensifying competition in the storage market may pressure pricing strategies.
• Economic uncertainties globally could affect enterprise spending on IT infrastructure.
• Dependence on key clients like Meta might pose a risk if relationships shift.
• Rapid technological advancements require continual innovation to maintain a competitive edge.

Q&A

During the earnings call, analysts inquired about the macroeconomic environment, noting improvements and asking how these trends might influence Pure Storage’s future performance. Executives highlighted the company’s strong momentum across product lines and ongoing focus on expanding its enterprise data cloud architecture, reassuring stakeholders of its strategic direction.

Full transcript - Pure Storage Inc (PSTG) Q2 2026:

Conference Operator: Good day, and welcome to the Pure Storage Second Quarter Fiscal twenty twenty six Financial Results Conference Call. Today’s conference is being recorded. At this time, I’d like to turn the call over to Paul Dyach, Vice President of Investor Relations. Please go ahead.

Paul Dyach, Vice President of Investor Relations, Pure Storage: Thank you. Good afternoon, everyone, and welcome to Pure’s second quarter fiscal year twenty twenty six earnings conference call. On the call, we have Charlie Giancarlo, Chief Executive Officer Tarek Robbiati, Chief Financial Officer and Rob Lee, Chief Technology Officer. Following Charlie’s and Tarek’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 at investor.purestorage.com. On this call today, we will be making 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 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 revenue, remaining performance obligations, or RPO and cash and investments. Reconciliations to the most directly comparable GAAP measures are provided in our earnings press 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 third quarter fiscal twenty twenty six quiet period begins at the close of business Friday, 10/17/2025. With that, I’ll turn it over to Charlie.

Charlie Giancarlo, Chief Executive Officer, Pure Storage: Thank you, Paul. Good afternoon, everyone, and thank you for joining our Q2 FY twenty twenty six earnings call. Pure Storage delivered a strong Q2, expanding our double digit revenue growth. Our results were underpinned by strong enterprise performance and accelerating momentum in our core software and service offerings of Evergreen One, Cloud Block Store and Portworx. Our growing success stems from the compelling value proposition of the Pure Storage platform.

We deliver simplicity, reliability and long term value with our integrated Purity operating system. Purity is the infrastructure software that has enabled the only true nondisruptive Evergreen service and an unrivaled storage as a service model with Evergreen One. Now enhanced with Fusion V2, Purity allows our customers to create their own enterprise data cloud, automating their storage and enabling software defined data management. As I’ve shared previously, the enterprise data cloud is an industry changing architecture that transforms how organizations store and manage data. It replaces traditional siloed compute stack dedicated storage with a software defined and orchestrated enterprise wide data service.

Customers’ demand for Fusion continues to grow in both commercial and enterprise accounts. Purity, enhanced with Fusion, will enable businesses to manage their global data as an integrated cloud, providing a policy engine, presets and cataloging for how different classes of data are managed on a global basis. Presets control attributes such as price performance, resiliency, security, geofencing, access controls and other critical values. Cataloging will provide the location, provenance and lineage of datasets as they are copied, modified and combined. Together, these capabilities allow customers to more consistently manage their global datasets through software.

The enterprise data cloud also enables businesses to lower labor costs while reducing risk and increasing operational agility through software defined enterprise policies. Datasets become centrally governed with policies and automated workflows handling the heavy lifting, freeing IT teams from manual configurations for each and every data set. The Enterprise Data Cloud or EDC architecture allows fast, seamless and consistent policy changes as business needs evolve. The key takeaway is that by virtualizing enterprise storage, Pure enables organizations to stop managing infrastructure and start managing data as a strategic asset, maximizing its value, ensuring availability and standardizing control. As enterprise data sets multiply, grow and become more valuable in the new AI economy, an enterprise data cloud architecture becomes more critical and necessary.

Recently, a global leader in IT consulting and digital services is adopting Pure’s technology framework to create an enterprise data cloud. This shift helps them move away from legacy technology components and eliminates existing data silos. We are also supporting their strategy to consolidate business applications and to manage their global data estate. The enterprise data cloud provides a highly efficient, scalable and secure foundation as their data volumes grow exponentially. It reduces infrastructure complexity and delivers predictable outcomes for their users.

Pure is also at the forefront of helping customers with their strategic moves to modern virtualization, to containers, to Kubernetes and to the cloud. A leading financial institution is setting a clear strategic direction to modernize its application environment with Purity and the Pure Storage platform. Building on success running mission critical container services with Portworx at scale, the institution is working towards migrating all of their workloads from traditional virtual machines to either containers or Kubernetes virtualization. With Portworx and the Pure Storage platform, the shift will deliver platform independence, stronger security, higher efficiency and rapid recovery. Our solution will also sharply reduce their infrastructure space, power and cooling needs by over 70 over their legacy solution.

