Yahoo Finance

Charles Giancarlo

Thank you, Paul. Good afternoon, everyone and welcome to our Q4 and fiscal 2025 earnings call. We delivered a solid Q4, exceeding both revenue and earnings guidance, and capping off a year marked by progress as our long-term data platform strategy is changing how enterprises think about data storage and management.
In FY25, we delivered on several key strategic initiatives. First, we achieved a design win with a top four hyperscaler. This relationship is proceeding well, in the next stages of both testing and deployment plans. We see continued progress on certifying our use across multiple price performance layers.
Pure’s DirectFlash technology will enable this hyperscaler to deploy a consistent architecture across multiple performance tiers of their storage hierarchy. It also allows them to re-deploy significant amounts of power and space to new workloads, and to increase their data storage performance, reliability and lifetime.
We also launched our 150 terabyte DirectFlash Module, marking a 5 fold increase in capacity over standard hard disks and 2.5 over the largest SSDs. We are on track to deliver a 300 terabyte DFM late this year.
Next, our expansion and growth of the //E family during the year signified a major advancement to address the expected 10 fold increase in unstructured data driven by AI over the next five years. This offers businesses far better economics compared to disk, along with superior power and density efficiencies that will drive the displacement of disk in data centers.
The //E family has become a strong competitor to existing hybrid and hard disk environments. The rise of NAND prices in 2024 relative to disk competition did affect gross margins negatively in the year, which we expect to abate in 2025.
We also continue to invest and see success in our Evergreen//One program, which has attracted strong customer satisfaction and high existing customer growth. Perhaps our most significant and revolutionary technology advancement last year was the GA release of our Fusion version 2.
Available as a non-disruptive upgrade to all Pure customers, Fusion v.2 transforms traditional enterprise data storage architectures from application data silos to enterprise data clouds. With Fusion, Pure can now provide customers with data set management services, supporting their global data estate.
This is an area in the enterprise which is largely managed manually, if at all. Manual management and inadequate traceability of data sets is a leading cause of data sprawl and cyber risk for enterprises worldwide.
Fusion opens up significant new opportunity and value for Pure in this space. The best way for me to describe the transformational impact of Fusion is with a familiar analogy. A decade ago, many of us used an external hard drive to add storage to our computers.
It provided additional storage and could back up our files. However, when it filled up, we needed to replace it with a larger unit and migrate the data from the old unit to the new. If a colleague also had a hard drive which had spare capacity, it couldn't easily be shared, and file sharing between computers was difficult.
Finally, if the external hard drive failed, there is little that one could do to recover. Today few people use external drives. We've all moved to personal cloud storage provided by many different cloud providers. The benefits go well beyond just storage.
For example, personal cloud storage provides unlimited storage scalability. When one needs more, one only needs to pay for more without having to migrate data. Consistent updates to their infrastructure with non-disruptive software and hardware improvement. In other words, the service doesn't grow old.
And guaranteed resiliency. One expects never to lose your data. Global access. One can access their data from anywhere, from any machine with search features to find content and easy file sharing with just a few mouse clicks.
This model has extended to how colleagues now work in a company. Corporate provisioning of personal data storage on services such as Google Drive or Microsoft OneDrive further allows companies to place their corporate data policy on employee data management, such as controlling file sharing to meet corporate compliance requirements, managing file retention and deletion policies, enabling or disabling individual access when employees join, change roles, or leave the company, and providing administrative global search for all stored files.
In stark contrast, the surprising secret about enterprise IT data storage is that it works almost exactly like those old personal external disk drives. Standard storage arrays operate as external storage devices attached to a specific application stack.
Two storage arrays in the same data center attached to two application stacks are managed separately and do not share performance or capacity. Many enterprise customers have hundreds of storage arrays globally, each operating as an independent data silo.
