Earnings Call Transcript - PSTG Q4 2024

Operator, Operator

Good day, and welcome to the Pure Storage Fiscal Fourth Quarter and Full Year 2024 Earnings Call. Today's conference is being recorded. At this time, I would like to turn the call over to Paul Ziots, Vice President of Investor Relations. Please go ahead.

Paul Ziots, Vice President of Investor Relations

Thank you. Good afternoon, everyone, and welcome to Pure's Fourth Quarter and Fiscal Year 2024 Earnings Conference Call. On the call, we have Charlie Giancarlo, Chief Executive Officer; Kevan Krysler, Chief Financial Officer; and Rob Lee, Chief Technology Officer. Following Charlie's and Kevan's prepared remarks, we will take questions. Our press release was issued after the close of market and is posted on our website with us being simultaneously webcast. The slides that accompany this webcast can be downloaded at investor.purestorage.com. On this call today, we will make forward-looking statements, which are subject to 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 today 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 as 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. 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 materials 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 first quarter fiscal 2025 quiet period begins at the close of business, Friday, April 19, 2024. With that, I'll turn it over to Charlie.

Charles Giancarlo, CEO

Thank you, Paul. Good afternoon, everyone, and welcome to our Q4 and fiscal 2024 earnings call. We had a solid Q4 performance and ended the year with increasing sales momentum and balanced performance across our theaters and product portfolio. This momentum and growing customer interest in our platform strategy provides us with increased confidence for the coming year. This year, we expanded our Evergreen portfolio and increased subscription services revenue now to over 40% of total revenue. FY '24 total contract value sales for Evergreen/One and Evergreen/Flex grew to over $400 million, more than doubling over the prior year. Product and platform innovation was strong as evidenced by FlashBlade now exceeding $2 billion in total sales since launch. FlashBlade continues to serve as the leading platform for customers' modern file and object data requirements for both high performance and low-cost applications. Launched just 9 months ago, our new E-family of products achieved the fastest sales growth of any Pure product, presaging that flash will soon replace all disk. Our data storage platform strategy and vision is working and continues to succeed with large enterprises and managed service providers. Pure's strategy to consolidate data storage using a single operating and management environment for the majority of storage requirements just makes more sense than managing multiple different and disparate system environments. Pure's direct reliability and economics continue to be unmatched and customers appreciate our Evergreen guarantee of no application downtime with system upgrades. Pure's platform strategy incorporating Pure Fusion, which enables Pure systems to operate as a distributed storage cloud, combines the best features of enterprise storage with cloud agility and programmability. It enables customers to manage their data environment as unified storage pools, seamlessly spanning across data centers and public cloud platforms, all within a single operating and management framework. Pure allows customers to organize their data infrastructure efficiently and optimize their data environment. Our platform vision was a major factor in several strategic enterprise deals in Q4. In one example, a major Fortune 500 financial services firm selected Pure based on our platform strategy, our proven reliability, and our ability to satisfy the majority of their diverse storage needs with a consistent environment and cloud-like operation and efficiency. This high 8-figure deal comprised almost all of Pure's products and services and represents our growing success in large enterprise. A second notable 8-figure deal this past quarter with an Evergreen/One deal with one of the largest specialized GPU cloud providers for artificial intelligence, offering highly differentiated AI infrastructure solutions to their customers. Pure is excited to partner with this company to deliver one of the most powerful and fastest AI training environments in the world. However, what truly excites me about AI, confirmed through conversations with customers and partners, is the focus that it is bringing to customers' fragmented data