Everpure, Inc. (P) Earnings Call Transcript & Summary

Good afternoon, and welcome to everyone who has joined. My name is Sanjot Khurana, Vice President of Investor Relations, and I'm so glad to have you all here for the 2021 Pure Storage Financial Analyst Day event. We've got a great lineup for you today. But before we get started, let me remind you that management will make forward-looking statements today, including multiyear financial targets, which are subject to assumptions risks and uncertainties. These forward-looking statements are covered by the detailed disclaimer at the beginning of our presentation slides and in our public filings with the SEC, which we encourage you to review. Also, we will discuss non-GAAP measures in talking about the company's performance and reconciliations to the most directly comparable GAAP measures are provided in our presentation slides, which are available on our Investor Relations website at investor.purestorage.com. Now with that, let me walk you through the agenda for today's event. We'll start off with Charlie's vision and strategy, sharing key market trends and how it aligns with our opportunity. After that, we'll have our Chief Product Officer, Ajay Singh, walk us through our innovation road map and why we believe we can win in this market. At that point, we'll take a short break, after which we will have Dominick Delfino, our Chief Revenue Officer; and Kevan Krysler, our Chief Financial Officer, provide updates on go-to-market and finance. We'll end the session with a live Q&A. In the Q&A panel, we'll have all of our speakers plus our Chief Technology Officer, Robert Lee; and our VP and GM of the Digital Experience business unit, Prakash Darji. So with that, let's get started.

Hello, and thank you for joining us today. We're looking forward to sharing with you both what we have accomplished over the last couple of years as well as what we are looking forward to in the next several. It's an exciting story of rapid progress, change and customer success. Throughout the day, we will cover 5 major themes. They are that Pure is in a large and growing market and taking share. Two, we are the lone best-of-breed vendor in our market, leading in innovation in flash, our Evergreen subscription, fast file and object, our as-a-service offerings and now our entrance into the all-flash data center, delivering a cloud operating model to enterprises. Three, subscription now represents over 1/3 of our revenues. And we expect this proportion to continue to grow strongly, given both our Evergreen subscription, our growing Pure as-a-Service portfolio and Portworx for cloud-native apps. Four, Pure has developed a broad portfolio and business capabilities that enable our expansion into large enterprises, cloud and hyperscale customers. And five, that with our portfolio breadth, our past and continuing investment in sales, R&D and operational excellence and our large and growing success with our subscription models, we expect to accelerate our growth and profitability. On this last point, in particular, our CFO, Kevan Krysler, will provide you details on how we are planning the next few years and preview our new financial metrics for tracking Pure's progress, growing our subscription business. But as with everything at Pure, I'll start with customers first. Our customers across every industry and around the world look to Pure Storage for powerful, simple, scalable tools. They tell us that they want us to do more for them, to deliver more of their infrastructure with our signature performance, reliability, simplicity and speed. Customers need these capabilities in order to move faster, to innovate faster, to evolve faster and to adjust to change faster. Faster is always the goal. For decades, our industry has measured faster only in terms of latency, input/output or bandwidth. Speed matters in many aspects of business. But in storage, the industry only described its contribution in terms of fast data delivery, not speed of application development, of IT operations or of disaster recovery. However, for Pure, since our founding, speed also meant how fast our customers got our products up and running without weeks of training and tuning. Indeed, no operating manuals are required. Going forward, speed now means delivering data as a service to our customers and to their customers, providing developers fast and easy access to core data services, already structured to comply with individualized corporate standards. It means on-demand provisioning for application building blocks like databases, analytics or streaming applications. With Pure Fusion and Portworx Data Services announced earlier today, we will provide our customers and their developers full agility and flexibility to launch their new projects faster. The need to move faster is one of the reasons developers embrace cloud operating models running everything using a cloud operating model enables organizations to automate their operations, creating a flexible infrastructure, which, in turn, provides their organizations with on-demand access to data services. More simply, it provides both speed and economy. Pure's announcements earlier today enable this immediate, flexible and software-defined infrastructure for both private clouds and customers' hybrid cloud environments. It's what we call modern data services. Our Chief Product Officer, Ajay Singh, will speak to you more about them a bit later. Our most forward-thinking customers embrace this modern cloud operating model as their standard. They are automating for both infrastructure efficiency and developer productivity. They are modernizing their infrastructure to increase their speed and reduce both their cost and their environmental footprint by eliminating spinning disk. And they are gaining competitive advantage by modernizing their application stacks. Pure is at the forefront of working with these companies to deliver the next generation of IT architecture and data infrastructure. Dom Delfino, our Chief Revenue Officer, will introduce you to some of our customers later today. The next generation of infrastructure architecture is what we sometimes call infrastructure as code. It gives developers speed and flexibility, making things simple so they can accelerate their development activities in ways that truly differentiate their companies. Simply speaking, Pure is bringing the cloud operating model to our customers. We are providing the infrastructure experience that enables a single and seamless model across private and public clouds. Our announcements today will enable developers to deploy, manage and use data storage, not based on hardware specs and physical machines, but based on service classes, policies and service level agreements. What if instead of requiring developers to translate their application needs into physical infrastructure requirements, and to transact with IT tickets and purchase orders, we could deliver automated services via API based on the performance levels required with data protection and other governance policies already baked in. To put it simply, our strategy is to make infrastructure invisible to developers by delivering it as a service, enabling them to access and customize enterprise data infrastructure via API. As I have said many times before, storage has lagged the rest of IT. The virtualization and abstraction of compute and networking over the last 2 decades has created tremendous flexibility for operators and developers. It's time we bring the same agility to storage. Pure has led the way since our founding. Our customers have long valued are simple, easy-to-use products and user-oriented APIs. We're now taking that to the next level of scale and simplicity. We are extending Kubernetes to manage data infrastructure in addition to its current support of application and containers. And we are delivering the cloud operating model to private and hybrid clouds for both traditional and modern applications. Today, we are announcing a new software service, Pure Fusion, which brings a modern software-defined model to data storage automation, allowing storage and data services to be provisioned, managed and automated across clouds. Delivering this cloud-like agility not only requires smart automation, but it requires the best and most flexible infrastructure to support whatever our customers need. Pure has built its reputation on delivering best-in-class platform since our founding. Our view is that modern data infrastructure requires the most advanced solid-state storage platforms and the most advanced software-defined control layer, namely our simple, powerful and highly scalable Pure Fusion service platform. Storage automation and infrastructure delivery as code is one aspect of the cloud operating model. The other is being able to procure and consume storage services, primarily based on attributes and service level agreements around performance, service classes and tiers, resilience, reliability and of course, actual usage. Pure introduced subscription-based services many years ago with Pure Evergreen. Our technology-based Evergreen subscription forever changed the customers' experience with infrastructure. No more disruptive upgrades or planned downtime, no more refresh cycles with their forklift upgrades and data migrations. Pure Evergreen means just that. After the initial purchase, Pure products will always be new, always leading edge and will never need scheduled downtime. It was the first step to SaaSify enterprise storage. We continue to innovate with our Pure1 management platform using AI to provide critical insight, including virtual machine troubleshooting from anywhere with just a web browser or a smartphone app. We then introduced Pure as-a-Service, which combined our leading storage systems with Cloud Block Store in a unified service subscription, creating a true hybrid cloud experience for traditional applications. Instead of just financial engineering, Pure provides a true service level agreement-based hybrid cloud service, offering customers the flexibility of storing their data wherever they want, whenever they want and only paying for what they use. Today, we are unifying all of our offerings, including Pure Fusion and Portworx under Pure as-a-Service to give our customers a fully unified storage-as-a-service offering that delivers a broad hybrid cloud experience for both traditional and cloud-native applications. With Pure Fusion and Portworx, Pure provides our customers' developer staff a true service experience, a cloud operating model delivered as APIs for both traditional and cloud-native applications. And with Pure as-a-Service, we deliver a true consumption and SLA-based set of all the storage services our customers need for both traditional and modern applications across both private and public clouds. The cloud operating model modernizes operations, but customers need to modernize their applications as well. Companies across all industries are finding new ways of collecting, processing and managing their data and are turning to modern application architectures. The new wave of cloud-native applications built on containers and managed by Kubernetes, now represents 90% of all new application development efforts. These new architectures enable application portability such as on-prem to cloud and between clouds. They also provide agile development with access to open source ecosystems and a more flexible deployment process. Containers and Kubernetes allow our customers to build and run applications that are more scalable and more resilient in less time. Customers building production mission-critical systems on this modern architecture need fast, reliable and robust primary storage that provides enterprise security, reliability and availability and can meet their continuity and disaster recovery standards. These are capabilities in which Pure leads with our Portworx software. Modern applications and cloud-native architectures are a significant growth opportunity for Pure and not just in storage. The shift to cloud-native applications allows Pure to expand in 2 additional and very meaningful ways. It allows us to expand into data services and infrastructure management, and allows us to serve a broader set of decision makers and namely cloud-first developers. Portworx solves for the complex needs of modern application developers. We save developers' time and focus by delivering complex storage services seamlessly and consistently, eliminating concerns about infrastructure details. Even for customers running completely in the cloud, we make the cloud better. With our Portworx enterprise offering, we simplify and accelerate the work of both developers and operators by automating and simplifying enterprise requirements like data protection and security. Portworx Data Services launched this morning represents a significant expansion of how Pure is helping customers build their modern applications. We can now free developers from having to worry about how to deploy other complex data services that their apps require. Customers can now rely on Pure to provide not just the best and most reliable data management and container storage services, but also to provide easy access to useful software platform building blocks. With Portworx Data Services, Pure makes the most popular database and data management applications easily accessible to developers, delivering it to them preconfigured, secured and ready to scale without developers or operators needing to be experts in data management infrastructure. Portworx allows us to expand our access to customers beyond traditional applications. And combined with the full Pure portfolio, Pure delivers to our customers flexibility and consistency to make hybrid or multi-cloud a reality for both traditional and cloud-native applications. Regardless of whether customers are building and running on-prem, in the cloud or across private and public clouds, they need flexibility, automation and agility from their infrastructure. Their developers and their organizations want to move fast. A modern infrastructure is the necessary first step for everything we have discussed today. Too many customers are trying to modernize faster, but are stuck on antiquated, disk-based technologies, delaying their ability to transform. Magnetic hard disk storage still comprises the vast majority of stored data and nearly all unstructured data. Pure is now able to provide customers the benefits of flash often for less than they would spend on disk and with far less labor and waste. Our QLC-based systems beat most hybrid disk arrays on performance, density, reliability and price. QLC makes it possible to deliver up to 10x the performance density and reliability over the disk systems it's replacing. It requires sophisticated software and years of experience to realize these gains in efficiency, cost and reliability. Something only Pure can deliver today. We believe we have a multiyear advantage in delivering price performance, QLC technology. Researchers estimate that by 2025, the world will be generating almost 500 exabytes of data every day, most of it unstructured. Pure is leading the adoption of flash in this high-growth, unstructured data environment with our leading QLC software. And as flash continues its price performance improvements relative to magnetic disk, we believe that more and more private and public data centers will transition to all-flash with Pure. The all-flash data center and Pure Evergreen were 2 of Pure's original visions at our founding. To that, we've now added a simple, unified, fast file and object solution for unstructured data; a cloud operating model for multi-cloud enterprise data services; APIs for developers to access enterprise design storage classes; the provisioning of data services for modern container-based applications; and delivering all of our capabilities as a service level agreement as a service across clouds. Two years ago, we articulated our unifying vision for the modern data experience, one that is designed to deliver fast storage across all use cases, unified across environments and delivering greater simplicity, speed and agility for our customers. And now today, we're delivering on the next step of our journey by expanding the cloud operating model to traditional data storage and providing as-a-service data management across clouds. In a few minutes, Ajay Singh, our Chief Product Officer, will go into more depth on our total addressable market opportunity. As you will see today, we have a great strategy to deliver growth into this $60 billion-plus addressable market. Having started the company focused first on primary storage, we have since paved the path towards the all-flash data center. In the past few years, as we've expanded our portfolio, our addressable market has substantially grown to capture 3 important areas that support our vision. The new, high-growth, unified fast file and object market for unstructured data, delivering a hybrid cloud architecture for traditional and modern applications, and growing our storage subscription and as-a-service models. In each area of our portfolio, we continue to take share from legacy storage companies, while simultaneously extending our platform into modern application use cases, proof that our simple, agile and flexible approach is the fastest way to expand our customer base and grow our business. Our strategy, since our founding, is to focus on doing the right things for our customers and on doing things right. That is true for our environmental, social and governance strategy as it is for our product strategy. This year, we have conducted a materiality assessment and have formalized our ESG plan to focus on the 5 issues you see here. We believe these are the primary ways we can positively impact our customers, our employees, partners and shareholders and the world. Our environmental goals dovetail with our customer-first values. Part of ensuring that our products and services have the lowest total cost of ownership means designing products that use less energy, require less cooling, need less maintenance, take up less space and produce less waste. Reducing our environmental footprint for ourselves and for our customers continues to be a top priority for us. Pure employees, our Puritans, are what enables us to excel. A focused and enterprising culture is critical to our success. With diversity, equity and inclusion as a key focus, we will ensure that we continue to reflect the values and the priorities of all the communities we serve. Our talent recruitment and retention plans have come into sharp focus during the pandemic, and we plan to continue developing the best-in-class support and training that our workforce will need over the long term. Data security and privacy are foundational to our product engineering and corporate quality. We will continue to invest strongly in developing and maintaining leading quality and security standards. And no business can grow without the trust of customers partners, employees, investors and other stakeholders, such as all of you. We will continue to operate with the highest level of ethical business practices to focus on doing the right things and doing things right. We are quite confident that our solutions substantially reduce our customers' environmental footprint. Our formal materiality assessment is complete, and we expect to publish a full report early next year. All of this promises a bright future for Pure. We expect to continue to grow, to take share, to lead our industry in innovation and growth, and to benefit from this growth with increasing profitability. Based upon the size of our market opportunity, our current and future pipeline of products, our planned improvements in operating metrics and our current view of the U.S. and world economy, we expect to grow and increase our profitability for several years to come. Kevan will provide specific, forward-looking, long-term financial goals and new metrics specific to our accelerating subscription business. Our customers' belief in us and in what we do for them to enable them to be faster, more agile and more effective is the reason behind our success and our confidence for the future. Let's hear from one of our customers before we bring Ajay Singh out to tell you more.