The amazing advancement of Pure Fusion v.2 transforms Pure Storage arrays from individual storage arrays into an enterprise data cloud. Pure Fusion allows all of an enterprise's pure arrays to be managed as an integrated system.
Better yet, it allows the stored data to be managed as a data cloud rather than individual data silos. Fusion allows applications to utilize the total shared capacity and performance of all the arrays, not just the ones that they are directly connected to.
Fusion automates compliance policies for secure consistent data handling. It enhances cybersecurity and eliminates manual errors. It enables automated data set management, enforcing and tracking corporate rules and policies.
It also allows stored data to be accessed across the global enterprise, breaking down data silos and enabling a true enterprise data cloud. Early feedback from dozens of customers has been enthusiastically positive.
As enterprises face challenges like AI integration, cybersecurity threats, and hybrid cloud optimization, the need to move beyond traditional manual storage management is clear. Operating as a data cloud, Fusion automates data management, enhances security, and simplifies hybrid on-prem and cloud environments.
It supports real-time AI access, eliminates the need for excessive copies of data, and fosters API-driven innovation. Pure Fusion enables a fundamental shift from data silos to an enterprise data cloud model for data management.
With Fusion, enterprises have a universally accessible storage solution that can automate and simplify their data management across thousands of arrays as simply as managing one array. This enables enterprise to operate all of their data storage on a workflow basis just like the cloud.
This marks not just an evolution but a revolution in IT infrastructure, redefining enterprise storage standards and data management. The success of several large enterprise deals this quarter was largely due to this expanded platform strategy.
For example, a financial services technology company rearchitected its entire storage environment with Pure due to slow response times with legacy architecture. By consolidating fragmented storage onto our unified platform, the company now turns data into a powerful asset while processing hundreds of billions of financial transactions a year.
One of the world's largest telcos selected Pure to tackle its significant data center power consumption challenges and reduce energy usage and data storage by an impressive 89%. Our 150 terabyte DFMs were foundational to this success, driving substantial business impact.
Our solution enabled this provider to manage petabytes of data, run advanced analytics, and archive data for extended periods with the same core architecture. Portworx, our storage solution designed for containerized applications in Kubernetes environments saw a strong increase during FY25 driven by significant growth in AI analytics and cloud native platform use cases.
Last quarter, two Fortune 50 companies decided to transition their VMware environments to a modern virtualization environment using Portworx and Red Hat OpenShift. One of these companies will significantly accelerate its application deployment speed and time to achieve results while also reducing its cost by 30%.
The other, a major manufacturer, is consolidating their containerized and virtualized application platforms in their manufacturing plants onto Kubernetes. Portworx enables them to reduce the cost of managing different infrastructures for VMs and containers and to simplify their operations.
As I've indicated in recent quarters, our activity in AI continues to grow. Machine learning and training environments are increasingly utilizing our high performance storage and AI data preparation chains increasingly utilizing Portworx.
We are looking forward to showcasing our latest AI advancements at the upcoming NVIDIA GPU Technology conference next month. We will unveil how Flashblade will set a new bar for unmatched performance, scalability, and ease of deployment for large scale AI infrastructure deployments.
Turning to the macro environment. We expect geopolitical uncertainty to contribute to a dynamic environment at least through this year. In addition to our standard practice of operating with globally distributed and diversified supply and distribution chains, we have also developed contingency plans for a variety of tariff scenarios.
Overall, we are pleased with our performance in FY25 and remain highly confident in our differentiated leading data platform strategy and vision. We are excited to help our customers build their own enterprise data clouds across their distributed and hybrid IT environments.
This confidence is reinforced by the four key competitive advantages of the Pure platform. Our unified Purity operating system, our Evergreen technology and business model, our Purity DirectFlash technology and our cloud operating model now enhanced with Pure Fusion v.2, which allows our customers to build their own enterprise data cloud.
With that, I'll pass the mic to Kevan.