environments. Customers are beginning to realize that their current fragmented data storage environment will significantly hinder their ability to leverage AI to unlock the full potential of their data. Current data storage environments inhibit AI deployments in two ways. First, existing data storage arrays were selected to provide just enough performance for their primary function, leaving little performance left for AI access. Second, existing storage arrays are not networked, limiting access to AI applications not provisioned directly on their primary compute stack. The Pure Storage platform solves both of these issues. Pure's E-family delivers flash reliability and efficiency at prices now comparable to traditional hard disk systems, and with plenty of performance available for AI access. And the single operating and management environment of the Pure platform across protocols and price performance ranges makes accessing data easier. We are also seeing increased numbers of Portworx deployments in AI environments for data management preparation. Portworx had a record year and accelerated growth based on customers increasingly graduating their container-based development projects to production scale. Portworx saw strong sales in the financial sector this past quarter. A leading global financial institution significantly improved the efficiency and lowered the cost of critical Tier 0 applications by automating its internal cloud infrastructure with Portworx. Portworx's industry leadership was recognized by IDC, which positioned Portworx as an industry leader in their new and latest Kubernetes container data management category. As we reported all year, Evergreen/One consistently experienced breakout growth. Customers appreciate the simplicity of Evergreen's/One SaaS model. The Evergreen One service offers always improving data services, always modern infrastructure and a world-class customer experience with contractually guaranteed service level agreements. Now with Evergreen/One, Pure pays customers for power and rack space when hosting the service in their data centers. Adding to our SLA industry leadership, Pure introduced 3 new SLA guarantees this past year: one, no data migration; two, 0 data loss; and three, power and space efficiency across our Evergreen family, Evergreen/Forever, Evergreen/One, and Evergreen/Flex offerings. Our commitment to offering the most sustainable storage solutions in the industry continues to drive competitive advantage for customers focused on their environmental reporting. Furthermore, the energy demands of AI are outstripping the availability of power in many data center environments. Pure Flash Solutions can reduce data center power usage, space, and e-waste by approximately 20%, and this is proving critical in an environment driven by artificial intelligence and the world's growing demand for data. We are increasingly confident in our platform strategy and our opportunity to lead this market. Our evergreen technology and programs are changing the industry by allowing customers to eliminate the need to continually rebuy and disruptively replace outdated hardware. Most importantly, for enterprises, it significantly reduces risk. Eliminating application downtime due to infrastructure updates and upgrades while dramatically improving system reliability. Our confidence is bolstered by our 4 sustainable competitive advantages: the ability to deliver a single operating and management environment for the majority of enterprise data storage needs, our Evergreen technology, which guarantees an always modern environment without application disruption, our management which enables both performance and cost leadership, and finally, our cloud operating model, which allows customers to manage all of their data across data centers and clouds as unified pools of data. While we remain cautious about the economy, we are beginning to see some encouraging signs of improvement in the macro environment. As the industry's most performant, consistent, and sustainable storage solution, we are well positioned to serve both the energy and data-intensive demands of artificial intelligence. Additionally, after 18 months of steep declines, NAND market pricing has stabilized, which should improve storage market growth. Looking forward to FY '25, I have high confidence in returning to double-digit revenue growth, given our platform strategy, our growing product portfolio, our cloud operating model, and strong customer demand for our Evergreen and Portworx subscription offerings. With that, I'd like to turn it over to Kevan now.