Partnering with Pure’s professional services, the institution is positioning itself to run a fully automated software defined data environment, lighter, faster and built for long term competitive advantage. This institution is also deploying our new high performance FlashArray XL R5 to consolidate diverse large scale applications onto a single platform, delivering significant performance gains with improved space, power

Tarek Robbiati, Chief Financial Officer, Pure Storage: and cooling. Their new enterprise wide Kubernetes platform now provides a non proprietary solution across any underlying infrastructure, across any public or private cloud and on any Kubernetes distribution. They are replacing legacy infrastructure with modern virtualization and beginning to leverage Fusion V2 to manage their global storage fleet, fully automating data management to operate as a true enterprise data cloud. A global automotive company significantly expanded their use of Portworx this quarter for modern virtualization. This deployment expands Pure’s footprint from manufacturing into their core enterprise operations, significantly reducing risk, complexity and operational overhead

Charlie Giancarlo, Chief Executive Officer, Pure Storage: across the company’s infrastructure. From a business perspective, Portworx is allowing them to simultaneously modernize their IT virtualization stack and enable them to meet their developer needs to support new modern cloud native application development. These examples demonstrate the unique value Pure and Portworx bring to our customers and strengthens our position as enterprises increasingly adopt cloud native architectures. One of the most interesting large wins this quarter comes from a multinational food products company moving thousands of its business applications to the cloud. Working alongside one of the world’s largest global IT consultancy and system integrators, our solution is delivering to the customer at least a 40% cost savings with our Cloud Block Store subscription, while providing higher availability for business critical applications, greater redundancy and stronger data protection.

This is a powerful example of how Pure can help customers lower their costs while improving performance and resilience in the cloud. Turning to our other subscription services, we saw continued strength and growth in Evergreen One and Evergreen Forever sales in Q2. Evergreen One continues to deliver consistent customer value that protects customers from future uncertainties, including capacity and performance planning, pricing and tariff unpredictability. Evergreen One promises customers service level agreements that ensure the performance, capacity and security they need now and in the future with consistently the most modern technology without disruption. Moving to our hyperscale engagements.

Our strategic co engineering effort with Meta continues on track. They have initiated their first volume deployment, and we have recognized our first revenue from this activity in Q2. Tarek will share further details. Overall, our early stage engagements with other top hyperscalers continue to progress well as hyperscalers in general are increasingly seeking to accelerate their transition to flash data storage, where we continue to lead the industry in all things flash. As a reminder, we are working with our hyperscale partners to enable them to replace their raw storage with our direct flash technology.

To put this in perspective, imagine hyperscaler storage infrastructure as a three layer cake. Layer one is the storage media layer, layer two is the storage protocol and format layer, and layer three is the storage services layer. The capabilities that Pure is developing for hyperscalers focuses on the layer one storage media and media management layer below layer two. Hyperscalers have developed their own Layer two data storage protocols and formats and also Layer three services. By providing pure direct flash technology at Layer one, we are able to dramatically reduce the power, space and cooling requirements of hyperscale storage while significantly increasing its performance and reliability.

Additionally, PureCloud Block Store also provides advanced Layer three services on top of hyperscale services, which provide enterprise class storage services at lower cost than existing cloud storage services. Cloud Block Store provided by Purity Software at Layer three is able to provide enterprise customers the advanced storage services that their traditional applications depend on in the cloud while saving them significant expense. Our primary annual user conference, Accelerate, took place this past June. There, we formally introduced the enterprise data cloud architecture as well as next generation innovations in our FlashArray and FlashBlade systems designed for the most demanding high performance workloads. We announced the general availability of FlashBlade Exa targeting the most demanding AI training environments FlashArray XLR5, which doubles the performance of previous generations and the new FlashArray ST, which targets even higher performance ultra low latency workloads.

Looking ahead, the extended Accelerate Roadshow along with our financial analyst meeting will kick off in New York on September 25, and we invite all of our analysts to attend. The roadshow will continue through Asia and Europe in September and October. Our success continues to be driven by our four sustainable competitive advantages: our unified purity operating system for scale and simplicity, our Evergreen Model for always on and always modern operation, Purity Direct Flash for unmatched performance and our cloud operating model with Evergreen One and PureFusion, empowering customers to build and operate their own enterprise data cloud. While the global macro environment remains as variable and as uncertain as ever, our strong execution and thoughtful planning have kept us ahead of the curve, and we remain confident in our ability to extend our industry leadership as indicated by our improved guidance, which Tarek will discuss. Before I turn the floor over to our new CFO, Tarek Robbiati, I want to take a moment to welcome him to his first earnings call with Pure.