Kevan Krysler

Thank you, Charlie.
We closed the year on a high note exceeding guidance with double digit revenue growth, generating $153 million in operating profit and achieving an operating margin of 17.4%. In Q4, total revenue increased by 11%, and we set a record for TCV sales of Evergreen//One.
In FY25, we reached a major financial milestone by surpassing $3 billion in total revenue for the first time. With total revenue of $3.2 billion growing 12%, we also delivered our highest annual operating profit of $559 million.
Sales of our solutions across our data storage platform contributed to our strong Q4 performance. Record sales in Q4 were achieved by FlashBlade, FlashArray//XL, Portworx, our //E family, and renewals of our Evergreen subscriptions across our installed base.
Accelerating customers' transition of cost sensitive workloads to our //E family and FlashArray//C solutions remains a key strategic priority as customers are increasingly recognizing the superior economics over traditional dissolutions.
Record sales of our //E family solutions combined with higher QLC Flash costs and comparatively stable hard disk solution pricing have contributed to temporarily lower product gross margins of 62.9% in Q4. We also closed out the year with record quarterly TCV sales of Evergreen//one of $140 million, a 20% increase.
FY25 TCV sales for Evergreen//one and our other service-based offerings reached $393 million, representing a 3% decline. This was the result of both extended timelines needed to close Evergreen//one deals greater than $5 million. And a higher conversion of Evergreen//one opportunities to a traditional sale that we experienced last quarter.
We remain confident in the long term growth potential of our expanding as a service offerings. We expect TCV sales of Evergreen//one to grow next year, and we will continue to provide quarterly updates though specific guidance will not be provided.
Q4 subscription services revenue of $385 million increased 17% and subscription services annual recurring revenue, or ARR grew 21% to 1.7 billion. Total remaining obligations or RPO exiting Q4 encompassing both subscription services and non-canceable product orders grew 14% to $2.6 billion.
Excluding non-canceable product orders, RPO related solely to our subscription services increased by 15%. Overall, RPO growth was impacted by the decline in TCV sales for our storage of the service offerings during FY25.
Our subscription services net dollar retention or NDR at the end of the year was 117% and continues to be aligned with our long-term target of 115%. In Q4, US revenue of $619 million was the primary driver of growth while international revenue reached $261 million, down 3% year over year. For FY25, US revenue grew by 12% and international revenue increased by 13%.
Additionally, we acquired 334 new customers generally consistent with both Q4 FY24 and the previous quarter. We continue to serve 62% of the Fortune 500. In Q4, total gross margin was 69.2%, supported by a robust subscription services margin of 77.2%, while product gross margin influenced by the record sales of our //E family stood at 62.9%.
For the year, total gross margin was 71.8% compared to 73.2% in FY24. Looking ahead, for the full year of FY26, we expect product growth margins to settle in the mid-60s, which is in the range of our long-term expectation for product growth margins of 65% to 70%.
This outlook is driven by expected strong demand for our //E family and FlashArray//C solutions. Alongside our expectation that QLC flash pricing will moderate and an important factor as we compete against disk-based solutions. Our headcount increased slightly to nearly 6,000 employees at the end of the year.
Our balance sheet remains robust with $1.5 billion in cash and investments at the end of the year. Cash flow from operations in Q4 was $208 million and $753 million for the year. Capital expenditures during the year were $227 million, representing approximately 7.2% of revenue for FY25.
Our capital investments during the year supported data center expansion to support expanded testing of new products and solutions, including our recent hyperscale solution design win. Accelerating density of our Direct Flash modules and software development of our Fusion version 2 solution.
Free cash flow for Q4 was $152 million and $526 million for the year. Free cash flow margin for the year was 16.6%. In Q4, we repurchased 3.1 million shares, returning approximately $192 million to shareholders. For FY25, share repurchases amounted to $374 million or 6.7 million shares.
Additionally, we paid $65 million in withholding taxes on employee awards in Q4, offsetting dilution by about 1 million shares and $209 million for FY25, offsetting about 3.5 million shares. We currently have $21 million remaining under our existing repurchase authorization and are announcing a new share repurchase program for an additional $250 million.
Turning to our FY26 guidance. We again expect double digit revenue growth increasing by 11% to just over $3.5 billion. Our annual revenue outlook considers an IT spending environment similar to FY25 and a return to growth for Evergreen//one and other service offerings.
For Q1, we expect revenue of $770 million, representing an 11% year over year increase.
Moving to operating profit. We remain committed to our bold strategic initiatives positioning ourselves for strong sustainable long-term growth. This includes leveraging our recent hyperscale design win through incremental investments to scale operations for large production and deployments starting in FY27, as well as accelerating density in our Direct Flash modules.
We expect an operating margin in FY26 of approximately 17% consistent with my remarks last quarter, translating to an operating profit of around $595 million. For Q1, we are guiding operating profit of $80 million and operating margin of 10.4%.
In closing, we are pleased to have returned to double digit revenue growth and surpassing $3 billion in revenue for the first time. This pivotal year has been marked by remarkable innovation and execution, setting the stage for sustainable long-term growth.
With that, I will turn it back to Paul for Q&A.

Paul Ziots

Thanks, Kevan.
Before we begin the Q&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.

Question and Answer Session

Operator

(Operator Instructions)
Mike Cikos, Needham.

Mike Cikos

I wanted to come back to some of the prepared commentary on Fusion. And really I know it's early with the launch of Fusion 2.0, but do we have signs yet of customers that have adopted Fusion showing either spins or expansions or stickiness or if it's still too early.
And you at least provide commentary on the go to market potentially and where we are in driving the adoption and awareness of what Fusion enables.

Charles Giancarlo

Thanks, Mike.
Charlie here. Thanks for the question. So what we've had now in order for a customer to experience Fusion, they have to download. The latest update to the software operating system in FlashArray. We've had dozens of companies do that and specifically turn on Fusion and start operating with it.
And with less than a quarter of that being in the in the market. As I said, we've had dozens of customers do that. That's a very fast uptake. And as I mentioned in my prepared remarks, of course, we're getting feedback, and the feedback has been not just positive but enthusiastic.
They find that the ability to manage all the systems that they put under fusion as a as a fleet rather than as individual arrays to make life just a lot easier. They are now experimenting with something we call presets. What presets allow them to do is set policies for how the data is handled across the arrays such that for any specific storage class all of the data.
That storage cost will be handled the same way. So as opposed to having to manage different application use cases manually in terms of policy, now the policy is carried out under software control. So the feedback's been very positive. Obviously, this creates a network effect. It creates a network effect for our products, meaning that if you have, all or even some significant portion of your pure storage arrays under Fusion, the likelihood of you adding another array.
That's not part of that I think is going to be pretty low. But to your point, it is a bit early at this point. We're still in the early rollout phases. I would expect that type of network effect to occur after several quarters of use.

Operator

Aaron Rakers, Wells Fargo.