Kevan Krysler, CFO

Thank you, Charlie. We are pleased with our Q4 financial performance, exceeding guidance for both revenue and operating profit. As we were expecting, customer demand for our consumption and subscription-based offerings was very strong, especially for Evergreen/One, our Storage as a Service offering, and Portworx. Annual sales for both offerings grew over 100% in FY '24, and total contract value or TCV sales for Evergreen/One and Evergreen/Flex exceeded $400 million. Remaining performance obligations, or RPO, associated solely with our subscription service offerings at the end of Q4 was very strong, growing 29%. Our subscription services net dollar retention, or MDR, at the end of the year was 120%. For the year, revenue grew 2.8%. As a reminder, our annual revenue growth expectations at the beginning of FY '24, assumed that Evergreen/One and Evergreen/Flex TCV sales would grow approximately 50%. When adjusting for the substantial growth above our expectations at the beginning of the year for Evergreen/One and Evergreen/Flex TCV sales and a noncancelable product sale with a telco customer we mentioned last quarter that is expected to be shipped in FY '25, revenue growth for the year would have been over 7%. As a reminder, revenue from our Evergreen/One and Evergreen/Flex consumption and subscription service offerings are recognized over time, whereas product revenue related to sales of our products across our data storage platform is recognized upon shipment. Operating margin for FY '24 was approximately 16%, above our original guidance of 15% at the beginning of the year. Key contributors of our operating margin strength were strong gross margins across our data storage platform reflecting the value of our solutions and disciplined investing. Total RPO, which also includes product orders, grew 31% year-over-year in Q4, exceeding $2.3 billion. Product orders included in total RPO at the end of Q4 included a noncancelable telco order that we mentioned last quarter, and orders relating to a significant win in Q4 with a major Fortune 500 financial services company. In Q4, subscription services annual recurring revenue or ARR grew 25% to approximately $1.4 billion, highlighting the strong traction for our consumption and subscription-based service offerings. As we mentioned previously, subscription services ARR excludes noncancelable Evergreen subscription contracts where the effective service date has not started. Including noncancelable subscription contracts where the effective service date has not started, subscription services ARR at the end of Q4 grew 27%. Subscription services revenue during Q4 was $329 million, growing 24% and comprising 42% of total revenue. U.S. revenue for Q4 was $522 million, and international revenue was $268 million. Our new customer acquisition grew by 349 customers during Q4, including 6 new Fortune 500 customers. We now serve slightly over 60% of the Fortune 500. Product and subscription services gross margin both contributed to total gross margin strength of 73.7% in Q4 and 73.2% for the year. In Q4, product gross margin was 73.4%, and subscription services gross margin was 74.1%. Our headcount increased slightly to nearly 5,600 employees at the end of the quarter. Pure's balance sheet and liquidity remain very strong, including approximately $1.5 billion in cash and investments at the end of Q4. Cash flow from operations during the quarter was approximately $244 million, and approximately $678 million for FY '24. Capital expenditures during the year were nearly $200 million, representing approximately 6.9% of revenue for FY '24. Factors driving our higher capital expenditures during the year included sales growth of our Evergreen/One Storage as a Service offering, our new headquarters and test equipment supporting our engineering team for new product innovations. In Q4, we repurchased 585,000 shares of stock, returning approximately $21.4 million to our shareholders. For the year, we repurchased nearly 4.7 million shares, returning nearly $136 million in capital to our shareholders. Consistent with our remarks last quarter, our share repurchases represent a lower level of repurchase activity as a result of the fixed trading parameters that were in place throughout the quarter. We have approximately $145 million remaining on our existing $250 million repurchase authorization, and we are announcing today a new share repurchase authorization of $250 million. Now turning to our guidance for FY '25. We expect to return to double-digit revenue growth in FY '25, growing 10.5% to $3.1 billion. We expect demand across our entire data storage platform will strengthen while also remaining cautious of the macro spending environment. Our annual revenue guide of 10.5% growth also contemplates approximately 50% growth in TCV sales for our collective Evergreen/One and Evergreen/Flex service offerings, which are expected to be $600 million. To help better understand the short-term impact that growth of our consumption and subscription offerings have on our annual revenue growth rate, we estimate that our forecasted FY '25 revenue growth would be in the mid-teens when adjusting for the expected growth of both our Evergreen/One and Evergreen/Flex service offerings, slightly offset by expected additional revenue arising from past TCV sales in FY '24. Consistent with our philosophy in driving profitable growth, we expect FY '25 operating profit to be $532 million, and operating margin to be 17%. Margin for FY '25 is in line with our longer-term goal of expanding operating margin by a percentage point or 2 each year, and represents a 2-point increase from our FY '24 guide that we communicated at the beginning of the year. We are pleased with our expectations of getting back to double-digit revenue growth and continuing strong growth from our new Storage as a Service, and Evergreen/Flex offerings. Pure's data storage platform and Evergreen architecture delivers substantial business value to our customers by reducing complexity while increasing reliability, flexibility and unparalleled power and cost efficiencies. With that, I'll turn it back to Paul for Q&A.

Paul Ziots, Vice President of Investor Relations

Thanks, Kevan. If you have more questions, please rejoin the queue, and we will be happy to answer them if time permits. Operator, let's get started.

Operator, Operator

The first question is from Amit Daryanani from Evercore. Thanks, Kevan. If you have additional questions, we kindly ask that you please rejoin the queue and we'll be happy to take those additional questions if time allows. Operator, let's get started.

Amit Daryanani, Analyst

Thanks a lot. Good afternoon, everyone, and congrats on a nice print here. I guess, Charlie, the question for you really is it looks like Evergreen/One sales should continue to grow at a really robust rate again into fiscal '25 after what you did in '24. Can you just touch on what do you think is resonating so well from a value proposition basis with customers when it comes to Evergreen/One offering? And then is there a framework to think about how much of your revenue base kind of your shipment base, if you may, could actually move to a subscription model over time?