Tarek, we’re thrilled to have you on the team sharing your deep financial expertise, sharp strategic insight and business acumen. I know our listeners will appreciate hearing from Tarek today and in the quarters ahead. And with that, Tarek, the floor is yours.

Tarek Robbiati, Chief Financial Officer, Pure Storage: Thank you, Charlie, for the warm welcome. We are very pleased with our Q2 financial results, exceeding both our revenue and operating profit guidance. Revenue of $861,000,000 grew 13% year over year and operating profit of $130,000,000 resulted in an operating margin of 15.1%. Most importantly, we saw broad based strength across our entire portfolio led by large enterprises and the continued momentum of FlashBlade, including FlashBlade E and accelerating momentum in our core software and services offerings of Evergreen One, Cloud Block Store and Portworx. I would like to take this opportunity to formally thank my predecessor, Kevin Chrysler.

Kevin deserves a lot of credit for the results attained this quarter, certainly more than me. I would like to personally thank him for his professionalism and for facilitating a smooth textbook transition between us two. Turning back to understanding our performance in Q2 twenty twenty six. Our results highlight strong customer adoption of our platform strategy. Customers can now deploy Pure Storage across their entire data center footprint from the most demanding mission critical workloads to cost effective disk replacement.

For performance intensive databases, analytics and AI, Pure delivers the high speed all flash solutions needed to drive results. At the same time, the E family makes it possible to replace legacy disk systems at a comparable upfront cost, while delivering lower long term total cost of ownership or TCO, greater reliability and scalable performance, turning the vision of the all flash data center into reality. By unifying and simplifying operations while cutting energy consumption and overall costs, the Pure platform optimizes the TCO for its customers. This message resonates across value focused C suite executive from IT leaders to CFOs and sustainability officers focused on efficiency priorities. Q2 TCV sales for our Storage as a Service offerings grew 24% year over year to $125,000,000 driven by high volume, high velocity transactions of less than $5,000,000 This momentum reflects our confidence in the expanding demand and growth opportunity for Evergreen One and subscription based offerings.

Our collaboration with Meta continues well and as expected. As a reminder, our original fiscal year twenty twenty six guidance assumed deployment of one to two exabytes of our Direct Flash technology. Deployments have started such that we have begun to recognize revenue this past quarter. Given the pace of these deployments, we are now increasingly confident about the assumption of one to two exabytes and possibly more by our fiscal year end. Our relationship with Meta continues to advance, and we continue to see increased interest from other hyperscalers looking to replace both hard disk and SSD based environment with our Direct Flash technology.

Turning to our subscription offerings. Subscription services revenue in Q2 reached $415,000,000 up 15% year over year, accounting for 48% of total revenue. ARR grew 18 to $1,800,000,000 while total remaining performance obligations, or RPO, grew 22% to $2,800,000,000 RPO encompassing our Storage as a Service offerings and Evergreen subscriptions across our installed base grew 21% exiting Q2. This backlog continues to reflect robust renewals and new Evergreen One commitments. With respect to our geographic mix of revenues, U.

S. Revenue was $577,000,000 growing 7% and international revenue was $284,000,000 growing 26% year over year. In terms of new logos, we added more than 300 new customers and our penetration of the Fortune five hundred remains at 62%. Turning to margins and profitability. Total gross margin remained strong at 72.1%, reflecting healthy subscription services gross margin of 76.5%.

Product gross margin again rose sequentially to 68%, aligning with our long term expectation for product gross margins between 6570%. Operating profit of $130,000,000 and operating margin of 15.1% in Q2 were positively impacted by revenue strength and healthy gross margins. Our headcount increased sequentially by 120 employees to approximately 6,100 employees. Our balance sheet remains strong with $1,500,000,000 in cash and investments. Q2 operating cash flow was $212,000,000 and our capital investments of $62,000,000 included test and infrastructure equipment to support data center expansion and funding of Evergreen One subscription growth.

In Q2, our free cash flow performance was strong as we generated $150,000,000 of free cash flow or a free cash flow margin on revenue of 17.4%. Finally, we returned $42,000,000 to shareholders through 800,000.0 share repurchases and offset 1,100,000.0 shares in employee award withholding taxes, and we currently have a $109,000,000 of buyback authorization remaining. Now turning to our guidance. We have made the decision to introduce a range for our financial guidance. This approach differs from our practice in previous quarters, where we provided a single target number for each metric we guided to.