Aaron Rakers

I wanted to ask about the hyperscale opportunity, and while I can appreciate it's early to really unpack the announcement from last quarter, I'm curious, any progression of how maybe the model, around this opportunity might be evolving.
And then on that same kind of narrative, how would you characterize the discussions or the degree of discussions you might be having with other hyper-scaled opportunities?

Charles Giancarlo

Yeah. As you might imagine, we are early, but the conversation continues to evolve. And to expand, frankly, in terms of the use cases for different types of data storage tears inside that hyperscalar. So we've been evolving and continuing in terms of the depth of the of the testing and the co-development in particular.
But also discussions around future states and where that storage will go relative to other vendors. We continue to expand our conversations. I would say they've, we indicated last time we expected them to accelerate.
They have in fact accelerated through this quarter. Nothing to announce just yet, but certainly we're seeing increased interest.
Rob, do you want to add anything?

Rob Lee

No. I think that summarizes as well. The engagement is progressing as we expect. And as Charlie mentioned, moving forward through the more advanced phases of completing their kind of implementation plans and detailed testing and the typical engineering process we would expect to see leading to more detailed field testing on the way to ramping the significant scale.
And yeah, I mean the discussions and engagements we're having with other hyper scalers are definitely moving forward with a faster pace.

Operator

Amit Daryanani, Evercore ISI.

Amit Daryanani

I guess maybe just to follow up on the hyperscale question from Aaron. Can you just talk about, what investments are needed by Pure at this point to get this from a design when and how it progress to a production environment.
I would love to understand kind of what investments do you need to make to get there. And then just any clarity on what steps are needed to actually move this from design today I think starting production and fiscal '27 that would be helpful to understand.

Charles Giancarlo

So this is a code an ongoing co-development with that with that hyper scalar, meaning that they are developing, new software, new architectures, new infrastructure architectures for, as we've discussed, it's their next generation data center design.
And as they design that that software and those hardware architectures, we have to work alongside them to make sure that our software works closely with theirs. Of course we're constantly working together to try to improve both performance and price performance in that environment, as we mentioned, we're working now on multiple different performance tiers.
Each one of them requires its own set of tuning. And of course we have to also qualify several different scales of our direct flash modules along with several different Flash partners, if you will, different flash manufacturers for those direct flash modules. All of that requires quite a bit of work and testing on our side as well.

Kevan Krysler

So I, and this is Kevan that I'd probably summarize it into four key areas just to summarize what Charlie's points are integrating. The Purity software and our direct flash technology with the hyper scalar hardware specifications, accelerating our density roadmap with our direct flash modules, qualifying additional demand suppliers that Charlie alluded to, expanding our supply chain capabilities and scale, and really as well there's investment in pursuing other opportunities, hyper scalar opportunities as.

Operator

Howard Ma, Guggenheim.

Howard Ma

For Charlie and/or Kevan, can you help us understand how much of the product gross margin decline is it, how much is it due to incremental sales of of the E and the the C families versus, say higher QLC cost or perhaps more aggressive pricing in other areas of your portfolio?

Charles Giancarlo

So yeah.Our gross margin performance on other areas of our portfolio has stayed relatively constant. So no real change there. So it's entirely attributable to the E family. Now there are two effects of that.
One is that the E family now is a higher percentage of our overall mix, but the other effect is that the E family, A, because it competes with disk that where. The rise in land prices in the media prices did not affect the disk market. So in that case, whereas when we compete with other flash pricing, our margins have been very stable.
But when we compete against disk solutions where NAM prices have increased, it affects that family more as you might imagine. So we view that as somewhat temporary as NA prices moderate this coming year where the margins for the E family will come back to what our longer term, or actually I shouldn't put it that way.
What our early stage E margins were, because we do expect that as we gain market share in the family, even the E family will start to approach our normalized margins. But as we indicated, many years ago we were going to be aggressive with the family given that we're really the only player in the market right now that can compete with disk, and we want to take advantage of that.
So we are being aggressive there the more recent last year's uptick in N pricing affected us a bit more than, one would have hoped.

Kevan Krysler

Yeah, and so with that, this is Kevan Howard, just to follow on to Charlie's point, as we think about next year, we expect fully that the e-family momentum will continue, but with the moderation of QLC pricing, we do think we'll get back into a product gross margin range of around 65%, which again is aligned with our long term product gross margin profile.

Operator

Pinjalim Bora, JPMorgan.

Can you just maybe provide a little color about some of the, geographical, theaters, given the outperformance in the US relative to international this quarter?

Kevan Krysler

Yeah, this is Kevan. Look, I think, well, one is we're actually quite pleased to see the performance in the US and the growth driven by the US not unusual to see variability and growth by geographies on a quarterly basis, I think on balance. The growth was actually relatively comparable for the year both for international markets as a whole, as well as the US, and look, our international revenue growth was quite strong through the first three quarters of the year came down obviously in Q4, but nothing that I would call out specifically. And we do expect our international markets and revenue to grow at a faster pace, longer term than the US, given the sizing of the markets and opportunity.