Charles Giancarlo, CEO

Yes. Thanks, Amit. Hope you're doing well. So, actually, I think I can answer the question in really two ways: the economic and then the noneconomic, and I'll start with the noneconomic first. What's very exciting about Evergreen/One is that it really is a SaaS-like model. And I think just like you and probably everybody else on this call, no longer use external hard drives on their PCs or laptops, but use some type of cloud-based service. Because of the ease, it's managed for you. You don't have to worry about it failing, you're able to easily just subscribe to more capacity if that's what you need without worrying about having to go out and buy and configure a new system. The same is true with our Evergreen/One service. It really is storage as a service, whether that's deployed in the cloud, in a colo or actually on the customer's premise. And now it's deployed on the customer's premise, we pay them for hosting it for us. So from the customer standpoint, it has all of the attributes of a SaaS service. They manage entirely through the cloud. We manage it otherwise. We're constantly looking at it from a capacity and performance standpoint, upgraded as necessary, mostly remotely. And so it's a very easy service and completely managed. And of course, that's the way that the modern world is operating now and the reason why many customers are attracted to the service. Of course, the economic elements of it are that they only pay for what they use when they use it, they don't need to buy a system that is sized at the rate that they think they'll need four or five years hence, that they're able to just pay for what they use when they use it. So it's compelling from both economic and noneconomic perspectives. Lastly, in terms of total subscription, I think easily, with any continued growth in this environment, we certainly see our way clear to a majority of revenue over time being in the subscription category.

Operator, Operator

The next question is from the line of Aaron Rakers from Wells Fargo.

Aaron Rakers, Analyst

Yes, and congratulations on the quarter. I wanted to ask about the numbers a bit. The RPO balance of $2.3 billion is noteworthy, but even more significant is the unbilled portion at approximately $709 million, which is up about 90% year-over-year. Kevan, you mentioned the $41 million from the telco that contributed to this figure last quarter, but you also hinted at a major win with a significant financial services company. If we could explore that, it might provide further insight into the subscription growth you’re experiencing. I would appreciate it if you could explain the growth in the unbilled RPO number, excluding those large product contributions from the quarter. Any clarification would be helpful.

Kevan Krysler, CFO

That's great, Aaron. I will give you some of the bridging discussion. But before we get into it, yes, we're really excited about this Fortune 500 win. Let me have Charlie explain that a little bit, and then I'll provide some bridging information for you.

Charles Giancarlo, CEO

Yes, the win came in a bit late in the quarter, so it’s clear that you will be implementing it throughout this new fiscal year. It’s very exciting since it was a deal that involved most of Pure's services and products. Ultimately, it stemmed from their understanding of the importance of having a unified operating environment for their data storage. I’m truly pleased with that win.

Kevan Krysler, CFO

And then, Aaron, from a bridging standpoint, our total RPO, which would include product orders, and again, that's the telco order and that's the significant win with the Fortune 500. And you're exactly right. Both of those would be unbilled because we haven't shipped the product yet. So as we ship that product, you'll see more billings come through as it relates to that RPO. But the other large piece of it is going to be the significant growth of our Evergreen/One and Evergreen/Flex subscription offerings. And again, we bill for that either annually, quarterly, depending on what the customers' preferences are. So that will be a large piece of the unbilled growth that you're seeing as well.

Operator, Operator

Our next question comes from the line of Meta Marshall from Morgan Stanley.

Meta Marshall, Analyst

Great. Regarding the AI discussion, many of our conversations with investors revolve around the timing of expected storage investments and whether this aligns with the data preparedness stage as we prepare for inference. Are there any noticeable trends regarding when enterprises or other customers are considering these investments? Additionally, there's been extensive discussion about the volatility in NAND pricing. Are we experiencing a different crossover point this year, or has the focus shifted to moving all infrastructure to all-flash, reducing concern over quarter-on-quarter price differences?

Paul Ziots, Vice President of Investor Relations

Meta, this is Paul. I'm sorry, I'm going to be the bad guy so that the others don't get upset with us. We'll take your first question, and at the end, we'll pick back up on your last question.

Charles Giancarlo, CEO

Let’s discuss AI. I see the AI market in three categories. The first is modeling, which requires high-performance GPUs and storage. The second is inference, which may use some GPUs but doesn't need the extreme performance. The third involves improving data storage so customers can access data currently stuck in silos. While there’s significant focus on the modeling aspect, I believe it's the smallest segment in terms of overall market size. Nonetheless, we are seeing growth in that direction, and we are monitoring various developments in the modeling sector. Inference is just starting to gain traction, as customers are figuring out their strategies. What's stood out to me in the past six months, when talking to customers and large integrators, is that many are realizing their current data setups aren't sufficient for the high-performance demands of the AI environments they wish to establish. This presents a substantial opportunity. Overall, we are still in the early stages of this transition, and it will take time for it to be integrated into enterprise planning.