This change aligns with many other growth companies in our industry, while also offering us the flexibility to make the necessary incremental investments we need to capture additional growth opportunities and other transformational projects we identify as we execute our strategy. For fiscal year twenty twenty six, we anticipate revenue to be in the range of $3,600,000,000 to $3,630,000,000 representing 14% year over year growth at the midpoint. This is a 300 basis points increase from our previously provided revenue guidance of 11% year over year growth. We expect operating profit to be in the range of $6.00 $5,000,000 to $625,000,000 representing approximately a 10% year over year increase at the midpoint. This is over a 300 basis points increase from our previously provided operating profit guidance.

Specifically for Q3, we anticipate revenue to be in the range of $950,000,000 to $960,000,000 representing approximately a 15% year over year increase at the midpoint. We also expect operating profit to be in the range of $185,000,000 to $195,000,000 representing approximately a 14% year over year increase at the midpoint. With that, I’ll now turn the call back to Paul for Q and A.

Paul Dyach, Vice President of Investor Relations, Pure Storage: Thanks, Tarek. Before we begin the Q and A session, I’ll ask you to please 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 as time allows. Operator, let’s get started.

Speaker 4: Thank

Conference Operator: Our first question comes from Amit Daryanani from Evercore. Please go ahead. Your line is open.

Speaker 5: Thanks a lot. Good afternoon, everyone, and congrats on some impressive numbers here. Charlie, your guide implies that growth in the back half of your fiscal year October and Jan quarter will be mid teens like 15%, 16% growth versus the 12% to 13% growth you saw in the first half of the year. Can you just help us appreciate what is really enabling this what looks like a very sizable acceleration of growth? Are you seeing better macro tailwinds or just better adoption of the pure platform?

Or is something specific like EXA, for example, just driving up ramping up for you? Just help us understand what’s driving this acceleration of growth in the back half beyond your top line? Thank you.

Charlie Giancarlo, Chief Executive Officer, Pure Storage: Thanks Amit. I hope all is well. So we’re seeing broad based strength in our overall in our product line and offerings. And of course, we’re halfway through the year now, seven months. And we just we have a better sense of the pipeline and therefore more confidence in the forecast.

As you may recall, at the beginning of the year and even after Q1, there were lots of dark clouds over the second half of the year, not just from financial analysts, but also from the banks. Clearly, now we’re in the second half of the year, those dark clouds seem to have disappeared at the macro level. But I think also just we have very strong company momentum based on the introductions that we’ve made, not just at the product level, but this architectural shift that we’re driving in with our enterprise data cloud with Fusion. And that’s driving more demand and more interest, especially around large deals. So I think it’s just a lot of positive momentum overall coupled with an economy that’s holding up.

Paul Dyach, Vice President of Investor Relations, Pure Storage: Thank you, Amit. Next question please.

Conference Operator: Our next question comes from Aaron Rakers from Wells Fargo. Please go ahead. Your line is open.

Speaker 6: Yes. Thanks for taking the questions and also congrats on the quarter. Kind of building on Amit’s question there, thinking about the revenue trajectory and sounds like incrementally positive comments with regards to the Meta relationship. I’m curious how maybe that’s evolved? Have you gotten some visibility into the procurement cycle of Meta?

And are we still kind of confident in the progression of that relationship to I think it was double digit exabyte shift into fiscal the next fiscal year. And any thoughts on kind of the margin profile of that opportunity at this point? Thank you.

Charlie Giancarlo, Chief Executive Officer, Pure Storage: So the relationship continues at pace. I have to say that whether it’s luck or skill, it’s very much along the lines that we both forecast and have expected and have expressed on these calls. So we seem to be right on time and on target. I think we’ve appropriately judicious in terms of evaluating what a reasonable time to expand is and I think we’re going to stay with our with how we forecast that, which is that we don’t I would say that in general, we don’t have very we can we have to interpret a lot of the information we get in order to be able to forecast properly. And so far that interpretation has been operating well.

I would say, you may recall, we described this in the past that the income that we receive is based on effectively royalty or software revenue. At a percentage basis, it’s almost practically speaking 100% margin, 90% plus except for the service element. And because they will be acquiring the actual physical product directly from the supply chain.

Paul Dyach, Vice President of Investor Relations, Pure Storage: Thank you, Amit. Next question please.

Conference Operator: Our next question comes from Howard Ma from Guggenheim Securities. Please go ahead. Your line is open.