My name's Jason Rose, and I'm the Chief Marketing Officer here at Pure Storage. Today, I'm joined by Mike McCullough, the Chief Information Officer for Be The Match. Mike, welcome to our webcast today.

Thank you, and I'm glad to be here.

Tell us a little bit about the work Be The Match does.

So every 3 minutes, someone in America receives the devastating news that they've been diagnosed with a blood cancer. And so Be The Match works with cancer patients and our registry of donors whose stem cell donations may help to save the lives of our patients. We were able to save over 6,600 patients last year. We're also a leading blood cancer research organization with over 200 active studies working with over 5,000 research groups worldwide. Also, over 50% of our patients require a cure from outside of the United States and so we maintain partnerships and data integrations with over 70 countries worldwide.

That's an incredible mission, Mike.

To help eliminate racial disparities in our industry. Also, we're using our bioinformatics expertise to improve our decision support services for physicians, making it easier for them to serve their patients. We also provide support for biotherapy manufacturers whose novel cures such as CAR T-cell therapies are increasingly curing more patients. We're also building integrations with EMRs, such as Epic and Cerner that are going to dramatically grow our registry and will result in exponential growth in the size of the data that we manage. And this, in particular, is really going to test the scalability of our systems.

Wow. I mean it's really amazing to hear the great work you're doing not only for patients now, but for doctors. Can you tell us a little bit about why you chose Pure to help support your work?

Sure. Pure offered everything that I and our engineers needed in a storage infrastructure, specifically Pure's integration with VMware [ is seamless ] and it's really helped us to simplify our environment. Also, complexion in our flash array moves from [ 5 to 1 to 29 to 1 ], which is 5x improvement. Also, I really like that you all are culturally aligned with Be The Match. You have a strategic partner mindset, which I appreciate very much. And you're really driven by innovation, which is enabling us to grow our data services and helps to further our mission of helping patients get the life-saving treatments that they need.

Can you tell us a little bit about how this audience can help join the Be The match mission?

One of the things that you all could do to really help patients in America and worldwide is to join the Be The Match registry. Now specifically, we're targeting people who are 40 years or under as it's been proven that people in that age group help to cure patients more effectively.

I just want to say thank you so much for joining us today, taking the time out from your busy day to speak with us.

You're welcome. And thank you to all of you at Pure for the great service and technology solutions that you've provided Be The Match over these past few years and helping us cure more patients.