Operator

Krish Sankar, TD Cowen.

Krish Sankar

Question for Charlie or Kevan, on RPO, it looks like the RPO growth rate has declined from about 30% a year ago to 14% in the last quarter. I'm kind of curious, is this just a law of large numbers or is there something else going on in the RPO and what does it mean for your core enterprise business?

Kevan Krysler

Yeah, this is Kevan. I'll start out and then have Charlie add. I mean this is just really a derivative of what we saw in our Evergreen//one TCV sales this year. So obviously with a small drop in revenue for the year that's impacting our RPO for the year as well at at 15% when you exclude non-canceable product orders. But look, we were quite pleased to see in Q4 a record Evergreen//one performance of 20%.
We've certainly considered growth in our revenue guide for this year, E Evergreen//one offering, and we're very pleased and excited with that offering and the value realization that our customers are seeing with Evergreen//one as a whole.

Charles Giancarlo

I think that covers it. Kevan.

Operator

Jason Ader, William Blair.

Jason Ader

I wanted to just follow up on on Rakker's question earlier. I don't think Charlie, you answered the question on just the model and how, gross margin and operating margin might look for the hyper scalar business, and do you think you'll be able to provide more specific guidance on revenue, as we move through the year.

Charles Giancarlo

The answer on that is yes, as we understand better the exact rollout of the hyperscalers deployment plans, and we and we assume that we should be able to understand that in the 3 to 6 months prior to the actual rollout, we should be able to give an update on exactly where that's.
I'll say that right now it's it's fairly dynamic, so, it's until we get a little bit on firmer footing.
Dynamics just in the sense that we're still in the planning phase and a lot of considerations in terms of the exact timing. So as soon as we get, into a place where we feel more confident about the exact timing and the rollout, we'll be able to give more updates. And.

Kevan Krysler

Jason, the other thing too that I would add from a financial perspective is really nothing new from what we just discussed last quarter in detail with that design when. From a gross margin profile again, hardware would not be reflected as how we're planning that. Obviously a longer term from an operating margin we expect expansion over time with this opportunity, but again, these factors are very consistent with what we described the last quarter in detail.

Operator

Simon Leopold, Raymond James.

Simon Leopold

I was hoping you could update us on your thinking of how enterprise adoption of AI initiatives could affect your business. I know Charlie, You've highlighted this uplift phase. You could talk about how you think that could affect your business and when.

Charles Giancarlo

Yeah, well. AI, as we've talked in the past, is a is a multifaceted subject. One is there's the large scale machine learning environment, which is really just the top of the peak of the pyramid, if you will, of enterprises that will be doing their own machine learning environment. We did hint, I did hint that we've got nice new announcement coming that will be demonstrating at GTC.
That really does relate to the largest scale of the AI opportunities. Second is the inference opportunity. We've had a number of conversations. We continue to have conversations.
With both customers as well as with Nvidia on the inference opportunity. I still see that as a little ways out, but we're starting to build some momentum. Early on in terms of early conversations with customers who plan on deploying in that area.
I'll state once again that I think our biggest opportunity is in reorganizing the way that customers manage their production data from data silos into an enterprise data cloud.
We see that as a major we see AI. As a major prod, if you will towards customers rethinking the architecture of their data storage into something that is much friendlier. If you will, to AI getting access to data for real-time analysis, especially in inference and rag type environments.
So that's we believe that Fusion couldn't be coming too soon. That it's a major opportunity for us not only in the in the management space in the compliance space to allow customers to have a better non-manual automated method for managing their data. But frankly, in the AI space making all of that data available for AI analysis.

Rob Lee

Yeah, and Simon, this is Rob, just to add on to that, I think if we step back, the AI segment and the opportunity, I think it continues to be playing out much as we had expected, as Charlie alluded to, you've got the high performance training infrastructure environments that have, in the last year or so gotten a lot of the attention. What we're starting to see a bit more driving our engagements are as enterprises move more towards the entrance or rag deployment.
Type phases or start considering how they're going to connect their broader data environments and, data sets and silos into those AI workflows, coming to Pure and pure fusion to go help them do that. And so if we step back and we look at where we sit in the AI segment today, a lot of that has been historically led by Flash Blade.
But as the inference opportunity starts to play out and certainly as fusion comes into play, we're also now seeing more and more customers. Deploying our port works and FlashArray solutions, really our entire portfolio and platform of solutions to help them drive their AI initiatives as they broaden broaden out from purely just looking at training to the entire gamut of those environments.

Operator

Jim Fish, Piper Sandler.

James Fish

Maybe two kind of interrelated ones on the margin side for you, Kevan. How if at all, have you embedded tariffs into this guide? And then I think I heard you say that, investments for this year. Are to support other hyperscalar opportunities. So should we assume that any potential incremental announcement this year wouldn't require the incremental spend so our kind of 17% margins that we're establishing are roughly safe.

