Pure Storage, Inc. (PSTG) Earnings

Management highlights

### Overall Business Performance & Market Share - Q1 delivered outstanding top and bottom line results, with revenue and operating profit exceeding the high end of prior guidance. 35% YoY revenue growth reflects broad-based strength across geographies and customer segments, with large deals (> $5 million) up high double digits YoY and new customer logos up 20% YoY. - Market share gains are accelerating, driven by higher competitive win rates across enterprise and commercial segments, and increasing displacement of competing storage products. Fortune 500 penetration now stands at 64%, with 275 total new customers added in the quarter. ### AI and Product Highlights - FlashBlade EXA continues to gain traction for AI/ML and GPU-accelerated financial workloads, with multiple new wins including a FinTech algorithmic trading customer that processes over 13 million daily peak transactions. It is increasingly displacing competitive AI storage products in enterprise and neocloud markets due to its unmatched performance, simplicity, and flexibility. - Enterprise data cloud strategy is gaining momentum: Security Fusion adoption doubled YoY to over 1,200 customers, with marquee wins across financial services, healthcare, and public sector, as customers demand cloud-like scalability and management within their own data centers. ### Acquisition of OneTouch - The acquisition of OneTouch closed in early May 2026. OneTouch enables cross-platform, cross-environment enterprise data cataloging, semantic mapping, and knowledge graph construction to improve data quality and reduce AI data preparation costs. The acquisition is expected to be $12 million dilutive to operating profit in FY2027 and accretive within 24 months post-acquisition (after synergies). ### Hyperscale Business Progress - Hyperscale product qualification is progressing with multiple prospects, driven by strong customer demand for additional storage capacity amid widespread component shortages. Significant revenue growth from hyperscale products remains on track to occur in H2 FY2027, with further expansion in FY2028. ### Supply Chain and Pricing Strategy - Management is not profiteering from the ongoing supply chain crisis, raising prices later and by smaller amounts than competitors, and operating at the lower end of product gross margin targets to share cost pain with customers. Gross margin recovery excluding hyperscale contributions is expected to be gradual as component costs continue to rise. - The current supply chain environment has reinforced the value proposition of Evergreen One, whose longer contracts and blended multi-year cost structure deliver more stable, lower costs for customers, driving its 73% YoY sales growth.

Guidance

- Management raised full year FY2027 guidance from 19% YoY revenue growth to 22% YoY revenue growth at the midpoint, with a total revenue range of $4.41 billion to $4.51 billion. Full year operating profit guidance was also raised significantly, now ranging from $820 million to $860 million, representing ~32% YoY growth at the midpoint, an increase of more than 600 basis points from prior guidance. - Q2 FY2027 guidance calls for revenue of $1.095 billion to $1.105 billion (~28% YoY growth at the midpoint) and operating profit of $195 million to $205 million (~54% YoY growth at the midpoint). - Hyperscale product revenue is still expected to rise significantly in Q3 and Q4 FY2027, in line with prior customer order commitments, and hyperscale revenues are expected to carry gross margins of 75% to 85%, supporting overall product gross margin improvement in H2. - Approximately one-third of Q1 YoY revenue growth came from price increases and customer purchase pull-ins ahead of further expected price hikes, and this dynamic is expected to continue through the year. The current full year guidance expects 48% of full year revenue to come in H1, compared to a historical 45%, reflecting stronger than expected early year momentum. Management intentionally built conservatism into H2 guidance due to high uncertainty around demand and supply, so no further upside has been incorporated at this time.

Segment performance

Total Q1 FY2027 revenue grew 35% year-over-year, with broad-based growth across core businesses and geographies. U.S. revenue hit $739 million (39% YoY growth, 70% of total revenue), while international revenue reached $314 million (27% YoY growth, 30% of total revenue). Product revenue (including hyperscale shipments and term license Portworx software revenue) grew 55% YoY to $577 million; hyperscale product revenue contribution was minimal in Q1, as expected. Subscription services revenue hit $476 million (17% YoY growth), accounting for 45% of total revenue. Evergreen One (storage-as-a-service) CCD sales grew 73% YoY to $165 million. Total gross margin was 70.1%, product gross margin was 65.5% (at the lower end of the 65-70% long-term target range, in line with expectations), and subscription services margin was 75.6%. Operating profit was $159 million (over 90% YoY growth), with an operating margin of 15.1%. Annual Recurring Revenue (ARR) grew 19% YoY to over $2 billion, and Remaining Performance Obligations (RPO) grew 41% to $3.8 billion. Free cash flow was $112 million, following $180 million in operating cash flow and $68 million in capital investments.

Risks & headwinds

- Extreme volatility and rapid escalation in semiconductor component (NAND, memory, CPU) pricing and supply: spot market prices have increased 5x to 10x, with prices doubling every 18 days in the current environment, driven by insatiable AI demand that has completely outstripped global fab capacity. All fab capacity is sold out through 2027, putting continued upward pressure on costs. Shortages make it impossible to guarantee ability to ship promised product on time. - High uncertainty around second half demand: it is unclear whether current strong demand will hold at unprecedented price levels, or if significant demand destruction will occur as customers adjust budgets to higher costs. - Ongoing supply chain instability creates constant challenges for forecasting and planning, with component availability and costs changing on a weekly basis, making long-term price quotations difficult to honor. Long-term supply contracts at previous prices are no longer valid, and most new quotations are only valid for 30 days, down from the historical 90 days.

Analyst Q&A

• Q: The strong Q1 growth and guidance imply H2 deceleration. Is this deceleration actual, or just conservatism from component pricing and AI deployment timing uncertainty? /

  A: Management notes the current environment is extremely dynamic on both supply and pricing, with changes occurring weekly, so high visibility into H2 is not realistic. While current demand remains strong, management waits for clarity on two key points: whether demand will hold at current unprecedented price levels, and whether ongoing supply shortages can be resolved to meet promised shipment levels, so no additional upside has been added to H2 guidance at this time.

• Q: How do you see the current competitive landscape changing, and what is driving your higher win rates? /

  A: Larger multi-product vendors have shifted focus to AI servers and GPUs, reducing their focus on storage. EverPure's ability to serve all customer storage use cases (block, file, object, from low cost to high performance AI workloads) under a unified software enterprise data cloud platform, combined with transparent, moderate price increases during the current crisis, has driven significant market share gains and higher win rates. Reliability advantages over competitors also create new conversion opportunities.

• Q: NAND spot prices are far higher than previous contract prices, with spot up 5-10x, and long-term contracts at old prices are no longer honored. Are you seeing additional upside to FY27 revenue if you could source all the NAND you need? /

  A: The timing of hyperscale shipments is driven by customer build-out plans and qualification completion timelines. However, EverPure could currently sell every terabyte of NAND it can source, indicating unmet demand driven by extreme industry-wide capacity shortages.

• Q: When do you expect enterprise AI on-prem deployment to meaningfully contribute to revenue, and what is EverPure's positioning? /

  A: Currently, the vast majority of enterprise AI adoption is occurring via public cloud, not on-prem native infrastructure, outside of limited segments like high-end banking, automotive, and pharma. For enterprises already deploying AI on-prem, EverPure's existing product portfolio (including FlashBlade EXA) already meets their storage requirements, so no new dedicated infrastructure is needed, and the company is already serving this early demand.