Thank you, Charlie, and what a fantastic story from Be The Match. Good morning, good afternoon. My name is Ajay Singh, Pure's Chief Product Officer. Thank you for taking the time out of your day to spend it with us. I am delighted to be here with you to discuss our winning portfolio strategy, to prosecute our expanding TAM opportunity that Charlie outlined in his presentation. At the end of our 30 minutes together, you will conclude that Pure has uniquely differentiated products and solutions to succeed in each of the 4 TAM categories. Our leadership standing, coupled with an exciting product direction and announcements today will give you the confidence that Pure will grow faster than the market across all vectors. During our time together, I will cover the following: why Pure is positioned to succeed, our 4 key growth initiatives, our expanding product portfolio and I will end with a summary of the key takeaways and our optimism for the future. So first, a little bit about myself. I joined about 9 months ago from VMware where I managed the cloud management business unit. As a cloud unit, we spend a lot of time delivering the cloud operating model for our customers, and that comes with a lot of automation to simplify workflows. And I'm really excited about applying that experience to enhance and expand the cloud operating model for Pure's solutions. So why did I join Pure? And why do I think that Pure is a leader today and will continue to be in the future? First, I've always felt that Pure was exceptional at predicting customer needs, taking the first mover advantage and disrupting the industry norm. We were the first to pioneer a design for flash enterprise array and the first to change storage ownership and management experience with the Evergreen model, ending disruptive rip-and-replace upgrades forever. We were also the first to bring SaaS management to storage with Pure1. We were the industry's first 100% NVMe all-flash array with FlashArray//X. And FlashBlade was the first unified fast file and object product for modern applications. We are the first to market and still largely unchallenged with an all-QLC and all-NVMe storage array with FlashArray//C to displace hybrid and disk arrays. And finally, with Portworx, we were the first to introduce enterprise and cloud-native Kubernetes storage. With a lot of industry firsts, you can see why I joined Pure. Second, I'm equally excited to apply my automation background to advance Pure's cloud operating model for an as-a-service portfolio. Only Pure delivers a true, enterprise-class utility with flexible storage consumption, a cloud experience on-premise, an easy path to move data to the cloud at any time, and it all aligns spend with actual consumption. The third reason I joined, I was very impressed with Pure, it's the outstanding team at Pure. Today, our engineering team is comprised of 90% software developers, and we hire the best in the industry. Innovation is at the heart of what we do with the majority of our 1,500-plus patents based on software and cloud. And finally, Pure's superior, software-based technology that underpins our industry disruption. Let me share 4 examples of what our unique software is able to do. First, our unmatched Evergreen architecture and business model is the industry's only data platform that avoids forklift upgrades, both on-prem and as a service. Second, Pure's software-based direct flash modules with the direct to NAND software gives us a 2-plus-year lead against competition that's using SSDs. Third, the simplicity at scale ethos of a single data platform that scales from small to large capacities and performance characteristics. And fourth and finally, the full range of at scale, multi-cloud container storage, data management and data services that is paving the way for real Kubernetes data management. Software is at the heart of it all, and it allows us to lead the market. And I'm not the only one saying this, industry analysts and press applaud Pure's leadership across these dimensions. And we are just getting started. I am elated to share that earlier today, we announced new storage software and data services that enable customers to deliver multi-cloud data services for all applications, Pure Fusion and Portworx Data Services. These are significant announcements in our journey to data services and make a significant leap towards crystallizing our company's vision. Pure Fusion is a foundational storage-as-code building block for traditional applications that enables customers to build and automate their storage clouds, going far beyond the limits of traditional storage clusters to incorporate hundreds of arrays. Fusion provides intelligent workload management for ever-changing application needs as well as an instance catalog and API-based, self-service provisioning. This allows customers, large and small, to fully automate and deliver storage resources as a cloud services to their application and developer teams, accessible through software APIs, presented as a transparent and elastic cloud resource. Nearly one year since the acquisition, we are introducing Portworx Data Services, a cloud-native data services platform for IT to provide and manage data applications as a service with rapid deployment, scaling, management and self-service onboarding for line of business users. Customers can now automatically deploy and manage modern data applications such as Cassandra, Couchbase, Kafka, Elastic, MongoDB and SQL Server with just a few clicks. With Pure Fusion and Portworx Data Services, customers can quickly get up and running with not just storage but also data management applications as a service. This furthers Pure's vision of enabling technology teams to deliver multi-cloud, modern data services for all applications. And this is just the beginning. We have a strong road map of upcoming innovations across the portfolio that deliver the modern data experience, a journey that enables our customers to modernize their infrastructure, modernize their operations and modernize their applications as they make the digital transformation a reality for the organizations. To help our customers modernize the infrastructure, we are mainstreaming unstructured data management with fast file and object storage. We are driving the obsolescence of hybrid and disk with our flash management software IP and investments in QLC and soon, PLC in both the enterprise as well as the SaaS managed service provider and hyperscale markets where we're already seeing good traction. To help our customers modernize their operations, we are automating storage labor by offering more as-a-service SLAs. For example, SLA for next-generation of multilayer ransomware protection that include detection and rapid restore and also offer hybrid and multi-cloud services for traditional and container-based, modern applications. And finally, to help our customers easily deploy modern applications, we continue to invest in container backup as a service, offer more container application data services under Portworx Data Services. We will continue to lead in the use of containers and fast file and object storage for a growing set of modern applications in the areas such as AIML, health care and life sciences, genomics, analytics, to name a few. Next, I will focus on growth initiatives that deliver the modern data experience for our customers. Our focus across 4 growth initiatives enables Pure to participate in a $60 billion-plus fast-growing storage and storage-as-a-service TAM. Across each growth initiative, we have the right strategy and portfolio to lead the market. Our focus across 4 growth initiatives enables Pure to participate in a $60 billion-plus fast-growing storage and storage-as-a-service total available market. Across each growth initiative, we have the right strategy and the portfolio to lead the market. The first initiative focuses on growing the storage subscription and as-a-service model where Pure is the leader with its pioneering SaaS model for storage with true SLA-based service with nondisruptive upgrades. The second initiative focuses on the high-growth, modern application market by delivering a hybrid cloud data architecture for modern applications. Here, our Kubernetes data leadership with Portworx and the newly announced Portworx Data Services along with Pure1 and the newly announced Pure Fusion will enable customers to run and operate storage-as-a-service for modern applications efficiently. Our third initiative focuses on continuing to outgrow the competition in our core all-flash block market where Pure's founding ethos of simplicity at scale has propelled Pure to a leadership position in the Gartner Primary Storage Magic Quadrant. Our fourth initiative continues to drive industry disruption by further expanding flash into historical disk use cases, leveraging our flash software leadership currently with QLC and positions us as a market maker to obsolete disk and take aggressive share in a large and growing market segment. I will walk through each of these 4 growth initiatives and share why we have the best technology and team to outperform a growing TAM. For clarity, when we traditionally talk about our subscription business, it includes Pure as-a-Service with Cloud Block Store, the Evergreen model and Portworx. For this presentation, however, under the first initiative, we will focus on Pure as-a-Service and Evergreen, while Portworx will be included in the second modern applications-focused initiative. Pure is leading in the storage-as-a-service market, and taking share with a 30% growth rate, 3x the growth of the overall market. We are outperforming the market because we are focused on this as a product and technology strategy, not just a financial and professional services construct. We use our Pure1 telemetry and AIOps to deliver true service SLAs. Our Purity software-based API consumption layer, enhanced by today's announcement of Pure Fusion is delivering storage-as-code. And of course, we pioneered the Evergreen architecture that enables nondisruptive upgrades because the cloud operating model service with downtime and disruptive data migration with professional services is a service in name only. And we give customers the flexibility to run a software-defined storage-as-a-service themselves or deliver Pure run-and-managed SLAs for storage-as-a-service. I want to briefly touch upon Evergreen that is the foundation of Pure as-a-Service. Evergreen is much more than just support. In fact, as part of Evergreen, we deliver capabilities on our customer premises similar to what a hyperscale cloud delivers in their data centers. Evergreen is a subscription to continually improve technology and seamlessly deliver new software and hardware capabilities. This evolution and expansion path means that arrays have a multigenerational lifespan and never have to be replaced. Evergreen means never having to plan another data migration or downtime. Customers no longer have to do forklift upgrades or do refreshes to plan for. And thus, we don't give competitors rebid opportunities. Evergreen means arrays and storage capacity grows, but subscription costs won't. Improvements in software, flash and CPU technology means only Pure can offer Evergreen at flat and fair pricing. And finally, Evergreen is sticky because arrays are never replaced and all technologies improved nondisruptively. It drives customer satisfaction, retention and expansion. So Evergreen is the foundation for Pure as-a-Service, nondisruptive service changes, new software delivery and hardware updates and expansions, all critical elements for a true as-a-service experience. Evergreen is what enables Pure as-a-Service. You can't build a true storage service without it. And so Evergreen architecture, along with automated actions driven by AIOps, cloud workload mobility with Cloud Block Store and site reliability engineering is the unique technology basis that differentiates us in our ability to deliver true, ironclad, outcome-focused SLAs versus a competition that delivers a CapEx to OpEx repackage financial construct with professional services and a slick web portal. The second initiative focuses on delivering a hybrid cloud architecture and advancing in the high-growth space of cloud-native applications. With Portworx, we are the leader in the enterprise container data space, providing customers a secure solution to both their primary container storage needs as well as their critical data workflows like backup, disaster recovery and migration. Our Kubernetes data leadership is underscored by a first-mover advantage, and ability to securely run and deploy containers at scale in large enterprises on any Kubernetes, any infrastructure, both on-premise as well as in cloud or across clouds as well as for any stage of development. Today's Portworx Data Services announcement creates another first-mover advantage as we expand up-stack to help IT provide and manage data as a service with rapid deployment, scaling, management and self-service onboarding for line of business users. Industry analysts at GigaOm recognizes leadership and ranks Pure and Portworx as both the #1 cloud-native and enterprise Kubernetes storage platform. With Portworx and Portworx Data Services, we are the only vendor with a trifecta of storage infrastructure, data management and data services required to win. Portworx along with Pure Cloud Block Store allow us to help customers make hybrid cloud real and run and deploy both traditional and cloud-native apps on-premise and in cloud with the same processes and operations. With Pure Fusion, we are extending the cloud operating model one step further by automating the delivery of all our storage offerings with the Kubernetes-delivered control plane. Pure Fusion allows customers to manage storage at scale and design and deliver storage internally defined by performance SLAs, data protection policies and deployments in regions and AZs rather than a particular piece of hardware. In short, it allows customers to design and deliver their internal storage cloud services. With Pure Fusion and Portworx Data Services, we are extending our leadership position in delivering the cloud operating model and enabling cloud-native applications, empowering customers to run and operate storage-as-a-service for both traditional and modern applications. Our third initiative focuses on continuing to outgrow the competition in the core all-flash block market, where Pure's founding mission and passion around simplicity at scale has placed Pure as a Magic Quadrant leader for 7 years in a row. Delivering simplicity is not a simple task. It requires ruthless focus and dedication. Our founder, Coz, recognize the need and opportunity for Pure to lead with simplicity and deliver an iPhone-like experience, asking his then 7-year-old son to install Pure arrays armed with only our user manual, which fit on a business card. We will continue to lead with simplicity at scale and a highly differentiated customer experience as we add additional enterprise and service provider features and capabilities, giving us the confidence that we will continue to outgrow the competition in the core all-flash market. For the fourth initiative, in the next 3 years, we see a tremendous growth opportunity for Pure as flash economics, coupled with the growth in unstructured data, disrupt the current hybrid and hard disk markets. This chart, by analyst firm Wikibon, shows the crossover point of hard disk versus solid-state drive in the year 2026. Pure's all-flash arrays are already in the crossover zone versus hybrid and disk-based arrays, eclipsing our competition by 2-plus years. Pure's 2-plus year advantage stem from 3 technology differentiators, our leadership with direct to NAND software; our integrated hardware, software, direct flash modules; and our data reduction capabilities. Because of a highly sophisticated flash management software and using far less NAND, we can drive significant efficiency advantages over SSDs by eliminating overprovisioning and extending endurance. Our differentiated software, combined with our custom-built flash modules allows us to build far denser systems than disk or flash competitors, resulting in far lower finished systems costs. And lastly, our industry-leading data reduction technology provides even greater economic savings. These advantages are clear in the enterprise, but they are stocker in the hyperscale and large SaaS environments. The combination of cost savings, operational savings from not replacing hundreds of [ disk array ] and the footprint and power and cooling savings is opening up new storage opportunity for Pure at SaaS companies as well as at hyperscalers. The economics we can deliver are one driver for flash-displacing disk, the other is the growth in unstructured data. By bringing the benefits of performance, capacity, density and more of flash to bear, we are enabling modern unstructured data use cases that were not possible in the past. These modern unstructured data workloads include AIML, genomics, IoT, self-driving vehicles and analytics, and are some of the largest generators of data that require not just performance and scale, but dozens of applications working with the data along the way as it is collected, indexed, processed and analyzed. It requires unifying unstructured data access as we have in FlashBlade across file and object protocols, across I/O types, across application demands. FlashBlade, combined with our multiyear advantage in flash technology and our leadership with Portworx, puts Pure in a unique position to win at that explosive confluence of unstructured data and modern applications. I will next talk about where we are headed as a product portfolio in service of Pure's vision of enabling technology teams to deliver multi-cloud, modern data services for all applications. As such, products in the portfolio are designed to reinforce each other in customer solutions ranging from the combination of modern applications and nonstructured data to ransomware protection that needs rapid as well as archival storage. In fact, over the last year, the deals with multiple products sold increased from 10% to 30%. I fully expect this number to go up as there are many reasons we win as a portfolio. In fact, the top 7 reasons why we win as a portfolio are driven by the customers' journey to a modern data experience as they modernize the infrastructure, modernize their operation and modernize their applications, underpinned by our portfolio. We are in the best position to help customers modernize their infrastructure with our product portfolio of flash products. Covering the entire range of price performance needs, we can bring the benefit of flash to all tiers of workloads and performance across all market segments, from commercial to enterprise to SaaS and MSP to hyperscaler. There are a few places left for disk to hide in the future. We have made it possible for customers to modernize their operations across the entire portfolio to embrace the cloud operating model. Customers can choose from CapEx to OpEx consumption, choose to customize and run their storage-as-a-service or have Pure run and manage them and have the flexibility to run on-premises or in the cloud. And thirdly, we have the most powerful portfolio to enable customers modern applications, whether it's meeting the needs of modern unstructured data applications or with more robust and complete offerings to support container-based, cloud-native applications. We continue to power some of the most modern software initiatives. And with the recent announcements of Pure Fusion and Portworx Data Services, you can see how we are evolving the product portfolio and our ecosystem of alliances up-stack from storage infrastructure to multi-cloud data services for traditional and modern applications. This furthers Pure's vision of enabling technology teams to deliver multi-cloud, modern data services for all applications. In closing, I hope you share my excitement for Pure's differentiated leadership and bright future and follow our journey as we continue to innovate across our portfolio of products, solutions and services, leveraging the cloud operating model to outperform and capture the $60-plus billion TAM opportunity. We will now take a 10-minute break. And when we reconvene, you will hear from our Chief Revenue Officer, Dominick Delfino, about how our go-to-market team is blazing a trail to help customers on their modern data transformation journey. [Break]

I'm Dominick Delfino, Chief Revenue Officer at Pure. Today, I'm honored to speak with Adobe's Chief Information Officer, Cynthia Stoddard, about the role of data and innovation in making Adobe Experience Cloud the success that it is. Thank you for joining me for Pure's Financial Analyst Day, Cynthia.