Speaker 7: Great. Thank you. And it’s great to see the strong business momentum. Charlie, based on what you just said about Meta deal being a high margin, essentially royalty revenue, I guess for you or for Tarek, how much of the sequential gross margin improvement versus Q1 was a result of the meta shipments that, as you just said, carry significantly higher gross margin? For instance, if I assume $30,000,000 of revenue for meta shipments in the quarter at 90 plus percent gross margin, that would imply that half the gross margin improvement was due to Meta and that the other half was due to core improvement.

I’d love to get your thoughts on that. Thank you.

Tarek Robbiati, Chief Financial Officer, Pure Storage: All right. Mike, thanks for the question. It’s Tarek here. I’d say to you if you look at our product gross margin improvement of four points in the quarter, I’d say it comes from three factors. First is revenue mix between product and software.

The second factor is product mix as customers go for higher end solutions. And third is pricing discipline. Specifically, Howard for the numbers that you have quoted on Meta, would say that in Q2, the number was not material to the overall results and not in the proportions that you highlighted. Most of the improvements in the product gross margins comes from those three factors. We also had, as Charlie highlighted, a strong deal from Portworx that contributed to the improvement in product gross margin.

But by and large, the strength was across the portfolio with customers acquiring higher end solutions and pretty good pricing discipline throughout. Thank you, Howard. Next question please.

Conference Operator: Our next question comes from Mike Sikos from Needham and Company. Please go ahead. Your line is open.

Speaker 8: Great. This is Matt Colicci on for Mike Sikos over at Needham. Thanks for taking our question guys and congrats on the new role, Tark. Aside from introducing a guidance range, how have you in any way changed the guidance philosophy or taken a different approach to how guidance is constructed?

Tarek Robbiati, Chief Financial Officer, Pure Storage: Mike, no. I mean, my personal philosophy doesn’t have any bearing on the way we guide. We guide based on the numbers and our guidance is really based on what the numbers are telling us and we’re down the fairway of what we believe the realities are. And so the idea of introducing a range as mentioned earlier in my script is first to align with the rest of the industry. And second, it also to give us more flexibility to be able to capture opportunities that we see during the course of the year to continue to grow at an accelerated pace.

But we are pretty confident about our momentum. And if you really look at our results and particularly the lead indication elements such as the RPO, you can really derive comfort around our guidance and the way we set it up.

Paul Dyach, Vice President of Investor Relations, Pure Storage: Thank you, Matt. Next question please.

Conference Operator: Our next question comes from Jason Ader from William Blair. Please go ahead. Your line is open.

Speaker 9: Yes, good afternoon. Hi, guys. I wanted to ask about the partnership that you guys have established with Nutanix. Charlie, can you just talk about whether this is a significant partnership? What some of the I know it’s not available yet, but what is some of the kind of the buzz out there in the field from customers that are aware of this and may be interested in pursuing a hypervisor switch while continuing to use pure arrays?

Charlie Giancarlo, Chief Executive Officer, Pure Storage: Yes. So as you are hinting at, there’s a strong interest by customers in looking at alternatives to for their virtualization environment as they go forward. And Nutanix is a strong player in that environment. Nutanix traditionally, as you well know, has been a hyper converged environment that is that it’s storage, compute, networking all in one. Ours will be the first true, connection to external storage that they’ll be supporting, which will also turn them into much more of a traditional hypervisor type, environment.

So we’re very excited about it for several reasons. One is it gets customers excited. Two is because they’re going to be integrating into Fusion, that is to say into our enterprise data cloud. And so it’s going to give them much greater scalability than a traditional, hyper converged architecture will will bring. So they’re excited by it.

We’re excited by it. Our customers are excited by it. And so, we have a actually we’re oversubscribed in terms of early field trials that are being demanded by customers. It looks like what can I say? One last thing I’ll mention is our plan right now is to be general availability by the end of the year.

So hopefully available very soon.

Paul Dyach, Vice President of Investor Relations, Pure Storage: Thank you, Jason. Next question please.

Conference Operator: Our next question comes from Eddy from TD Cowen. Please go ahead. Your line is open.

Speaker 7: Hey guys, this is Eddie for Krish here. Congrats on great results. I have a question on the early engagements with other hyperscalers you highlighted. My understanding is this has been going on for a while now. And I wonder if you can share how these engagements evolved over the last three months.

Are we still in the first innings there? Or are we progressing more towards like second and third? Thank you.

Paul Dyach, Vice President of Investor Relations, Pure Storage0: Yes. Thanks, Eddie. This is Rob. I’ll take that one. As we’ve said and as we’ve anticipated, the progress with our first hyperscaler customer really has accelerated our engagements with both other hyperscaler prospects as well as suppliers alike.