Kevan Krysler

Yeah, that sounds great which question would you like to pick? I'll get the hyper steer.
Yeah, look, I mean, we're building out the ecosystem on the hyper scalar environment that that includes enhancing for scale our supply chain overall, to absorb not only increase volume. From the one design win but also new wins as well, but that wouldn't preclude us from requiring investment to grow other opportunities. I mean, each opportunity we're looking at has some customization attached to it in terms of the integration of our purity software with hardware, but obviously a huge long term opportunity as we see it going forward.
You want to just yeah I mean.

Charles Giancarlo

It's a little bit on the tariff side of things, as we. First of all, I think we've proved ourselves during the COVID period with the remarkable supply chain disruptions of being very flexible and capable and having a solid and reliable and diverse supply chain as you may recall for those that haven't been followed us for as long. We, at most we went to a 6 week lead time which was, leadership in not just in our industry but across the tech landscape.
We've further diversified since then our supply chain and our distribution chain. Now I can't predict, nor do I think anybody can predict right now exactly what tariffs are going to occur. And when and how long they'll last. We are developing contingency plans for many different scenarios.
We will be monitoring.
Tariffs and at the appropriate time, we'll take the right.
Action and we'll.
Report back when we do.

Operator

Wamsi Mohan, Bank of America.

Wamsi Mohan

Yes, thank you so much. Charlie and Kevan, you just noted that E-series is becoming a larger piece of the mix and you intend to be more aggressive with the E family.
So you penetrate this opportunity, why are you not projecting a more meaningful re-acceleration in revenues? I mean, your exit rate this year is 11% growth. You're forecasting 11% growth, all things equal from a macro standpoint. But you're really aggressively attacking this this opportunity. So, is there some other offset, like, how should we be thinking about sort of the lack of re-acceleration, in revenue terms?

Charles Giancarlo

Thank you.
Yeah, if you consider the fact that we also are expecting a return to growth in the Evergreen//one area.
I think it's a, we think it's a reasonable forecast or guide for the year. Obviously it'll depend a lot on the overall buying and macro environment, but of course we are still.
We're growing faster than Industry and growing faster than all of our competitors.
So you know that's an important characteristic.
Obviously we'd like to grow even faster, but I think.
Given the beginning of the year and the and the political uncertainties that exists right now, I think it's a good guide. Yeah.

Kevan Krysler

And Guam, I'd add a couple other points to that from our view is obviously our guide for this year is contemplating an IT spend environment. That's relatively consistent year over year, so we're not considering any significant or substantial change to that environment. And I do want to remind you, when we think about the FY25 revenue growth, we did see some benefit as a result of higher Evergreen//one opportunities converting to traditional sales in the back half of the year, and I talked about that last quarter. When you normalize for that tailwind, that's about 1.5 in FY25. So we are, and then combined with Charlie's point of expected growth of Evergreen//one in FY 26, we are seeing a bit of an uptick in revenue growth year over year when normalizing for those two points.

Paul Ziots

Thank you, Ramsey.
Next question, please.

Operator

Meta Marshall from Morgan Stanley. Please go ahead. Your line is open.

Meta Marshall

Great thanks. Just kind of on, kind of CapEx versus OpEx dynamic, last year when we were in a more constrained CapEx environment you were talking about kind of seeing an acceleration in Evergreen, just wanted to get a sense of, do you feel. Like customers are kind of opting more for OpEx or sorry for CapEx in this period as they kind of refresh a lot of data center equipment or just kind of some of the dynamics that you're seeing just in terms of customers' appetite for CapEx versus OpEx purchases.

Charles Giancarlo

Thanks.
Yeah.
We saw a lot of change during the.
Year. .
Each quarter turned out to be a little different than the quarter before and different than the quarters last year, which.
You, which.
You pointed.
Out.
To which.
We We believe that the market is still quite immature in the area of what is a traditional where the where the corporate data center, the on-prem data center has typical typically purchased their products to where, we are one of the first to really.
Provide and as a service offering, a fast offering.
.
On, on.
Prem.
And what we find is that it's.
A more complex sale and the.
Complexity involves the finance organization within within a customer where they have to get their heads around what it means to them, not just from a total cost standpoint, but frankly from.
A.
.
Their own reporting and accounting.
A standpoint.
Which makes it a longer and more challenging sale, whether that's for us or for our for our channel as well. So we see still quite a lot of misunderstanding and immaturity if you will, of the market overall and we think that's still causing, a greater difficulty.
In terms of getting consistency.
If you will, on a quarter by quarter basis. So it's something that we.
Do expect.
That as the market matures, we'll start to stabilize more as we go forward, but it does make it a little bit difficult to project.