Thank you for having me.

So we all know and love Adobe, but can you share a little bit about Adobe Experience Cloud?

Absolutely. We launched Adobe Experience Cloud in 2012 to provide online marketing tools and analytics capabilities. Today, it's grown to a platform of more than 15 applications that help organizations worldwide.

Well, Adobe became a Pure customer in 2018, if -- we've expanded the relationship dramatically. What are some of the key differentiators Pure provides that are important to Adobe?

Well, how much time do we have? I would say the first thing refers to speed, execution from order placement to production. And you might say, hey, is that really important? Yes, it is. Because getting the product very quickly into a data center and available for services is absolutely important. Pure ships products quickly. And the hardware is very, very simple to deploy. The other point that I would say is really scale, uptime and availability. The reliability is key. So if we operate 24/7 in a cloud-based environment, services have to be up. Ease of use continues to be a great point for Pure at Adobe. We have a very large fleet that we manage, and we use the native APIs on the hardware along with your Pure1 tool. Performance, pricing, hardware efficiency, I would put on the list. And if you look at upgrades and entitlements, the Evergreen program that you have is an absolute must. We have a huge amount of data, and it's only going to grow with the AI and the analytics that we're doing. We have confidence that Pure can scale to meet the needs of Adobe's business. And the last thing I'll mention really is culture and partnership. You're very easy to work with. You've been an excellent partner. And you're committed to innovation.

Well, thank you, Cynthia. As Adobe continues to evolve its business, what are the big bets or big blockers for you as the CIO? And how do you overcome those blockers or challenges?

Yes. So I would say on the bets, it's really about the data, the data and the insights, so data services and making data work for you and for your customers. Also, I would put in that bucket, AI, getting more detail, more scenario planning, making the data requirements explode in this space because the more data that you get and you analyze, the more that you want to do with it. Analytics makes our offerings sticky, but they also have to be timely, relevant and comprehensive, which again goes back to uptime, reliability and scale. The other area you mentioned is blockers. I would say that the blockers is really getting past the idea of disruptive technology and getting that into the hands of our engineers. Things like your Evergreen subscription that I mentioned before makes this possible and easy. And then also the partnership that we have with you to help our team with the technology as we unfold the new capabilities is great.

Thank you for being here today to share your story with our investors.

And thank you.

That was a fantastic discussion with Cynthia Stoddard at Adobe. I want to thank her again for her time, sharing Adobe's story on their technology journey with Pure. They are true trailblazers in the as-a-service space. You've heard from both Charlie and Ajay, and I'm going to share how go-to-market is capitalizing on the massive TAM opportunity and how Pure will continue to take market share. I'm Dominick Delfino, Chief Revenue Officer here at Pure Storage. Let's get started. I joined Pure a little over 10 months ago, and I wanted to share why I chose Pure. First, we have a respected and trusted executive leadership team, including their deep expertise. Pure's disruptive technology and consumption model, its simplicity and ease of use, leading the industry in at -- storage-as-a-service or modern customer experience, data experience and business experience. All the same reasons our customers choose Pure. So what's the opportunity in front of us? We know that data is the only thing guaranteed to grow into perpetuity. The massive market opportunity for data is ripe for disruption. Legacy incumbents hold the bulk of the share, and have very little incentive to change how they serve their customers, both technologically and financially. Customers move from feeling trapped to a customer-first, open, flexible, modern data experience. Pure1 is the first-to-market, SaaS-based data management platform delivered as part of our Evergreen subscription. Our Evergreen subscription delivers multigenerational modernization and innovation. A flexible consumption model that does not require a cloud migration to gain a modern data experience. Customers have been asking for this for years. Regardless of the market growth rate, the TAM is massive. As we discussed earlier today, we will continue to expand our TAM and take share across the portfolio, along with the announcement of Portworx Data Services and a new level of innovation with Pure Fusion. Ransomware attacks have grown 110% year-over-year in the first half of this year alone. This is an IT challenge, a line of business challenge, a CISO challenge, a CEO challenge and a Board of Directors challenge. Pure, in conjunction with our technology alliance partners, are addressing this with SafeMode immutable snapshots and our rapid restore technology. Kubernetes and cloud-native applications are not addressed properly through our competitors' legacy offerings, where Portworx continues to be a leading solution in this market segment delivering modern data services natively to Kubernetes and cloud-native applications. Now let's turn to our sales efficiency and operating rigor philosophies. Within the global sales organization, we have 4 key priorities: top line growth, bottom line profitability, subscription growth and taking share with all parts of our portfolio. We've undertaken significant initiatives to grow our business profitably while reducing our cost of sales. We have a customer-centric approach to optimizing our go-to-market operational model. We have completely revamped all of our compensation plans at the beginning of the fiscal year to align our incentives to our key priorities, including Pure as-a-Service and subscription revenue. We are driving significantly broader participation from our sales force. We've aligned our channel partner programs to continue our channel source momentum and empower our partners' businesses. And we are seeing significant improvements through the first half of this year in expense to revenue, sales participation, productivity, subscription growth, cost of commissions, portfolio expansion, net new logo acquisition and the quality of diverse talent we are attracting. These continual improvements will allow us to scale our business in conjunction with our channel partners for years to come. Our global partner program is world-class, and we continue to invest. Our Pure Rewards program continues to be best of breed. 90% of all of our transactions received a reward with a heavy focus towards net new logos. Many of our competitors claim to be channel-friendly or try to leverage the channel when it's convenient for them. In fact, a few are scaling back on their investments and are now competing with their partners and taking business direct. We at Pure remain committed to 100% route to market through our channel partners, and we will not compete with our partners. Our modern data solutions are classified by accelerated applications, cloud-native agility, artificial intelligence and machine learning and analytics and data science. Let's talk about how our storage and data management platform helps organizations to deliver simplicity and scale for accelerated applications. Starting with Portworx. This is a critical element of our cloud-native and hybrid cloud strategy. Early benefits that we are recognizing in go-to-market is we're expanding buyer opportunities in customer personas, inclusive of infrastructure and dev ops organizations. Portworx delivers the same simplicity for modern applications in Kubernetes helping customers to automate, protect and secure data across all cloud-native applications, regardless of the infrastructure or cloud they're running on. As Charlie and Ajay discussed, Evergreen goes well beyond support. It's truly a first step to SaaSifying enterprise storage. It is what led to Pure as-a-Service. This offer also creates stickiness and a critical part of the sales cycle. Our product is always new. There are no refreshes. Why do our customers love Evergreen? Unlike our competitors, there's no increased maintenance pricing at the end of the depreciation cycles. Our customers appreciate our flat and fair pricing strategy. There are no storage refreshes planned outages or data migrations, which can take up to a year to complete. No lift and shift forklift upgrades, it's nondisruptive, all inclusive. Evergreen is an ongoing subscription to innovation rather than a contract to obsolescence. And that is why greater than 97% of our arrays are still in use after 6-plus years of production usage. Finally, Pure as-a-Service, leveraging all of our Evergreen architecture, unlike our competitors is not a financially engineered lease. This helps our customers shift the burden of operating a data environment, allowing them to refocus their resources on achieving critical business objectives. Paying for what you use, not what you might use in 3 to 5 years is an attractive key value proposition for our customer and a key lever for Pure's growth. Transitioning to cloud-native is a huge financial burden and investment of time due to the refactoring of applications and complexity of data migration. Customers are choosing a hybrid strategy of both private and public clouds to support both their legacy and modern applications. It's not a one size fits all. As I noted earlier, data is the only thing growing into perpetuity. Companies want to protect their data and know where it is. Portworx delivers the same simplicity for modern applications and Kubernetes, helping customers to automate, protect and secure data across all cloud-native applications regardless of the infrastructure or cloud that they are running on. When we talk about data-driven workloads, we see 4 key areas that interest our customers: artificial intelligence and machine learning, modern analytics, data science and security. Let's start with AI and ML. A workload previously dominated by big tech but leverage of AIML is becoming more and more mainstream as organizations look to enhance business operations and customer experiences. This is a very exciting opportunity for us, and we are seeing double-digit growth in AIML as customers turn to Pure for their next-gen pipelines to power autonomous driving, smart manufacturing and semiconductor design and manufacturing. The biggest brands in the world chose Pure for AIML because of our continued innovation in delivering massively parallel performance and simplicity. Real-time analytics. In modern analytics, we are seeing massive growth in core verticals like financial services, telecommunications and government services as well as in horizontal markets. Pure's integrated solutions deliver speed and simplicity for key verticals, such as health care and genomics, chip design, manufacturers of autonomous driving systems, space exploration, telcos providing 5G services as well as banking and financial institutions. Moving on to data science. Our success in AIML and modern analytics have provided for some valuable introductions to data science teams who are constantly looking to drive increased performance and simplicity to their environments. Data science teams and financial services have invested heavily in Pure, but we're also tapping into other departments you might not expect. For instance, Pure's sales and marketing designs next-gen lead scoring algorithms on our own portfolio. We're enabling our sales teams to attack the best leads faster and beat our competition to the punch. Turning to security. As we push more into the analytics and AI space, another area where we're being asked to consult is with security teams, up to and including the CECL. This is because our portfolio is a tailored fit for accelerating security and incident event management analysis by companies like Splunk and Elastic. It's also because of our industry-leading SafeMode snapshots. These provide immutable copies of data to ensure a customer can recover in the event of a ransomware attack. That's critical today since hundreds of local government agencies, police stations and hospitals have been affected by ransomware attacks. With SafeMode, Pure is helping businesses, government agencies and schools around the world have greater peace of mind, that customer, employee and intellectual property is preserved. We continue to see customers replacing mechanical disk with a more reliable, environmentally friendly, Pure all-flash data center. This will continue to be a growth driver of our FlashArray//C business. FlashArray//C delivers a new precedent in modern data center economics displacing legacy or hybrid disk. I want to leave you with Pure as a different kind of company. Customers are looking for a new, more efficient, customer-focused data management partner, and we deliver on this through our products and our solutions. We are confident this will allow us to continue to grow and scale in the years to come. In closing, we continue to penetrate large enterprises, SaaS companies and telcos, including international growth. Today, we're in 50% of the Fortune 500 companies, and we have the opportunity to penetrate further into these accounts. The loyalty of our customers is reflected in their significant sequential buying patterns. Our Evergreen, PaaS and Pure1 subscription philosophy is transforming the life cycle of technology, data and how our customers operationalize their intellectual property assets. We are much easier to do business with and have the best customer experience, not only in data, not only in all of technology but in B2B as a whole. Customers will continue to vote with their dollars spent, and that is reflected in our NPS score. Finally, we deliver a modern consumption experience to our customers, inclusive of our channel partners, and we don't compete with them. I'm excited for the future here at Pure. I want to thank you for your time today and look forward to answering your questions during the Q&A session. Before I hand it over to our Chief Financial Officer, Kevan Krysler, I'd like you to hear from one of our customers, Options Technology, the #1 provider of IT infrastructure to global capital markets firms who talk about their modern data experiences with Portworx and Pure as-a-Service.