Robert Lee, CTO

Yes. And Meta, this is Rob. Just to jump in on that. I would definitely agree, echoing Charlie's comments. For my own discussions with customers, I think we're early in the cycle in terms of customers really understanding how they transition from breaking down the silos that are fragmenting their data today, moving away from physical limitations to being able to connect data access through automation and policy, certainly bringing performance to all areas of their data. I think the other discussion that we're having is customers that are navigating this space are realizing the importance of future-proofing their technology decisions, especially as it pertains to infrastructure investments. If you're investing in building out infrastructure to modernize and prepare your environment for AI, it's absolutely critical that you're making choices that provide utmost flexibility just because of the speed at which the space is moving. And so when you kind of map that down to the Pure portfolio, we're very pleased with our position, right? You can see where our single consistent software and hardware operating environment with Fusion really helps customers emerge from that fragmented data storage position. Certainly, what we're doing in terms of bringing performance, much-needed performance to an area storage that frankly has been lacking that for quite some time. And then certainly with Evergreen, bringing that future-proofing and optionality.

Operator, Operator

The next question comes from the line of Tim Long from Barclays.

Timothy Long, Analyst

I wanted to follow back up on margins and leverage a little bit here, kind of as it pertains to the company becoming a little bit more of a subscription service-based. So maybe kind of a two-parter here. Just talk about the gross margin line. It does look like that's probably guided a little bit lower. It's been at a pretty high level. What are the levers on the gross margin line? And then maybe, Kevan, can you just talk a little bit about the OpEx investment in an environment where more of the revenues are going to be pulling off of the subscription line?

Paul Ziots, Vice President of Investor Relations

Tim, I'll jump in and be the bad guy again. Kevan, please go ahead and take the gross margin question, and we'll come back to the OpEx later.

Kevan Krysler, CFO

Yes. And I'll do that in the context of FY '25, and we can go into some more detail if needed. But look, we're pleased with both gross margin and operating margin performance as we think about it in '24, and it really is consistent with our philosophy of driving profitable growth. And as we look to FY '25, we're again expecting to expand our operating margin to 17% while also returning to double-digit revenue growth. This assumes that our operating expenses will grow at a slightly lower rate than what we saw in FY '24 as we continue to invest in our sales capacity and in innovation. And you're right, Tim, this would then imply a slight decline in gross margins, which we expect to be derived principally within product gross margins as we continue to penetrate the disk market and scale our E-family. So hopefully, that's helpful for you.

Operator, Operator

Our next question comes from Howard Ma from Guggenheim Partners.

Howard Ma, Analyst

My question is for Kevan. Kevan, based on the customer data you have so far, on average, how much smaller does the TCV for an OpEx deal start compared to a CapEx deal? And what is the crossover point? And just on a related note, I think it would be helpful for us if you could comment on the range of scenarios where an OpEx deal might start smaller or maybe much smaller than a CapEx deal and scenarios where an OpEx deal might start at the same size as the CapEx deal.

Kevan Krysler, CFO

Yes, it's a great question, Howard, and I'll let Charlie and Rob jump into as they see fit. But when we think about it, obviously we have a lot of variation in terms of sizing between our CapEx offerings as well as Evergreen/One. And frankly, when we pull out the on-demand billings and then do a straight comparison, on average deal size, we're actually pretty close. When you take a step back between value at the order level between CapEx and Evergreen One. But again, our data points are principally around FY '24. Still a lot more time to see how that evolves. And Charlie, do you have any other points you'd want to raise?

Charles Giancarlo, CEO

Yes, Howard, it's a great question. We're currently exploring our situation in various ways because it's uncommon for customers to make decisions in exactly the same environment for different options. As Kevan mentioned, our average numbers show that across our entire customer base and all the deals this quarter, the figures are similar, although this may not hold true on an individual deal basis. My instinct suggests that the average total contract value of Evergreen/One deals is somewhat lower than our capital expenditure, but we need more data to confirm that. We're looking to gain more clarity on this in the coming quarters. However, we do know that the breakeven point is roughly 2.5 years.