Kevan Krysler

If I break that down a little bit more to Q3, when we saw really a significant peak, if you will, in terms of Evergreen//one op opportunities converting to a traditional sale, we saw that moderate in Q4, and I think that. In part contributing to the record sales that we saw in the quarter as well. And then, if I take a step back on our Evergreen//one performance as a whole in the year and look at what was the driver of the year over year decline, it really comes down to the timing of the larger deals which we defined as over 5 million. In the first half closing because we picked that up in the second half, closed the same amount of amount of large deals in the second half as we did last year, and our velocity business, which is below 5 million, really picked up nicely. We saw a nice annual growth over that. So I really do think that as we look through the year, it was really coming down to the larger deals in the timing of closing of those larger deals in the first half.

Paul Ziots

Thank you, Mita.
Next question, please.

Operator

Our next question comes from Asiya Merchant from Please go ahead. Your line is open.

Asiya Merchant

Oh, great. Thanks for squeezing me in here. On gross margins, Do you need to do some Ned pre-buys here in order to kind of get your guidance for improving product growth margins for thee family just if you could walk us through, the confidence and what's underpinning the confidence that product growth margins improve here from what you delivered in 4Q.
Thank you.

Charles Giancarlo

Yeah, thank you, I see. We actually believe that, well, first of all, pre-buys and managing, if you will.
Pricing in the market is something.
We really believe that we have a very high skill at.
We now we don't, I understand that some other companies have announced when they've done pre-buys we've never really done that, we're in the market every day. Every month we're quite skilled at.
Buying ahead when we believe.
It's.
Advantageous to.
Us.
Or using the spot market when we believe.
That's.
Advantageous.
So and we probably won't start here. What I will say it's something that.
We're in the market all the time for such things and yes, we'll take advantage of.
Let's say market opportunities when when we believe we have them.

Paul Ziots

Thank you, Asia.
Next question, please.

Operator

Our next question comes from Tim Long from Barclays. Please go ahead, your line is open.

Tim Long

Thank you. Sorry, I just want to circle back on the, kind of pricing. It's interesting, it used to be N pricing, as you said, everyone else had the same thing now that you're competing more with HDBs. It's a different kind of calculus. Just curious how you're thinking about like advancements in ED and it sounds like maybe you think this in 2024 was kind of a one-off year when Nan increased and HDD didn't, but how are you thinking about the potential for this happening again in the future and what that would mean for the timeline?
For HDD replacement with N, how does that change the ROI calculation or anything, any call you can pro provide on that would be helpful.
Thank you.

Charles Giancarlo

Sure, thank you, Tim.
Tim, so you're very savvy, in this market, indeed we are competing with.
HDD systems, right?
So.
Think.
Of it as.
A land-based system versus an HDD-based system.
I'd also say that there are, although we don't want to get into. All that detail on this call, there are multiple different layers of HDD systems, depending on depending on size and level of performance, with the with the lowest level of performance obviously being the cheapest that are out there. That being said, we believe that we are basically that the HDD systems are basically at a system level about as low a price as they can possibly get. That is to say that the HDDs themselves are not as much of a.
Factor in the price of the total system compared to the amount of common equipment now that it takes.
To be able to run.
Those.
Environments. So that's a long way of saying that it really are our pricing.
And gross.
Margins are.
Going to depend a lot more on the NN prices versus the HDD systems then it's going to depend on the HDD price. In other words, hammer, a greater density of HDDs is not going to make that much of a difference at this point. It's really going to be determined by the. And market.
And once we get to a competitive both price as well as competitive gross margin, then I think it's game over.

Rob Lee

Yeah, and Tim, this is Rob just to add on to that, I think the first part of your question was, hey, you talked to the HDD vendors, they're laying out road maps. How does that factor in? As we've said, we really haven't seen nor do we foresee the pricing environment for hard disk drives, to move very much. We don't feel like the technology environment is going to move that much either. Discs are. Struggling to get larger, but they're not getting any faster. In fact, they are actually getting slower per unit capacity, and that's really limiting their applicability, I think the other part of your question was, hey, so how does this factor into the ROI or really the TCO equation, and this is where, as Charlie alluded to, if you look at our solutions on a full system basis as compared to HTD-based systems.
We're already advantage, you could give the discs away for free and on a TCO basis our systems are already advantaged. And so, while QLC prices will fluctuate in the short term, the long term trajectory is clear. They're going to continue to decline over time and as that does, that's just going to continue to allow us to accelerate the replacement of disk.

Paul Ziots

Thank you, Tim.
Next question, please.

Operator

Our next question comes from Max McCalli from Lake Street Capital Markets. Please go ahead. Your line is open.

Aaron Rakers

Hey guys, thanks for taking my question. You mentioned the dynamic geopolitical environment as well as tariffs, but I was wondering if there's anything pure specific, that may be, that you're seeing on the market right now that may risk that 11% guide for next year. Thanks.