I'm James Laming, Global Head of Infrastructure for Options Technology.

And I'm Mike Russo, I'm the VP of Product for Managed Applications for Options Technology.

In the financial workspace, you live and die by security. Just the table stakes to go into a bank and work with them on their business, you have to have almost a -- well, a perfect record. You have to have the credentials and you have to have the security end-to-end, the accreditations. And not very many firms actually have anywhere close to these sort of accreditations that we've built up over time. A really interesting part is we've got our SOC3, which is an absolutely amazing thing to have. And to do that, you really do have to have a fantastic end-to-end solution, a really strong security focus as a firm. And for that, we've very much relied on working with Pure around all the services such as encryption and rest encryption and transit.

So data has a huge, huge impact on [ our accumulated ] speed, which data can we store at speed, which data can be accessed is literally game-changing. Partnering with Pure and the performance that it brings to our platform, it really has given us a competitive edge and allows us to continue to bring cutting-edge technology [ to the financial services industry ].

So we're currently supporting pretty much every workload type known to humanity on our platform. If you were to look at what is our main backbone, we have over 20 X series globally. We're using C series for archive. We have FlashBlade for high-performance S3 and NFS. And we've also got an implementation of Portworx as well, which we're currently rolling through for Kubernetes-esque environments. There's a huge amount of functionality that you pick up with Portworx. You have, obviously, the security layer where you can bring security right into the containers themselves. It is the ability to have consistency across multiple data centers for HA and DR. And it's the ability to actually apply compliance to containers, which is ultimately something that containers have been lacking for quite an amount of time.

As far as the scale on how quickly we've grown the partnership with Pure and the way the technology is deployed also allows us to become ultracompetitive in -- specifically in the storage space, so different solutions that you can think of, so storage-as-a-service, DR as a service, et cetera, especially in the managed application world, not only in the performance but the price point that we're able to bring to the market has enabled us to be more competitive than we've been today.

It is great to hear from the Options Technology team, how Pure's end-to-end solution has been integral for Options Technology to deliver cloud-enabled managed services to their customers transforming the financial sector. Well, it's great to be here with all of you today. We are so excited with the opportunity in front of us. I appreciate Charlie, Ajay and Dominick's thoughts today, which provided valuable insights into our strategy, market opportunity and multiple revenue growth drivers from a solutions and go-to-market lens. Before getting into our discussion of our longer-term outlook, I want to confirm our Q3 guidance that we shared in August, expecting total revenue to grow 29% year-over-year and non-GAAP operating profit of $40 million. Our momentum continues to take shape as reflected by the strength of our financial results and our annual outlook for fiscal 2022, which we also provided in August and are again confirming today. We expect to achieve over $2 billion in revenues with all key elements of our portfolio and go-to-market engine contributing while continuing to see improving operating leverage primarily from sales efficiencies that Dominick previously discussed. During the remainder of my discussion with you today, I will spend time focusing on our accelerating subscription business, including introducing some new metrics we believe will be helpful for you to evaluate and measure our subscription business. We will then transition to a discussion of how we are thinking about the combination of Pure's revenue growth and free cash flow margin within the context of the Rule of 40 framework. Lastly, I will share our views on capital allocation and stock-based compensation. Now let's move into a deeper discussion of our growing subscription services that includes Evergreen subscription, our unified subscription of Pure as-a-Service including Pure Cloud Block Store and Portworx. We are very excited with both the strong performance and future opportunity for our comprehensive subscription business. Today, we are introducing 2 key business metrics that I believe will be helpful in evaluating and measuring our subscription business: annual recurring revenue and net dollar retention. Annual recurring revenue is the first new business metric that we calculate using the annualized value of all active subscription agreements as of the last day of the quarter, plus the annualized amount of the most recent quarter of on-demand consumption. We believe this metric, along with the remaining performance obligation metric that we already provide, are leading indicators that will provide you with a longer-term view of our subscription business. We plan on providing the subscription ARR metric on a quarterly basis. We are also introducing subscription net dollar retention or NDR. This is a business metric we will provide annually, and shares a view of our subscription growth that we expect to be derived from our existing customers. A large part of our success as a company is our culture and focus on providing a high level of attention and care for our existing customers. That is evidenced by our customer Net Promoter Score that consistently tracks above 80. As such, we expect that our existing customers will be a significant driver of growth in our subscription services business. Now taking these new business metrics, let's apply them to our subscription services business and share some forward-looking views on this business. Over the last year or so, we talked about the strength of our subscription business, which is reflected by exiting our most recent Q2 at an ARR of $728 million, growing 30% year-over-year. This strength was primarily driven by renewals of our Evergreen subscriptions, increasing sales of Pure as-a-Service and early traction of our Portworx subscriptions. We believe our subscription business will continue to be a strong driver of growth and profitability as we look out to fiscal '25. Let's take a deeper look at our forward-looking views, specific to our subscription business. We expect all aspects of our subscription business will drive growth and our unified Pure as-a-Service and Portworx offerings will grow at a significantly faster rate than our Evergreen subscription business, which is already operating at scale. All together, we expect that our subscription ARR 3-year CAGR through fiscal '25 will be over 30%, and our gross margins will improve beyond 70%. We also expect that a large portion of our subscription business growth will be derived by our existing customers as reflected by our forward-looking view of average net dollar retention from fiscal '23 through fiscal '25 of 115%. With the strong growth, we expect our subscription business, which currently represents approximately 1/3 of our total revenues, to represent over 50% of total revenues by early fiscal 2025. You may have noticed that each of our executive team members have spoken about the significant value our customers continue to receive through our Evergreen subscription services, which we began offering more than 7 years ago. Our Evergreen subscription includes many attributes that are similar or even better than a cloud operating model. This includes our ability to modernize our customers' products using a software-centric architecture, so our customers never need to worry about their investments becoming obsolete. Like a cloud service, Evergreen ensures continuous service, which is always improving. Illustrating how attributes of our Evergreen subscription are similar to a cloud service may be helpful. As you can see on this real-life customer example, this customer purchased our FlashArray product 6 years ago, and the product included an early version of our Purity software and hardware that included standard SSDs. As we continued to innovate, this customer did not need to purchase a new version of our product, but was entitled to all of our new features and capabilities delivered as part of their Evergreen subscription. So in this example, in year 6 and leveraging our Evergreen subscription service, our customer continues to have new product. This new product runs on our Purity 6.1 software and hardware upgrades that includes multiple generations of newer processors, faster networking and transitioning to 100% NVMe direct flash modules, leveraging our software that directly integrates with NAND. This customer example is just one of the many Pure customers that have been able to benefit from the Evergreen subscription model we pioneered. Our Evergreen subscription has significantly improved productivity for our customers and protected the value of their investment. Further similarities between our Evergreen subscription and the cloud service include predictive capabilities for the majority of our services. This means that we identify enhancements or possible software corrections before they're detected by our customers. And customers also have the ability to optimize and consolidate their workloads across their Pure infrastructure. A key benefit of our Evergreen subscription for our customers that goes well beyond a cloud operating model is our commitment that the value we charge for our subscription will be flat and fair compared to their original purchase. The benefits to the environment are also significant as our Evergreen subscription services significantly reduce electronic waste since our customers do not need to replace their infrastructure in order to take advantage of the innovations that occur after their initial investment. Bottom line, the value we create for our customers through our Evergreen subscription is why we believe over 97% of the arrays purchased over 6 years ago by our customers are still in use. Now using all of the architecture and software capabilities included in our Evergreen subscription, we have extended our subscription offerings through Pure as-a-Service, which provides a complete cloud operating model for our customers. Customers can choose to consume our technology through service level agreements with guaranteed performance. Customers utilizing our unified Pure as-a-Service offering can continue to be in control of their data, leveraging all of our leading features and capabilities while enjoying a very compelling total cost of ownership. With Cloud Block Store included in our Pure as-a-Service offering, customers have the flexibility to extend workloads to both AWS and Azure. And finally, all of our executives today have talked about how enterprises are embracing containers as a platform for their new modern applications. And Portworx is a software leader for providing container-based storage and data management. We expect our Portworx subscription offering to continue to ramp significantly and will represent a long-term significant driver to our top line subscription growth and gross margin improvement beyond 70%. I hope our collective discussion today about our subscription services business has been helpful in providing you with a more comprehensive understanding of our commitment to provide our customers with a cloud operating model wherever they choose to run their workloads. Our conviction of our forward-looking expectations for our subscription business is based on several factors: our innovative, differentiated and growing Evergreen subscription business that is running at scale, substantial growth of our unified Pure as-a-Service offerings that is meaningful to our top line and our significant ramp of our Portworx subscription, although at a small order of magnitude currently. As we wrap up the discussion on our subscription business, I would like to briefly share some thoughts around valuation considerations for our subscription business. Today, over 1/3 of our revenue is derived from our subscription services, generating approximately 70% margins. We also expect a 3-year CAGR from fiscal '22 through fiscal '25 of our subscription business will grow over 30% and represent over 50% of our total revenue early in fiscal 2025. When comparing the financial attributes and growth expectations of our subscription business against software-as-a-service companies with similar financial attributes, the revenue multiples of these comparable companies have an average 23x revenue multiple. We see this as a substantial opportunity for Pure. Okay. Now let's bring it back to a discussion of our broader growth opportunity as a company. Ajay walked through our substantial TAM opportunity growing double digits across 4 diversified pillars. Dom also highlighted our sizable TAM and growth as part of his conviction of the opportunity we have in front of us. With our commitment to leading innovation and disruption, we expect that we will continue to both expand our addressable market opportunities while also gaining market share. So how does this translate to our expectations of long-term revenue growth, including expected growth of our subscription business? Well, given our focus on revenue growth, prioritization of our subscription business and driving operating efficiencies within Pure, we believe it is appropriate to distill our long-term operating performance view into one number within the Rule of 40 framework. The Rule of 40 framework simply considers the combination of revenue growth and free cash flow margin. We have stated on many occasions that we view ourselves more like a software company, delivering integrated solutions for our customers that are simple, reliable and highly performant, and closely integrating our software IP with our hardware. This is the reason why our gross margins are more similar to that of a software-as-a-services company. We also believe that using a Rule of 40 framework will allow us to align reasonable revenue growth targets based on what is organically achievable to a cost structure that is prioritized against those growth drivers. So what does our expected path towards the Rule of 40 look like? Well, as you can see in our current fiscal year, we expect to improve beyond what we achieved during the pre-COVID environment of fiscal 2020. As we exit our current fiscal year, we expect to continue to make progress towards the rule of 40, achieving between 35 and 40 in fiscal 2025. We remain committed to prioritizing total revenue growth, including growth of our subscription business. We also expect to see continued improvement in our free cash flow margin, which includes increasing our operating margin. We are expecting to achieve operating margins in the low to mid-teens by fiscal 2024 based on several considerations, including our initiatives to improve automation throughout the organization, improving subscription services gross margin beyond 70% and optimizing go-to-market research and development spend. I really appreciate Dominick's focus on optimizing go-to-market investments. And we are already benefiting from some of those initiatives that Dominick and his team have put in place. Ajay is also focused on driving efficiencies with engineering, which includes expanding our global talent of engineers. Now let me spend a little bit of time on how we're thinking about capital allocation. Growing our business continues to be our top priority. So you'll see us continuing to invest organically in value creation, including software innovation and our subscription business. Our path to the Rule of 40 that I discussed earlier will focus on aligning our investments to core revenue and growth drivers, including consideration of potential inorganic investments. Our financial management discipline will also focus on cost savings opportunities, which includes increasing productivity across our organization and will include continued investment in automation. We currently have a share buyback program in place and are committed to returning at least 50% of our annual free cash flow in the form of share buybacks to our shareholders. As we look at stock-based compensation, our stock-based compensation strategy has been very effective in attracting and retaining world-class talent, including our software engineering talent. We recognize that as we continue to scale our organization, which includes increasing profitability, it is prudent for us to also commit to reducing our stock-based compensation as a percentage of revenue each year beginning in fiscal 2023. We believe this can be accomplished while continuing to attract and retain world-class talent through comprehensive compensation design and expanding our global talent. As I wrap up my discussion, I wanted to thank you for taking the time today to hear our exciting story. I hope we provided a deeper perspective and understanding of our business and our outsized opportunity to continue creating value for our customers and our shareholders. Let me close with the 5 major themes Charlie highlighted in his discussion. First, Pure is in a large and growing market and taking share. Second, we are considered a best-of-breed vendor leading innovation. Third, we expect our subscription services to grow with a 3-year CAGR through fiscal 2025 exceeding 30% powered by our cloud service offerings, including our Evergreen subscription, our unified Pure as-a-Service offering and Portworx. Fourth, our revenue growth drivers include expansion into enterprise, cloud and even hyperscaler customers. And lastly, number five, we have established a financial profile where we expect to grow revenue and profitability, achieving between 35 and 40 using the Rule of 40 framework in fiscal 2025. With that, I will turn it over to Rena Fallstrom, VP of Communications, to facilitate the Q&A session. Rena?

