Pure Storage(PSTG) - 2026 Q3 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Revenue for Q3 FY26 was $964 million, representing a 16% year-over-year growth, while operating profit grew 17% year-over-year to $196 million, achieving an operating margin of 20.3% [17][21] - Product revenue reached $534 million, up 18% year-over-year, and subscription services revenue was $430 million, increasing 14% year-over-year, accounting for 45% of total revenue [19][21] - Total remaining performance obligations (RPO) grew 24% to $2.9 billion, with annual recurring revenue (ARR) increasing 17% to $1.8 billion [19][21] Business Line Data and Key Metrics Changes - The enterprise segment continued to show strength, driven by the Pure Storage platform and the Evergreen One subscription model [5][17] - Hyperscaler shipments exceeded the annual forecast of 2 exabytes by the end of Q3, with expectations for continued momentum in Q4 [5][18] - TCV sales for storage as a service offerings grew 25% year-over-year to $120 million, reflecting strong customer resonance with subscription-based offerings [19] Market Data and Key Metrics Changes - U.S. revenue was $683 million, growing 22%, while international revenue was $281 million, growing 4% year-over-year [20] - The company added 258 new customers, increasing its penetration of the Fortune 500 to 63% [20] Company Strategy and Development Direction - The company aims to capitalize on the financial benefits from hyperscaler revenues to invest significantly in R&D and sales and marketing to sustain momentum and capture profitable growth opportunities [24][25] - The focus is on expanding the Enterprise Data Cloud and enhancing the capabilities of Pure Fusion to meet evolving customer needs in data management [10][36] - The company plans to explore additional business model options for hyperscaler engagements, which may impact gross margin economics in FY27 [25][43] Management's Comments on Operating Environment and Future Outlook - The management anticipates increased commodity pricing and excess demand will pressure global supply chains, but the company is well-prepared with a resilient supply chain and strong business continuity plans [15] - The outlook for Q4 anticipates revenue in the range of $1.02-$1.04 billion, representing approximately a 17.1% year-over-year increase at the midpoint [23] - The company expects operating profit for FY26 to be in the range of $629-$639 million, reflecting a 13.3% year-over-year increase at the midpoint [24] Other Important Information - The company recognized in the Gartner Magic Quadrants for enterprise storage platforms and infrastructure platform consumption services, highlighting its competitive advantages [11] - The management announced the appointment of Pat Finn as the new Chief Revenue Officer, emphasizing the importance of leadership in scaling sales and go-to-market strategies [16] Q&A Session Summary Question: Impact of memory price inflation on margins - Management explained that commodity pricing affects overall market pricing more than gross margins, suggesting that higher prices could lead to increased revenue growth [27][28] Question: Inventory increase and strategic purchases - The increase in inventory was attributed to tariff mitigation purchases and strategic positions in key components to avoid supply chain disruptions [30][31] Question: Product gross margin sustainability - Management indicated that a mix shift to higher-end products and increased Portworx license sales contributed to strong product gross margins, which they expect to maintain [32][33] Question: Engagements with hyperscalers - The company is actively engaged with top hyperscalers, conducting multiple proofs of concept and exploring new revenue models to enhance growth [39] Question: NeoCloud opportunity and product offerings - Management clarified the distinction between hyperscale and AI market opportunities, emphasizing the growth potential in specialized products for AI environments [52]