And I think really has caused the industry to take notice of the value we can deliver into these environments with direct flash in our software technology. These early stage engagements are progressing well, as Charlie mentioned in his prepared remarks, with early testing and technology assessment well underway and with multiple proofs of concept that are again underway. As we’ve discussed before, the process to towards placing our technology into these environments is very unlike a traditional sales cycle. It’s really much more of a co engineering motion with several phases to it, technology assessment selection, some testing of that, ultimately leading to design win where that technology is chosen as kind of the plan of record and then progressive validation testing on the way to pilot and then eventually scaling to production. We do expect based on our learnings with our first customer in the space as well as incorporating those learnings into the core technology, we do expect that some phases of that will accelerate in future engagements.

But I would still describe our status with the next customers as early stage in those engagements.

Paul Dyach, Vice President of Investor Relations, Pure Storage: Thank you, Eddie. Next question please.

Conference Operator: Our next question comes from Simon Leopold for Raymond James. Please go ahead. Your line is open.

Speaker 7: Thank you very much for taking the question. I wanted to get a better understanding of your longer term expectations for Meta. Clearly, it sounds like it’s nicely accretive to margin. And I did hear that you highlighted that it wasn’t a big factor this quarter. So how are you thinking about the Meta contribution to the financial model in October?

And then how should we think about it over a longer term? Thank you.

Charlie Giancarlo, Chief Executive Officer, Pure Storage: So let me start and then Tarek will fill in with some level of detail. So we are expecting to go down this path of one to two as Tarek mentioned, one to two exabytes this year. We continue to believe that we can be in the double digits next year albeit obviously all of that is as I said based on our read of the situation and plans. From an economic standpoint, currently the way it works is as royalty based, there is a significant investment that’s made against that royalty. But yes, it does come in as I said well above 90% gross margin.

Tarek Robbiati, Chief Financial Officer, Pure Storage: Yes. Simon, hi, it’s Tarek here. Just to add to what Charlie and also Rob said earlier on, we’re pleased with how the relationship is evolving. We are standing by the one to two exabytes by the end of this year, possibly more. It really hinges on visibility on forecasts.

We are getting better at that. And we don’t forecast for fiscal year twenty twenty six that the revenue from hyperscalers will be material to Pure. But we do believe that we have reasonable good visibility at this stage for the end of this fiscal year. And for next fiscal year, we’ll continue to work on it.

Paul Dyach, Vice President of Investor Relations, Pure Storage: Thank you, Simon. Next question please.

Conference Operator: Our next question comes from Samik Chatterjee from JPMorgan. Please go ahead. Your line is open.

Paul Dyach, Vice President of Investor Relations, Pure Storage1: Hi. Thanks for taking my question. I guess if I can just go back to the engagement you have with the hyper scalers outside of Meta. You gave a fair amount of details there. But in terms of any sort of indications you’re getting from them of what a ramp would look like once you convert that into a win, is it going to look very similar to what the meta deployment is like one to two going to double digit exabytes?

Or do you have a sense if that’s going to be more solid ramp in terms of deployments just given that you’ll have a more of a test bed already with the existing hyperscale? Or any thoughts around sort of the deployment piece there? Thank you.

Paul Dyach, Vice President of Investor Relations, Pure Storage0: Yes. Samik, this is Rob. I’ll take that. Look, at this point, we’re just squarely focused on making our existing customer successful in ramping and working through the technology validation process and early proof of concepts with the future customers. It’s a bit early at this stage to comment on expectations of ramp with those customers.

I think as we get closer to further down the track and get closer to design win, we’ll have a bit more visibility on future customers.

Paul Dyach, Vice President of Investor Relations, Pure Storage: Thank you, Samek. Next question please.

Conference Operator: Our next question comes from Eric Woodring from Morgan Stanley. Please go ahead. Your line is open.

Paul Dyach, Vice President of Investor Relations, Pure Storage2: Hey guys. Thank you so much for taking my question and looking forward to working together with all of you guys. And then, Tarek, nice to work together again. I was just wondering if you could, Tarek, you kind of mentioned it earlier, but it’s great to see the deployments for Meta this quarter. I’d love if you could maybe just double click on when you say the potential for possibly more than one to two exabytes for Meta this year.

Like what exactly does that mean and what exactly influences that

Paul Dyach, Vice President of Investor Relations, Pure Storage3: comment? Thank you so much.

Tarek Robbiati, Chief Financial Officer, Pure Storage: Look, think right now what you have to take away from the use of the words possibly more is that we’re confident about the 1% to two range for fiscal year twenty twenty six. We’re still working with Meta. Like I said earlier for a prior question, we don’t expect that the revenue contribution this year will be material to the results of Pure. But so far so good. We just have to take it one step at a time.