Thank you, Kevan. That was a great presentation. As Kevan shared, we're now transitioning to our 30-minute Q&A session. Welcome back team. Also joining us are CTO Rob Lee and Prakash Darji, VP and GM of our Digital Experience Business Unit. Let's get to the questions. Our first question comes from Jason Ader from William Blair.

Nice job, everyone. This is for Charlie. Charlie, when you look at Pure's business today versus when you joined about 4 years ago, what in your mind are the big changes that have taken place that position you well for the future?

Oh, my gosh, Jason, so many. First, when I joined, we were a one product company that had really just introduced our second product, the first product in the file space. What stayed the same was that we had that beautiful Evergreen program and the simplicity model that really continues to differentiate us as well as the ability to constantly upgrade our products without disruption to our customers as well as the great Net Promoter Score. But since that time, we now have over a half-dozen products. We're expanding into the secondary tier of storage. We have added the Pure as-a-Service capability, which we innovated soon after I came on board with the first as a service model from a B2B infrastructure provider. And since that time as well as you now see, for the first time, we're creating a set of services that really allow the operator, our customers as operators and delivery vehicles for data storage and management to do so with a cloud operating model to their developers. And I think for many of those on the call, they may not realize just how difficult it was for developers inside the enterprise to be able to get enterprise services when it consisted of data and data services. And now we're going to enable our IT customers to really be heroes with their developer customers by providing data services that meet the full set of compliance and operational capabilities that they need to run as a company, but now they'll be able to deliver it as code to their developers. So it's been a very exciting journey. One other thing I'll mention is that when I joined just 4 years ago, we were largely a commercial sales operation. We sold into the mid-market. We had some enterprise customers, but frankly, we sold to them as if they were commercial customers as well. And our foothold in enterprise was just beginning. And now we are considered by enterprises to be a highly reliable, extraordinarily proficient provider of data management, data storage services. So our reputation within enterprise has gone from very small to now leading edge as probably the sole best-of-breed provider of storage.

Can I ask a quick follow-up, and it's really just related to this cloud is good, on-prem is bad debate. Based on your conversations with investors, do you think there's a disconnect between perception and reality when it comes to this debate? And if so, how can you convince investors that the hybrid model is here to stay and it's not an either/or?

Well, I clearly and we clearly do believe there is a disconnect. And the disconnect is really between investors and the actual customers that we sell into. We're selling into the most leading-edge customers. And they're the most leading-edge customers even with cloud. But what they've learned is that there's a balance between what they need to continue to do on-prem and what they need to do in the cloud. So I don't know that I can convince investors. Investors should start talking to the big companies and the users because they are the ones that will convince them. The fact of the matter is that, as you can see, our market not only continues but continues to expand. I think the big difference is when they speak to developers. Developers complement how easy it is to get infrastructure from a cloud because either through a GUI or through some code they're able to modify and construct infrastructure that their developer needs. But as operators of production workloads, IT departments need more than that. And first of all, they need to be able to provide services that meet all their corporate needs. Secondly, though, they now need to provide their developers with that same ease of access. And that's what we announced earlier today with Pure Fusion and Portworx Data Services. Our customers can now, as I said, be heroes. They can actually provide their developers with that same ease-of-use cloud operating model so that their developers now can simply get access to those highly customized data services through code.

Great. Thank you, Jason. Great to see you. Our next question comes from Simon Leopold of Raymond James.

Great. Appreciate you doing this. What I'm looking for is perhaps if you could bridge the TAM growth with the objective you've talked about in terms of the Rule of 40. So if we look at what you presented in the TAM, it's roughly 14% CAGR, which gets us in calendar '24 to roughly $2.9 billion in sales based on what we know you did in calendar '20. Yet, the Rule of 40 implies stronger revenue growth given what you've talked about in operating margin. Could you help me bridge those 2 metrics?

Kevan, will you take that one?

Yes. Maybe, Ajay, do you want to take the TAM first and then we'll go bridge to the Rule of 40. I think that's a good start.

Sure. So when we talked about the TAM growth, yes, it's true that overall on average, the TAM is actually growing at 14-plus percent. But if you recall, the conversation is around our leadership in all 4 segments. So our view is that we will disproportionately gain share starting with the block store segment, through our leadership with Kubernetes in the hybrid cloud segment, through our leadership with QLC in kind of taking share away from hard disk as well as taking share away from hybrid as well as, of course, our leadership with Pure as-a-Service being true outcome-oriented SLAs. So that's the heart of the thesis saying we've got a leadership position. We're going to outgrow the TAM.

And then let's build that into the Rule of 40 framework. And again, you've got 3 primary components, right? So you've got the 30% 3-year CAGR that we've talked about with our subscription business, then how does that work into our focus on growing top line revenue as a company as well as increasing profitability. And so when we blend the 3 together, and as a reminder, we're looking to also accelerate the amount of subscription revenues. So currently, we're about 1/3 of our revenue is recurring revenue, subscription revenue. We want to get that over 50%. And so you've got an element there that we were considering as well in the Rule of 40. So again, strong subscription growth of over 30%. And then the fact that we're looking to get between 35 and 40 in FY '25 really does consider other growth factors in addition to subscription that Ajay, Charlie and Dom have talked about as well as increasing our operating leverage. So I think it's a nice balance in terms of how we're looking at it.

Appreciate that. And then just as a quick follow-up, I think you made a good argument in that comp table you showed. And I sort of look at it as you're a little bit of the Rodney Dangerfield of companies here. You're not getting respect for the recurring revenue. What's going to make that change? What helps the investment community give you the respect that you think you deserve?

Charlie, you want to take that first?

