Pure Storage Revenue Beats Expectations, as Gen AI Adds to Growth

Pure Storage Revenue Beats Expectations, as Gen AI Adds to Growth

The News: Pure Storage beat its guidance for the second quarter of fiscal 2024 with $689 million in revenue, helped by record FlashBlade file storage sales, a doubling in Evergreen//One subscriptions, and an eight-figure generative AI deal. You can read the earnings press release on the Pure Storage website.

Pure Storage Revenue Beats Expectations, as Gen AI Adds to Growth

Analyst Take: Although its 6.5% year-over-year revenue growth is lower than Pure’s historic numbers, there were several encouraging signs for the flash storage vendor in a challenging market that has resulted in decreased revenue for other large storage companies.

Highlights include:

  • Subscription services revenue of $288.9 million, up 24% year-over-year (YoY)
  • Subscription annual recurring revenue (ARR) of $1.2 billion, up 27% YoY
  • GAAP operating loss of ($6.2 million); non-GAAP operating income of $111.8 million
  • Operating cash flow of $101.6 million; free cash flow (FCF) of $46.5 million
  • Total cash, cash equivalents, and marketable securities of $1.2 billion
  • Added 325 new customers to bring total customer count above 12,000
  • Q3 guidance of $760 million in revenue (mid-to-high single-figure growth), and non-GAAP operating income of $135 million

Generative AI Can Generate Large Deals

Revenue from AI deals is in the early stages, and Pure CEO Charlie Giancarlo said AI sales are a significant but not dominant part of its revenue. But Pure claims more than 100 AI customers for FlashBlade, and a FlashBlade//S deal worth over $10 million last quarter to an unidentified customer was its largest AI deal yet.

Pure executives said they see two opportunities from AI: selling systems for AI training — including creation of large language models (LLMs) – and helping enterprises prepare their data architecture for their own LLM data sets.

Giancarlo said most of the AI focus from customers remains on compute, but Pure is seeing more interest in the requirements for storage infrastructure for AI.

Pure does not break out revenue for its Portworx container native storage software, but that product has also figured in AI deals. Pure claims Portworx is winning storage deals for new AI developments, which are often made in container-based Kubernetes.

FlashBlade Recent Upgrades Gain Steam

Giancarlo said two recent additions to the FlashBlade file/object storage systems have helped AI sales. FlashBlade//S launched in 2022, using the same Direct Flash Modules (DFMs) as the block storage FlashArray systems. FlashBlade//S is a high-performance system. The FlashBlade//E systems launched this year are lower-cost, lower-performance bulk storage options. Pure said FlashBlade//E sales have exceeded expectations, and can help AI customers by providing one management environment for hot and bulk data.

Evergreen//One Is Hot, but It Is Not the Only Evergreen Program

Pure Storage is finding success with its Evergreen//One storage-as-a-service program that allows customers to consume storage as they do in a public cloud. Pure manages the service, based on service level agreements (SLAs). While this has a negative immediate revenue impact because revenue is spread out, it gives Pure a steady predictable revenue flow. Pure this year added a ransomware SLA and enhanced AIOps for Evergreen//One.

Pure has two other Evergreen offerings – the Evergreen//Forever perpetual update program and Evergreen//Flex where customers pay a lower cost for the storage system upfront and buy capacity on a subscription basis. Pure executives had little to say about those offerings on its earnings call.

Pure’s Strategy Is Paying Off

Pure’s numbers look good compared to its competitors’ recent earnings. HPE storage revenue of $1.1 billion was down 5% YoY, and NetApp revenue of $1.43 billion dropped 10%. Pure may never make good on its stated goal to kill hard disk drives, but it keeps making progress with its all-flash portfolio. The FlashBlade//E sells flash at roughly the same price as disk storage, and Pure will expand that strategy to its FlashArray/E by the end of the year.

On gross margins, Pure moved to developing its own flash modules in 2017, known as DFMs, versus using off-the-shelf solid-state drives (SSDs). This strategy has contributed to Pure’s improved product margins, as we have seen with other vendors. We believe this approach will continue to pay dividends, as the company increases capacity, particularly for the FlashBlade. Today it is shipping 48 TB DFMs with 75 TB expected by end of year. We anticipate Pure will add more functionality into the DFMs, addressing the ongoing needs of performance, longevity, and sustainability.

Over this next year, one of Pure Storage’s big challenges will be to maintain its momentum in two highly competitive areas – storage for generative AI and new storage consumption models such as subscriptions and managed services. Most vendors now have similar storage consumption offerings, though clearly Pure Storage has led the market. And since generative AI is new, technology providers will be competing for both on-premises and public cloud deployments.

Daniel Newman and his co-host of The Six Five Webcast, Patrick Moorhead of Moor Insights and Strategy discussed Pure Storage’s earnings in their latest episode. Check it out here and be sure to subscribe to The Six Five Webcast so you never miss an episode.

Disclosure: The Futurum Group is a research and advisory firm that engages or has engaged in research, analysis, and advisory services with many technology companies, including those mentioned in this article. The author does not hold any equity positions with any company mentioned in this article.

Analysis and opinions expressed herein are specific to the analyst individually and data and other information that might have been provided for validation, not those of The Futurum Group as a whole.

Other Insights from The Futurum Group:

Pure Storage Unveils FlashBlade E

Pure Storage Brings Purely Block Storage to Azure

PureStorage Adds MongoDB Enterprise to Portworx

Author Information

Dave’s focus within The Futurum Group is concentrated in the rapidly evolving integrated infrastructure and cloud storage markets. Before joining the Evaluator Group, Dave spent 25 years as a technology journalist and covered enterprise storage for more than 15 years. He most recently worked for 13 years at TechTarget as Editorial Director and Executive News Editor for storage, data protection and converged infrastructure. In 2020, Dave won an American Society of Business Professional Editors (ASBPE) national award for column writing.

His previous jobs covering technology include news editor at Byte and Switch, managing editor of EdTech Magazine, and features and new products editor at Windows Magazine. Before turning to technology, he was an editor and sports reporter for United Press International in New York for 12 years. A New Jersey native, Dave currently lives in northern Virginia.

Dave holds a Bachelor of Arts in Communication and Journalism from William Patterson University.

Camberley brings over 25 years of executive experience leading sales and marketing teams at Fortune 500 firms. Before joining The Futurum Group, she led the Evaluator Group, an information technology analyst firm as Managing Director.

Her career has spanned all elements of sales and marketing including a 360-degree view of addressing challenges and delivering solutions was achieved from crossing the boundary of sales and channel engagement with large enterprise vendors and her own 100-person IT services firm.

Camberley has provided Global 250 startups with go-to-market strategies, creating a new market category “MAID” as Vice President of Marketing at COPAN and led a worldwide marketing team including channels as a VP at VERITAS. At GE Access, a $2B distribution company, she served as VP of a new division and succeeded in growing the company from $14 to $500 million and built a successful 100-person IT services firm. Camberley began her career at IBM in sales and management.

She holds a Bachelor of Science in International Business from California State University – Long Beach and executive certificates from Wellesley and Wharton School of Business.

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