We still have to deliver the third quarter and the full year guidance. And then we will update you all about the ramp and how this materializes as we execute on Q3 and Q4.

Paul Dyach, Vice President of Investor Relations, Pure Storage: Thank you, Eric. Next question please.

Conference Operator: Our next question comes from Wamsi Mohan from Bank of America. Please go ahead. Your line is open.

Paul Dyach, Vice President of Investor Relations, Pure Storage3: Thanks for taking my question. It’s Ruplu filling in for Wamsi today. Tarek, good to have you on board. My follow-up is on product gross margins. Can you talk about the strength of FlashBlade E in the quarter and did that impact product gross margins?

And Charlie, you’ve talked about a higher level of investment that you need to make this year because of growth with hyperscalers. Does that in any way impact your density roadmap for DFM modules? And is that impacting gross product gross margins? Thank you.

Paul Dyach, Vice President of Investor Relations, Pure Storage0: Yes. This is Rob. I’ll take that one on e. Look, I think if we look at the product strength that we saw in the quarter is consistent with Charlie and Tarek’s prepared remarks. The key takeaway is broad based strength across the board.

Certainly, we did see strength in the e family, but as well our higher performance offerings as well as our software offerings. And then specific to gross margin, again, echoing one of Tarek’s earlier comments on the call, I really attribute the strength there to a number of factors, the broad based strength, good mix across the product and software portfolio as well as the sales teams are doing a really nice job in terms of holding value and discounting discipline.

Charlie Giancarlo, Chief Executive Officer, Pure Storage: Right. And then as far as the roadmap for density on the direct flash modules, that absolutely especially at the low end that especially does affect gross margins. But in addition so does our software. So just as an example, what we announced in terms of our the latest version of Purity is it is enhanced data reduction and data reduction enhances profitability by effectively providing customers more effective storage for the same amount of COGS on our side. And we expect that to continue as well.

So it’s both a software and a hardware phenomenon.

Paul Dyach, Vice President of Investor Relations, Pure Storage: Thank you. Next question please.

Conference Operator: Our next question comes from Eric Martinuzzi from Lake Street. Please go ahead. Your line is open.

Paul Dyach, Vice President of Investor Relations, Pure Storage4: Yes. I wanted to follow-up on one of your comments regarding Q2 highlights with the early stage engagements with the hyperscalers. I can see the looking to replace the hard disk side of their legacy investments, the SSD based investments, your comment that you’re looking to replace those SSD based investments, does that mean they are kind of rip and replace with direct flash? Or is that they’re kind of hold with what they’ve got and they’ll operate in kind of a multi vendor environment for Flash?

Charlie Giancarlo, Chief Executive Officer, Pure Storage: Yes. So it’s a great question. But to remind really the audience is that the hyperscalers generally don’t do rip and replace unless it’s the entire data center. After about five, six, seven years of use, they’ll completely, they’ll clear out the entire data center including all the power supplies, the air conditioning, everything else and start brand new with the new design. And that would be true on storage as well.

So, yes, there’s no rip and replace. It’s always about the new builds, if you will. And in our case, we are able to provide better performance and higher reliability and longer, durability of our flash that’s more consistent across the different tiers of their storage using our direct flash technology. So think of it as one technology to rule them all, whether it’s hard disk or SSD, regardless of the tier, if you will, of storage.

Paul Dyach, Vice President of Investor Relations, Pure Storage: Thank you, Eric. Next question please.

Conference Operator: Our next question comes from Adia Murchin from Citigroup. Please go ahead. Your line is open.

Speaker 4: Great. Thanks for taking my questions and nice to engage with you again, Tarek. Just if I can, based on your guide, how should we think about the split between product versus subscriptions? And related to that, not just on the revenue side, but thinking about gross margins as well, should we expect continued momentum here in gross margin above and beyond where it was last year on the subscription gross margins? Thank you.

Tarek Robbiati, Chief Financial Officer, Pure Storage: So well, thank you very much, Assia, for asking the question. This is a really good one. I’d say to you what you have to evaluate is the pace at which product revenue growth materializes. And in that in itself, there is a substantial mix effect that comes from recognizing royalty revenue from hyperscalers, recognizing software revenue from our offerings on Portworx, us managing the product mix and also making sure that we continue to be price effective yet disciplined in the way we price. So product revenue at 11% year on year is a good result for Q2 and it’s right below our subscription revenue growth of 15%.