Kevan Krysler, CFO

That would be the revenue breakeven.

Operator, Operator

Our next question comes from Pinjalim Bora from JPMorgan.

Pinjalim Bora, Analyst

Thank you for your question and congratulations on the quarter. I have a question for Kevan regarding the guidance and the assumptions about your TCV bookings for Evergreen/One. Last fiscal year, you had to increase the assumption for Evergreen/One bookings contribution, which impacted top line growth. What gives you the confidence that 50% is an appropriate target, and how do you ensure that it won't be 100% by the end of the year or halfway through? I understand that the numbers are larger, and you're assuming similar dollar additions, but I'm trying to gauge the risks to the top line guidance.

Kevan Krysler, CFO

Thank you for the question, Pinjalim. When we create our guidance for the total contract value sales of Evergreen/One and Evergreen/Flex, as well as our revenue projections, it involves extensive modeling, examining our pipeline, and evaluating the opportunities within that process. This analysis helps us formulate our best estimates, which currently indicate a 10.5% revenue growth and a 50% growth rate for TCV sales of Evergreen/One and Evergreen/Flex. However, you asked about potential changes in the mix and their impact, similar to what we experienced in fiscal '24. If our sales mix leads to lower TCV sales growth from our subscription and consumption offerings, we would anticipate that our revenue growth for fiscal '25 would increase. Conversely, if TCV sales for Evergreen/One and Evergreen/Flex exceed our 50% growth assumption, that would influence our revenue growth rate. Throughout the year, we will keep you updated on the sales performance of Evergreen/One and Flex to provide more clarity.

Operator, Operator

Our next question comes from Chris Steinar from TD Cowen.

Hadi Orabi, Analyst

This is Eddy for Chris. I'd like to ask about the 8-figure deal with the major GPU cloud provider you guys talked about. Can you talk about where Pure systems are being used for? Are your systems directly feeding the GPUs for training or inference or are they being used in backup and archive for example? Also wondering if you can discuss the FlashBlade versus FlashArray mix in there and whether there is some E-Series, I think investors would like to understand where your systems sit within these AR workloads so they can better understand the opportunity there.

Robert Lee, CTO

Yes, Eddy, this is Rob. Thanks for the question. I'll take that one. Charlie mentioned that we are very excited about this win. The customer is one of the largest GPU cloud providers. The interesting aspect of the usage and use cases in this environment is the mix involved in the AI training workflow. Part of it is used for data preparation, pre and post processing. A significant portion is directly used for AI training, meaning it feeds training data into and out of GPU servers. There is also a lot of model experimentation happening in these environments, supporting a large number of users going through these workflows and performing these tasks. I think the second part of your question was about understanding the product mix involved in the sale. I want to remind you that this was a large Evergreen/One deal, which highlights the dynamic nature of much of the work in this space. As AI workflows expand beyond high-speed training into broader data preparation, the Evergreen/One model offers significant flexibility for the service provider, enabling the deployment of the right service levels according to various usages. That said, the environment is being served with the FlashBlade product set. Hopefully, this gives you a clearer view of our opportunity and the points of validation in this space.

Operator, Operator

Our next question comes from Jason Ader from William Blair.

Jason Ader, Analyst

Just wanted to ask if and when you might be willing to give us revenues from Evergreen/One and Flex.

Kevan Krysler, CFO

Jason, great question. Let us work through the transparency we're giving you on TCV sales for the time being and the conversion of those TCV sales in terms of normalized revenue, and you'll see that in the slides we presented. I think that is a level of bridging we'll want to do at this point in time in terms of where we're sitting.

Operator, Operator

Our next question comes from David Vogt from UBS.

David Vogt, Analyst

And Kevan, I want to return to your earlier question. I'm considering all the different disclosures you've provided for 2024 and 2025, and how to align them with the traditional model, focusing on products and services. Based on my calculations, it seems that your revenue has compounded at approximately 9% over the past couple of years. Is that a reasonable perspective when I adjust for the model transition and the delays with telco customers pushing into 2024 and 2025? If so, what do you believe is the underlying storage demand that supports that growth over the past couple of years? Additionally, how did your market share perform during that time?

Kevan Krysler, CFO

Charlie, do you want to hit storage demand and market share first and then I'll hit the modeling question.