Charles Giancarlo

Well, part of the, difficulty of answering the question is.
It's very difficult to predict anything specific. .
The political environment.
Is in fact very dynamic and unpredictable.
At the.
Moment.
So I would say we don't see anything specific that would.
Artificially block.
Us.
From getting to the 11%.
If.
If anything, I would say that in a normalized market, that is a market where we didn't.
Expect, let's say, a lot of political uncertainty.
Over time I'd expect the market to.
Be improving rather than rather than declining at this point.

Kevan Krysler

Yeah, and again, our guide, this is Kevan, our guide for next year on revenue growth again considered a consistent IT spending environment year over year. So if that changes to the positive or negative in a substantial way, that would be a consideration.
And the other thing we highlighted as well is that we are expecting Evergreen//one, our service offering to grow next year, and that's built into our expectations of 11% as well.

Paul Ziots

Next question, please.

Operator

Our next question comes from Ari Turanian from Cleveland Research. Please go ahead. Your line is open.

Ari Terjanian

Hey, thanks for taking the question. Nice to speak here. Just on the, coming GTC conference, like, just any more color on the decision to, enter here, I mean, it seems a little bit different versus prior commentary in terms of pursuing.
The training opportunity and yeah just curious you know how you hope to stand out in this market.
Thank you.

Charles Giancarlo

Well, the AI training market has traditionally been HPC or high performance computing oriented in the past.
We have traditionally sold into the standard enterprise market, and the values, if you will.
By which purchasers make decisions in those two markets are actually quite different.
We have always indicated that we have a a very superior technology by virtue of.
Our purity operating environment.
And the unique advantages that we have with direct flash.
We've been able to make some modifications.
To our product that really allows it to address a lot of the performance characteristics that HPC environments are specifically looking for and And it's kudos to our team to have been able to do that, inside of our R&D spending budget and to be able to deliver that at GTC. So we're quite proud of it. We think it's going to make a big splash and you can all go visit pure.AI right now and start to be part of the roll the roll up to the.
GTC.

Paul Ziots

Thank you, Ari.
Next question please.

Operator

Our next question comes from David Vogt from UBS. Please go ahead. Your line is open.

David Vogt

Great, thanks guys. Thanks, Charlie. Thanks, Kevan. I want to ask a question on Port Works. You referenced in your prepared remarks that you had 2 450 companies migrate from VMware using Port Works to, it looks like OpenShift. Can you maybe, drive a little detail on kind of what was kind of the reasoning behind it? What were the customers looking for? You mentioned a little bit in the release, but we'd love to get some more color on how Portwork is successful and. In sort of migrating those environments over from, a VMware, backdrop.

Charles Giancarlo

Effectively. Thanks. Yeah.
Well, consistent with our conversations in the past.
Many.
Many customers are looking towards Kubernetes and containers as their solutions in the future. And if you're looking to Kubernetes to manage your application environment in the future.
And you, are a customer today of virtualized.
Solutions, which most customers are. They have a lot of virtualization.
Why would you want to manage it any differently than the way you're managing your future container environments? So the attraction and the allure, if you will, of moving to Kubernetes as your base.
Application management environment is very compelling.
And now that what's so called ubert or.
Kuberneti's virtualization.
Now that that exists, it's a, it's a.
Compelling future.
Movement, if you will, for companies looking to get to a consolidated.
Integrated application management.
Environment, and I think that's what's drawn both of these companies.
Towards that direction.
Now, to be, very fair, it's rela Cert is still immature, just like every other solution compared to VMware, but on a long-term basis, it's compelling because it is integrated with Cer Etis.
Thank you, David. We'll take our last question from a person who reentered the queue.
Thank you for that.

Operator

Our last question will come from Howard Ma from Guggenheim. Please go ahead. Your line is open.

Howard Ma

Yeah, thanks for taking the follow up. Does your FY26 guidance, the full your guidance, bake in the 1 to 2 exabytes of hyperscalar shipments that you mentioned last time?

Kevan Krysler

It does, Howard, we, we've contemplated that, in terms of our guide for this year, so nothing additional to that what we talked about, last quarter.

Paul Ziots

Thank you Howard. Before we conclude, I think Charlie has some final comments to.

Charles Giancarlo

Make. Yeah, thank.
You, Paul. As we close out.
Our last fiscal year, I do want to reflect on the great progress that our team has made. The platform strategy is continuing to drive transformation in this storage industry, and we're helping enterprises address now their fragmented data environments and unlock the full potential of artificial intelligence and to build their own enterprise data clouds.
The hyperscale.
Design.
Win.
Has been a key milestone. It's highlighted, I think.
Our.
Role.
In solving large scale data management and growth of data when it drives energy.
Usage in.
The hyper.
Scales.
I want to.
Thank our customers, our investors, our employees and partners, and our suppliers for supporting us throughout the year, and we look forward to continuing the journey together in FY26.
Thank you.

Operator

That concludes the pure storage 4th quarter and full year fiscal 2025 financial results.
Thank you for your participation. You may now disconnect your line.