Let me start with that before I turn it back to you. Yes. Well, I think the understanding that our Evergreen, in particular, is fundamentally different. I think it was assumed that it was just support. And it's understandable coming from a background of providing traditional storage hardware in a sense on-prem because that's the traditional model. What is not understood is as soon as the -- with our Evergreen is as soon as the customer buys their first array, it's then a subscription from then on. It never ends. There's no refresh in a sense of that array with a new system. The system that we sell continues to stay new throughout time. It never ends. And that subscription allows us to constantly upgrade the software, the services, the capabilities, the performance of that array. And therefore, it's effectively like a subscription for a SaaS service. In a SaaS service, of course, there's upgrades of hardware and software in the background. But as a user, you never really see that. The service just continues, constantly gets better and should never, of course, have downtime. Well, that's exactly what we provide to our customers either on-prem or in the cloud. And they can do that in a sense, PaaS is the model. Customers sometimes want to have capital on their books, and so we provide that to them with the Evergreen model. But besides that, the 2 are essentially the same.

Yes. And then I would just add on to that, thanks, Charlie, in terms of how we're thinking about better understanding of our business model and how that's working. Charlie did a nice job walking through that from an Evergreen perspective. And frankly, you saw that we, as executives, spend a lot of time really providing an education of how valuable the Evergreen model is, how sticky it is, how easy it is to transition to our unified Pure as a subscription, leveraging all the incremental benefits and attributes of that offering, coupled with Portworx, the ability to extend out to Azure and AWS. All these are great benefits and then starting with where we're operating at scale in terms of our Evergreen business. And frankly, we've been on this as a service journey for some time now and quite successful, frankly, as well. And hopefully, you got a feel for that in terms of our discussion with Evergreen. I think the other important thing to note as well is our focus on operating leverage and profitability. I think the executives are very much aligned that we can drive top line growth while also driving increasing operating leverage. That, coupled with the increasing business and volume we're going to do in our subscription services business, which naturally gives you some more leverage, is going to be very helpful for us.

And actually, if I may just add there. So I've recently joined Pure. Having run a SaaS business as well as converted an on-prem business into a SaaS business, if you think about it at the heart of what a SaaS business is versus your classic on-prem software businesses, in the on-prem software business, you kind of drop the software with the customer. And then you show up a few years later. You've got the phone support with them. You're giving them updates. But then there's no other connection with them. The difference in the SaaS business is that you actually have customer success. You have SRE. You're doing the constant upgrade, refresh. You're seeing how are they using the features. Can you improve that? That's the big difference. And that's what drives the stickiness, which you folks ultimately care about, repeatable revenue. And that's what we do with Evergreen. We are connected in there with Pure1. We know exactly what they're doing. We have customer success working on them. We're giving them recommendation for upgrades. It's no different. And so all that hard work is being done. And that's why you get those arrays, 6 years later, 97% are still on the same situation. So that's the stickiness from a financial outcome that you drive with Evergreen.

Thanks for the question, Simon. Our next question comes from Aaron Rakers at Wells Fargo.

Hopefully, you guys can hear me okay. I'm having some challenges technically. But I guess my, good presentations today, throughout the presentations, there was continued indications of comfort and confidence that the hyperscale opportunity is presenting itself more visibly to you. I think this last quarter, you obviously announced a hyperscale customer win. I'm just curious, as we look forward, as the proliferation of QLC drives a deeper opportunity to replace hard disk drives, do we really start to think about that hyperscale customer opportunity is becoming a sustainable incremental revenue growth driver? And to what extent can you kind of delve into that a little bit more?

Charlie, you want to take this one?

Yes. Let me start and then maybe Ajay can fill in. The great thing about QLC and about flash in general is that it continues, as you saw from the curve that Ajay showed, to decline in price at a faster rate than hard disk, which means it's just a matter of time before we do get to an all-flash data center. At this point in time, it's not a crazy projection. It's one that we all know is going to happen. And the question is at what time. One of the unique things about Pure is that we've been investing in characterizing flash and being able to use it as a raw commodity at scale, in large-scale environments and at the optimal price performance, whereas everybody else has been using SSDs. And that gives us a natural opportunity. And that, by the way, when I say everybody else uses SSDs, I mean, all of our competitors, but also both SaaS as well as the hyperscalers primarily use hard disk drives. And when they use flash, they use SSDs. So we have the science behind making flash have the best price performance in the industry. And we do think that, that gives us an increasing opportunity as these price curves converge to be the customer that starts and hopefully continues to be able to supply everyone, including potentially hyperscalers with flash. Now it's early days. We did announce one. As I mentioned on the call, we don't think that's the last sale to that customer. And we believe that it opens up the door to others. But we're certainly early days, and hyperscalers, as you know, they're large and therefore, any activity with them will be very lumpy. But of course, it's something we're very much looking forward to and something we're very focused on.

I would just echo what Charlie said with around this leadership in flash, particularly in cost. The fact that we can do the dedups and we get the densities with the direct to flash modules, the direct to flash NAND software, that particularly resonates with hyperscalers because they're also very cost sensitive. So they're also driving a margin even more so than in enterprise. Enterprise certainly also competes on price, but the hyperscaler is really looking for the technology that's going to enable them to drive down their cost. We have that lead there. So that's what's unique about us.

And so I guess as you roll forward, back to Charlie, just to follow up on that. Basically, what you're saying is that there's clearly opportunities ahead of us, but let's consider that incremental revenue opportunity rather than baking that into our assumptions at this point. Is that a fair assessment of how you would characterize it?

I think I'll let Kevan answer that. But for the most part, we're confident in the outline that Kevan gave for our growth even without major hyperscaler wins.

And I'd confirm that, Charlie.

Great. Our next question is from Pinjalim Bora at JPMorgan.

Hey, everyone. Very nice to see everyone, great presentation. Charlie, I want to ask you about the announcements. And we have been seeing this more and more, right, the announcements kind of taking you further up stack into the DevOps world while Pure has historically not been focused as much on the developer ecosystem. So I wanted to ask you, how are you navigating that change from a go-to-market perspective? Is the core buyer starting to shift a bit involving maybe more software development sign-offs and all that?

I'd love Dom to start with that first and then have Charlie follow-up on the details. Dom?

So great question. Thank you for that. I would say, yes, the buyers are expanding for Pure. It's not only, obviously, we've historically dealt with predominantly infrastructure teams, but we are much more -- at a much greater frequency dealing with DevOps teams, InfoSec teams, data science teams, analytics teams. So the personas continue to expand that we address as the portfolio expands and we are able to provide more solutions and move further up the stack as well. So I think, certainly, we're interfacing with a broader set of buyers within our customer base than we ever have been before historically.

The only thing that I would add is that the influencers have expanded. But in fact, they're very tied into IT because enterprise requirements continue, whether it's in the cloud or on-prem. And so what we're seeing is that while the early adopters, let's say, of Portworx, in some cases, are the development teams that they're concerned with making sure that over time, when they go to production, that will be supported by IT afterwards. And so the natural ties that we have between the 2 are very important.

Understood. And one question for Kevan. It was good to see the Rule of 40. We have been looking forward to that. I was just trying to do some math around that. But would love to hear, Kevan, when I look at your cash flow statement and operating in the P&L, there's a delta between the OCF and the operating margin of about 7 to 8 points, I think. I mean, would you say that relationship breaks through this period or would you say that relationship stays intact?

Yes. That's a great question. I think in terms of our longer-term model on the Rule of 40 and how we're thinking about that from a free cash flow margin, I would actually consider that to be quite a bit tighter in terms of correlation of what we're thinking about free cash flow margin versus operating margin.

Great. Our next question comes from Katy Huberty at Morgan Stanley.

I appreciate all the new details today. First question is just going back to Evergreen and maybe Charlie and Kevan can tag team this. You've really emphasized Evergreen as a competitive differentiator in the business. But as financial analysts, of course, we're always looking for metrics so that we can understand it better. Maybe Kevan, are there data points you can share around services spend uplift for Evergreen relative to a traditional support model? Are there metrics around what you think your customer churn is versus your traditional storage competitors? What does LTV look like? Any metrics that help us understand the fundamental and therefore, valuation uplift that we should think about around Evergreen.

Yes. That's great. I'll take a start on that, and then I'll actually pass this to Dom so you get a real flavor in terms of the go-to-market benefits we're seeing with Evergreen, especially with existing customers. But we've always talked about how existing customers are so beneficial to us. We land. We're able to expand and grow within those customers. And one key attribute for that is our Evergreen model, which we put in place several years ago. And simply the fact that a customer does not need to worry about protecting their initial investment, that they have a new product 6 years from when they initially bought it is just an amazing value in terms of what we provide for our customers. So then if you think about that, as the customer is looking to grow in terms of expanding, data is growing at an incredible rate, that's a huge benefit for us to come in and grow with them and expand while continuing to protect their initial investment. And Dom, maybe you can add a little bit more color in terms of what you're seeing on the opportunity set of expanding and growing with these customers who choose our Evergreen model.

Yes. Sure. And I think as you start to think through sort of the legacy approach to this, which is, I make a CapEx purchase, I pay for maintenance and I depreciate that over some period of 3 to 5 years. Our competitors have a tendency to jack up the maintenance pricing at the end of that depreciation cycle in order to get the customer to buy a net new product. So there is, when you do these TCO analysis with customers, that's only a very small incremental subset of the overall cost. It is the data migration that can take up to a year to move off of that legacy product into the newer model product. It's the downtime, the maintenance windows, the application outages. So for us, it's a huge competitive differentiator. I think as Kevan stated in his presentation, 97%-plus of our customers that purchased array 6 years or over ago still have those arrays in production and completely modern as well. So there's many attributes to our value proposition to our customers that stem from our architecture and from the Evergreen model. And when you start to talk about them at enterprise scale or at hyperscaler scale and you look at those, you start to talk about data center level investment savings that these customers are recognizing from that. So it's a tremendous competitive differentiator for us. It's a tremendous value proposition for our customers.

And I'll just add one other point to that, right? So a customer could start off with us with buying an integrated solution, leveraging our Evergreen model. We also make it very easy for them that over time, if they want a full cloud operating model, they can actually transition very easily with us to Pure as-a-Service with our unified subscription without changing or migrating the data, changing out the infrastructure. So that's a very significant benefit as well to be driving that flexibility with our customers.

And then just going back to Dom around the growth drivers in order to grow faster than the market at 14% CAGR, you need new customer wins and you need to upsell to services. So can you talk about some of the sales compensation, sales commission structure changes you've made to ensure that the sales team is focused on those 2 initiatives?