Charles Giancarlo, CEO

Yes, I believe your question fundamentally concerns whether we are gaining market share and at what rate. We are confident that we are maintaining a market share pickup rate of about 15%. This figure isn’t fully reflected by reporting agencies because they do not account for our Evergreen/Forever subscription model, which means we do not need to resell storage as our arrays do not become obsolete. The team is examining the situation closely, and as Kevan mentioned earlier, our growth would have been a little over 7% this year. I don’t have the numbers for the previous year at this moment, but we would be happy to provide that information later. Your assumption that the market is underreporting our growth potential, if our Evergreen/One sales were categorized as standard product sales, is indeed correct.

Kevan Krysler, CFO

The other thing too, David, is you can kind of do back-of-the-envelope calculation to estimate the amount of revenue that's coming off Evergreen/One and Evergreen/Flex given that the average duration of these contracts is around 3 years, and obviously, we've given you the TCV sales for FY '24, growing in excess of 100% as well as our expectations for TCV sales for Evergreen/One and Evergreen Flex for FY '25.

Operator, Operator

Comes from Tom Blakey from KeyBanc Capital Markets.

Thomas Blakey, Analyst

Across your products, Charlie, could you just maybe talk about the FER and straight-up product sales kind of like exit rates in fiscal Q4 and what you're kind of seeing in fiscal Q1 to maybe even and get some insight into the level of possible conservatism in your guide there on the product side.

Charles Giancarlo, CEO

As we mentioned at the end of our Q3 call and now in Q4, we are observing strong signs of increasing demand both in the actual results and in the pipeline as we move forward, as well as in our overall discussions with customers. This gives us confidence. In terms of exit rates, we typically do not provide direct figures, but...

Kevan Krysler, CFO

Yes, we don't. But I think we've taught directionally. And obviously, the strength we're seeing, both in FY '24 and FY '25 is really being driven from a growth perspective toward subscription services and subscription services revenue. And when we think about it directionally next year, but to Charlie's point, he's right; we don't guide specifically on product revenue and subscription revenue. I think it's a good way to think about product revenue being flattish to maybe slightly down and really that growth being driven by our subscription services overall for FY '25.

Operator, Operator

Our next question comes from Simon Leopold from Raymond James.

Simon Leopold, Analyst

Earlier in the Q&A, Charlie outlined the AI opportunities into three categories, which I found useful. I would like to delve deeper into the aspect referred to as data uplift. Specifically, I'm trying to understand the timing of when this uplift is expected to become significant and how you anticipate it will materialize—whether it's through sales to enterprises or if it requires entering into relationships with hyperscalers or AI platform operators. Some additional insights on this would be beneficial.

Charles Giancarlo, CEO

Absolutely, Simon. Your instinct on this is correct. The concept is that regardless of how enterprises choose to build their data environments for AI, whether it’s for their own modeling or inference, they must make their data accessible for analysis by the AI engine. Currently, their data is mostly confined in silos, stored in environments that were primarily acquired with economic considerations in mind. These storage solutions are purchased to meet performance and capacity needs for their main tasks, which often leaves little performance available for analytics, including AI. Additionally, traditional storage arrays lack network connectivity at the array level, requiring access through the application environment, which is not efficient. This typically means customers must duplicate their data and invest in new arrays. Our platform, however, enables them to replace these arrays with flash storage for their primary use while retaining ample performance for the AI environment. This transition allows them to modernize their setup, significantly reduce power, space, and cooling requirements, improve reliability, reduce labor efforts, and simultaneously update their data environment to be ready for AI analysis.

Robert Lee, CTO

And just to build on that a little bit. Charlie mentioned a lot of these silos and fragmented pools of data storage really aren't networked today. Let me take it from a customer and a procurement lens. If you look at a lot of these environments, data storage has historically been purchased and configured application by application, department by department completely independently. And in a world where that data is only being used for a single purpose, that worked okay. But the whole power of AI technology is being able to connect all these data sets and glean from them in unison greater insights. In order to do that, you've got to actually connect all of these things. And so when we step back and we think about our position with our platform strategy, being able to pull all these pools of data together, that's what we really see as the larger opportunity set here.

Charles Giancarlo, CEO

And then when you think about timing, what I'm seeing is it's the companies that are the most advanced in their thinking and analysis of what they might do with that are just beginning to realize, oh my gosh, regardless of how many GPUs we buy or lease or rent, our data governance is very poor. Our ability to get access to that data is very poor. So I think it's going to take time for the general market to come to full grips with this. So I see it more late this year, early next year. In the meantime, there are plenty of economic reasons why customers would want to use our E family to replace disk when that's coming up anyway. So as I see it, the E family kills two birds with one stone. It's a better replacement and it prepares them for AI.