There is going to be a continuous growth in product revenue moving forward. And also if you look at our RPO, you can draw comfort that subscription revenue will also be growing moving forward. So it’s those two growth on a relative basis that dictate how our gross margin will evolve knowing that subscription gross margin is obviously higher than product revenue gross margin so far. But we do intend to grow both product and subscription revenue moving forward and maximize the margins of each.

Charlie Giancarlo, Chief Executive Officer, Pure Storage: Assia, I might add that it has been very challenging to accurately forecast the mix between the as a service that is Evergreen One and product sales of the product. And unfortunately one substitutes for the other, but not in recognized revenue, at least not in the quarter. And so you’re asking a question that’s even difficult for us to be able to properly forecast.

Paul Dyach, Vice President of Investor Relations, Pure Storage: Thank you, Assia. Next question please.

Conference Operator: Our next question comes from James Fish from Piper Sandler. Please go ahead. Your line is open.

Tarek Robbiati, Chief Financial Officer, Pure Storage: Hi. This is Caden on for Fish. So, VaaS is going and hiring reps for Meta and hyperscalers. What are you seeing competitively from them and other players in the space around the hyperscalers and Neo Clouds? Thanks.

Paul Dyach, Vice President of Investor Relations, Pure Storage0: Yes. This is Rob. I’ll take that one. As you know, we compete well in the AI space. And whether that’s in the enterprise or, as we’ve discussed quite a bit with this group, the hyperscalers.

And then with FlashBladeXa, we’ll be opening up quite a bit more in the neo clouds. Specific to other competitors that you’ve mentioned, look, we do see them in a small number of deals, mostly focused around AI and HPC specific environments. I think the takeaway though is unlike some niche players out there, AI and HPC is an important market for us. It’s one we compete well in, but it’s one of many that we’re playing for. And if I step back and I look at the broader set of offerings we bring to the table, both certainly across the board in terms of high performance offerings, but then all the way down to block file and object and cost effective capacity offerings, we’re the only players out there that are going to be able to meet the entirety of not just an enterprise’s storage needs, but increasingly as well what we’re seeing in a lot of these GPU as a service or neo cloud environments.

Point in fact, in the quarter we did have several wins with GPU as a service providers, not just servicing their GPU, DirectDPU attached footprint, but as well some of their backup and data protection needs and VM and block needs. And so having a breadth of portfolio to be able to offer is a significant advantage for us in this space.

Paul Dyach, Vice President of Investor Relations, Pure Storage: Thank you, Ketan. Our next question will be our last question.

Conference Operator: And our last question will come from David Voigt from UBS. Please go ahead. Your line is open.

Paul Dyach, Vice President of Investor Relations, Pure Storage5: Great. Thanks guys for squeezing me in. So Charlie and Tarek, I think you both separately kind of referenced strength in the quarter, both from a clouds clearing perspective. And I think Tarek mentioned gross margin was helped by product mix. Can you kind of help us understand kind of the demand drivers in the quarter?

What I mean by that is, how did the macro progress as you walk through the quarter? Did demand strengthen? And maybe can you touch on some of the different verticals where you saw strengthening demand throughout the quarter to get a sense for how we should think about the second half of the year? Thanks.

Charlie Giancarlo, Chief Executive Officer, Pure Storage: Yes. I would say that the quarter was fairly steady, traditional typical linearity, but above typical linearity throughout the quarter. So strength throughout the quarter, which is always a good sign. It indicates both a strong macro, but also a strong competitive environment that is our competitive environment in the quarter. We are seeing increased pipeline of large deals.

It’s always a good thing in our environment. So good demand signals, if you will, from the customer base as well as an increasing willingness of the customer base to bring us into a broader array of their needs. So expansion a lot of expansion opportunities. So that indicates both secular strength as well as macro strength.

Paul Dyach, Vice President of Investor Relations, Pure Storage: Thank you, David. Before we finish, I think Charlie has some closing comments.

Charlie Giancarlo, Chief Executive Officer, Pure Storage: Thank you everyone for taking the time to join us today on the earnings call. I just want to reemphasize our enterprise data cloud architecture and how it’s transforming the ways that enterprises are thinking about managing their data. And I believe it’s one of the primary things that’s driving demand for our platform both and interestingly both in the commercial and the enterprise markets. By virtualizing enterprise storage, we’re enabling customers to better manage their growing global data estate. I want to express my sincere appreciation to our customers, our employees, our partners, our investors and our suppliers.

We greatly value your continued support and commitment. We’ll see you all next quarter. Thank you and hopefully some of you as well September 25 in New York.

Conference Operator: That concludes the Pure Storage second quarter fiscal twenty twenty six financial results conference call. Thank you for your participation. You may now disconnect your lines.

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