Yes. So it's a great question. Thank you for that. And we completely rearchitected all of our compensation plans at the beginning of the year. We've aligned our sales incentives and our dollars to driving subscription revenue through Evergreen, through Pure as-a-Service, through Portworx as well. So our sales teams are very quick studies in terms of their compensation plans and it's been a huge driver of our performance thus far this year. And it's been a huge driver of our operational efficiencies as well. So we're very confident in the changes we've made and the impacts that we've seen through the first half of this year thus far. And we will continue to evolve them as we move into next fiscal year as well to continue to drive the type of subscription bookings growth that we're seeing as well as continued operating efficiencies as well.

Our next question comes from Amit Daryanani at Evercore.

I guess maybe to start with on the new ARR metrics, and I think you talked about subscription ARR growth will be 30%. I believe you mentioned NDR would be around 115%. I'm curious how does churn fit into the equation? What do you assume in terms of churn rate as you go forward? And then on the gross margin from that subscription model, can you just tell what does this business look like at scale from a profit margin perspective, operating or free cash flow kind of when you get to breakeven and in line with corporate averages?

Yes. I'll take this and then feel free to jump in, Charlie or Rob or Prakash, in terms of how we're expecting to get more leverage around Pure as-a-Service. But really, the first question is really about let's hit operating leverage and running at scale. And I've talked about this before in terms of what we're looking at. But obviously, our subscription margin is already very healthy. And that's primarily driven by the great work we're doing with the Evergreen model and that business model that's been running for several years. We think we can do better, and we think we can do better as a result of scaling our Pure as-a-Service unified subscription as well as Portworx, which is a complete software solution. So we think that, that's going to be very beneficial for us as we scale. And you generally see that in terms of, as you're scaling and leveraging recurring revenue businesses, the stickiness of those businesses, you see that kind of coming through on operating leverage. And hopefully, you're seeing that in terms of how we're thinking about operating margin in fiscal '24 as well as the overall framework in terms of the Rule of 40. Your second question was really around churn and specific metrics around that, which we're not giving specific metrics today around the underlying elements of NDR with the 115% average, which is very healthy from our perspective and really also allows us to consider the opportunity for us with new customers, with Pure as-a-Service, with Portworx and then really kind of coming out of COVID, where we see there's a real opportunity and reacceleration with new customer acquisition. But you can assume that our churn is pretty low. I mean, to Dom's point, and what I've shared, the fact that 97% of our arrays are still being used by our customers, good suggestion, indication that churn is quite low for us.

Yes. And just adding on to that. Go ahead, Charlie.

Just one sec, Prakash. Just my expectation going forward is that churn of customers is actually close, if not 0. Churn occurs in our business for 2 reasons. One is because you fail to be able to provide the service quality that the customers expect, failure, basically. And we have the most reliable systems in the business. Our systems, I would put our metrics against anybody else. We're probably close to 10x more reliable than any other system out there. The second reason for churn is when products get to the end of their life and the customer has to do a data migration to a new product forced by their vendor. We never do that. The products that our customers have are constantly upgraded, always new. So we never give a competitor a chance to churn out our product because it comes to the end of life. So Prakash, sorry, go ahead, go right ahead.

Well, just adding on that, that efficiency comes from the data leverage we get. So all of our subscription business, whether it's Evergreen, Pure as-a-Service, Portworx even, we've been collecting data around the customer usage and our utilization has been growing on our portfolio over time at our customers. Now we've been using data leverage and AIOps to optimize the efficiency of how we deliver our SLAs for those businesses. So as we get more customers underneath subscription management and as we continually optimize using our AIOps algorithms, we continue to create leverage in all of our subscription business because it started with SaaS-based observability. Our entire portfolio, including our new acquisition of Portworx, follows that methodology.

Perfect. And if I could just follow up really quick. Kevan, this is for you. When we think about your top line growth aspiration within the Rule of 40, maybe it's around mid-teens or something around there. I'd love to understand, how does that break out as you go forward between monetizing your installed base, essentially a DNR metric for your entire business versus growing the installed base, getting net new logos?

Great question. And look, this is how I'm kind of looking at it at a higher level, right? We gave you some detailed metrics in terms of how we're looking at our subscription business, including our 3-year CAGR of revenue growth, which is a solid 30%. So you've got that piece in terms of the top line revenue growth opportunity. Well, beyond that, from a revenue standpoint and how we're thinking about the Rule of 40, you've also got a lot of other growth drivers that Ajay talked about, that Dom talked about, that Charlie talked about, which will play into that. While at the same time, we're working on transitioning to more recurring revenue. That's very important to us. And so you've got an element that we're dealing with in terms of that transition that really has been built together and really included and considered in terms of how we're thinking about our Rule of 40 framework and getting to the 35 to 40 in FY '25.

Our next question comes from Wamsi Mohan at Bank of America.

Very helpful presentation. Kevan, in your Rule of 40, you're targeting about 10 points of improvement, but your operating margin improvement, you gave that through 2024, not 2025. Should we think that there are incremental investments that are going to keep operating margin at that level? Or is there a continued progression of that operating margin level through 2025? And how do I reconcile sort of the 10 points of improvement in roughly 10 points in free cash flow margins versus the somewhat lower in operating margins?

Great question. Thanks for that. I mean, I think the first thing we need to talk about, and there was an earlier question on that in terms of the correlation and how we're thinking about it in our long-term model on free cash flow versus operating margin. We actually in our model and how we're thinking about that 35 to 40 being quite tight in terms of correlation between operating margin and free cash flow margin. So I think that's an important thing to be thinking about. And then again, going deeper with the investor community in terms of how we're thinking about our subscription business, really driving that 30% CAGR, that's a significant priority and focus for us. And then obviously, with that, we do think that profitability will improve. But we also think there's, in terms of the various elements and variables out there as we're transitioning to get to over 50% of recurring revenue early in FY '25, look, that's what's the Rule of 40 is so important for in terms of distilling that down in terms of one operating performance metric to understand. Hey, how does that balance between revenue growth as well as profitability. I thought it was important for you to get a sense on how we plan to make some progress on operating margin. That's why I did provide the FY '24 metric for you. Obviously, that will be a continued focus of ours to continue improving, but we'll balance that in terms of what that looks like, still prioritizing top line revenue growth.

And if I could follow up. Ajay, you showed a chart on SSDs versus HDDs with SSDs getting cheaper by 2026. Is that on a dollar per gig basis or is there TCO assumptions that are baked into that? And does it take into account like the areal density improvements in HDDs as well?

Yes. So actually, yes, it is on a dollar per gig basis, but at the SSD level. And so obviously, for us, since we go to the NAND level, it gives us the opportunity to unpack further. And then all the ESG benefits that you get from NAND, those are not included in those numbers. That's what moves the zone, if you may, more to the left for us.

Okay. Our next question comes from Nehal Chokshi at Northland Capital.

So love your net dollar retention rate metric, 115%. Can you give us a sense as far as how that has trended historically? And then can you also delayer that 115% between Evergreen for new arrays at a given customer versus adoption of additional services such as CBS and Portworx.

Great. Well, I'll start with that, quite the wish list. But we'll start with how we're thinking about the 115%. And I do think the net dollar retention of 115% is a nice balance in terms of contributions in terms of Pure as-a-Service and Portworx, new customer acquisition opportunity. I really do think that opportunity on new customer acquisition will really get some acceleration as we get through COVID while at the same time leveraging the great success we've had with our existing customers. So I do think that's a nice balance. When you think about it in previous years in terms of comparability. It's kind of like apples and oranges in terms of comparability. Because when you think about the dollar retention value with specific to Evergreen, where our forward-looking view really is contemplating the ramp of Pure as-a-Service as well as Portworx and the continued traction of Evergreen coming off of, coming off of COVID. So that's kind of what we have thus far. Charlie, anything else you want to add specific to existing customers and the traction there.

Well, I think you covered it quite well, Kevan. Pure as-a-Service and Portworx being somewhat newer. Usually, it takes a year or 2 before you start seeing sort of the great expansion of those environments. But we're seeing expansion even in the first year. So we feel not just comfortable with the 115%. We're feeling that it sets a bar that we'll continue to be able to improve upon.

A follow-up here. So I think we've looked at the 30% subscription CAGR pretty closely. We understand that quite well. And you've also talked about the Rule of 40. You're performing to a Rule of 40 by fiscal year '25. In there, I believe, is an implicit guide on product revenue. Can you just sort of tease that out for us?

We're not providing specific guidance on product revenue for a lot of the reasons we've talked about, right? You've got a really significant focus right now on our subscription services business and really ramping the recurring revenues, getting beyond 50%. So that absolutely is a priority. And hopefully, that was conveyed by the executive leadership team in terms of how we're thinking about it. With that being said, there's a lot of opportunity for us from a growth aspect. Again, Ajay has talked about it from a TAM view. You've got a view from Dom from a customer view and then obviously, Charlie's commentary. And then we balance that with the transition towards more subscription. And then again, that fits with the Rule of 40, while at the same time, complementing and really driving more operating leverage. But that's really the beauty of the Rule of 40 framework is you can distill that down to one operating performance, give yourself a little bit of flexibility while you're working through the transition, and then giving investors a good sense that, hey, look, we're still driving top line growth as well as operating leverage.

Okay. That concludes our Q&A session. I want to thank all of our presenters as well as Rob and Prakash and most importantly, thanks to all of you for joining our Financial Analyst Day. All materials from today, including the slides and the recorded webcast, will be available in 48 hours on our Pure IR website. Now I'd like to turn it over to Charlie for closing remarks. Charlie?

Thank you, Rena, and my sincere appreciation to everyone that joined us for our launch and our investor meeting today. And as you can easily see, Pure is excited about our acceleration in the market and how our leadership role is changing our industry. Building on our past success, customers continue to want more of our data storage innovation. Adding Pure Fusion and Portworx Data Services enables our customers to create a cloud operating model for their organizations, freeing them from human middleware and accelerating their organization's development capabilities. Pure's leadership in QLC is also leading the massive shift to an all-flash data center. Our portfolio breadth, continuing investment in sales, R&D and our operational excellence will accelerate our growth and our profitability. And by delivering our modern data experience, we continue to outperform legacy technologies, we continue to outpace competitors and we continue to provide outstanding service to our customers and all of our stakeholders. I'd like to thank my panelists, Kevan Krysler, Dom Delfino, Ajay Singh, Rob Lee and Prakash Darji and a big thanks to everyone who has contributed to making today's event possible. Finally, from all of us here at Pure, thank you to all that have joined us today. Goodbye.