Operator, Operator

Our next question comes from Nehal Chokshi from Northland Cap Markets.

Nehal Chokshi, Analyst

Thank you, and congratulations on your results. I appreciate the details on how the Evergreen run bookings impact your overall revenue. I would like to focus on the significant win with the major GPU cloud provider. Specifically, I want to understand how well you are integrated within that opportunity and if this deal does not achieve full penetration, what alternatives are being utilized by that GPU provider?

Robert Lee, CTO

Yes, Nehal, this is Rob. It's not complete yet, but we're very pleased with the win. What’s particularly exciting is the variety of use cases being deployed on our platform. As we mentioned, it's one of the largest GPU cloud providers out there. Our primary focus now is on increasing the Evergreen One consumption and ensuring the success of those initial project deployments, and we'll see how that develops.

Nehal Chokshi, Analyst

I was just wondering if Rob could describe what is being utilized alternatively before?

Robert Lee, CTO

I really can't speak to that. I don't know that we have the visibility into that.

Operator, Operator

Our next question comes from Eric Martinuzzi from Lake Street.

Eric Martinuzzi, Analyst

Yes. So you had a small workforce realignment charge in Q4. I was curious to know what the goal of the realignment was. And are we done with that?

Charles Giancarlo, CEO

We have made some changes within the organization to concentrate more on customer segments, including enterprise commercial and hyperscaler. We have established specialized teams to enhance business processes tailored to these three models in a coordinated manner throughout the company. As part of this effort, we have reassigned roles and personnel, which unfortunately led to the elimination of some positions. This is what prompted the restructuring. The changes were primarily confined to the reorganization we implemented.

Paul Ziots, Vice President of Investor Relations

Thank you, Eric. I think this next question is a person who got back in line. So I think this will be the last question.

Operator, Operator

Next question is from Aaron Rakers from Wells Fargo.

Aaron Rakers, Analyst

All right. Just because it has not been asked, I'm curious, given the AI discussion and the narrative around Pure, just where we're at with regard to Meta and that deployment, AIRE. I know there's been a lot of discussion about the expansion of Meta's GPU footprint. I'm just curious of where you currently see yourself at and whether or not there's any assumptions of opportunity at Meta baked into your guide this year.

Robert Lee, CTO

Thanks, Aaron. This is Rob. Our relationship with Meta is stronger than ever, and we are collaborating with them on an ongoing basis. They continue to gain significant value from our solutions. In response to your question about additional sales to the RSC environment, we have made sales to Meta nearly every quarter, including in various AI environments. However, we did not have sales into RSC, and typically, we do not provide updates or comments on sales in other environments, including different AI deployments.

Paul Ziots, Vice President of Investor Relations

Thank you, Aaron. Charlie, before you give concluding remarks, maybe you could comment on Meta's second really excellent question about whether we're at a different crossover point now to the all-flash data center.

Charles Giancarlo, CEO

Yes, I believe that question is important. We are still at the beginning of this process. Last year, I indicated that I expected the final disk storage array to be sold in around five years. We are now four years into that timeline, and I am committed to it. The growth of our E-family has been impressive this year, but it is still early. We are anticipating even greater growth in the coming year. However, given the amount of disk storage available, it will take some time. I remain optimistic and believe that in the next three to four years, we will see a decline in disk systems.

Paul Ziots, Vice President of Investor Relations

And then you had some concluding statement.

Charles Giancarlo, CEO

Well, I do want to thank everyone for joining us today, as always, on today's earnings call. The platform strategy that we've built is now leading the data storage industry's transformation. We are seeing just incredible response to really unifying the way that data operates within the enterprise environment. With this unified and modern storage platform, enterprises now can really uniquely tackle their fragmented data environments. And that's what's going to allow them to unleash the full potential of their artificial intelligence. I do want to thank our customers, our employees, our partners, investors, and suppliers; your dedication, collaboration, and trust are really the driving forces behind our progress. Thank you all.

Operator, Operator

That concludes the Pure Storage Fiscal Fourth Quarter and Full Year 2024 Earnings Call. Thank you for your participation. You may now disconnect your lines.