A month has gone by since the last earnings report for Pure Storage (PSTG). Shares have lost about 3.4% in that time frame, outperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Pure Storage due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
Pure Storage Q3 Earnings Benefit from Expanding Customer Base
Pure Storage Inc. delivered non-GAAP earnings of 13 cents per share in the third quarter of fiscal 2019, surpassing the Zacks Consensus Estimate of 9 cents per share. The figure also increased on a year-over-year basis.
Total revenues surged 34% from the year-ago quarter to $372.8 million and came ahead of the Zacks Consensus Estimate of $367 million. Revenues also outpaced management’s guided range of $361-$369 million.
Robust business fundamentals, strong FlashBlade implementation, higher adoption of new products and strong go-to-market strategies drove year-over-year growth.
In the third quarter, Product revenues (represented 80% of total revenues) of $298.9 million surged 31% on a year-over-year basis, primarily on the back of existing customers and continued expansion of customer base.
Non-GAAP Product gross margin was 68.1%, up 110 basis points (bps) on a year-over-year basis due to FlashBlade’s increased contribution to revenues.
The company’s strong product portfolio including the likes of FlashArray, FlashStack and FlashBlade business segments drove year-over-year growth.
Pure Storage recently introduced a suite of new cloud offering which runs on Amazon Web Services (AWS). The latest Pure Storage Cloud Data enables customers to bring storage software directly to the public cloud.
The company also announced the availability of Cloud Block Store, running natively on AWS. Further, Pure Storage stated the accessibility of CloudSnap that offers cloud based data protection.
Pure Storage’s first-ever buyout of StorReduce remains a notable development in the quarter under review. Management remains elated on gaining StorReduce’s de-duplication technology. The company announced the availability of StorReduce to provide backup and to speed up the analytics processes for the data warehouses.
NVIDIA and Cisco tie-up with the company’s FlashStack continues to significantly accelerate overall converged infrastructure and integrated systems markets. FlashStack is well-positioned for the future as the company continues to invest with its partners in full stack automation and simplicity.
We believe that the company dominates the space driven by its robust all-flash and NVMe portfolio, leaving companies like NetApp, Dell EMC and Hewlett Packard Enterprise trailing.
Support subscription revenues (20%) of $73.9 million increased a significant 48% on a year-over-year basis driven by the company’s ongoing support contracts.
Non-GAAP Support subscription gross margins were 68.1%, up 420 bps on a year-over-year basis. Management stated that margins were driven by a continued increase in amortization of ongoing support contracts and impressive execution in support organization.
During the reported quarter, Pure Storage added more than 300 new customers, bringing the total base to more than 5,450 organizations.
Management remains elated on strong growth witnessed in Global 2000, Fortune 500, big government organizations and healthcare companies as well as leading 1000 cloud vendors.
Geographically, the United States comprised 71% of total revenues while the remaining 29% came from international market.
Non-GAAP gross margin came in at 68.1%, up 170 bps from the year-ago quarter. The strength in gross margin was primarily driven by better-than-expected growth in products, lower cost and benefits related with the launch of FlashArray//X product line.
Pure Storage reported non-GAAP operating income of $33.9 million compared with the year-ago quarter figure of $10.2 million. Non-GAAP operating margins during the reported quarter came in at 9.1%, up 540 bps year over year. The year-over-year improvement was due to the company’s sustained focus on improving operational efficiency and higher revenue base.
Balance Sheet & Cash Flow
Pure Storage exited the quarter ended Oct 31, 2018 with cash and cash equivalents, and marketable securities of $1.1 billion, flat sequentially.
Cash flow from operations during the quarter came in at $56.5 million compared with $8.5 million in the previous quarter.
Non-GAAP free cash flow without employee stock purchase plan (ESPP) impact for the quarter ended Oct 31, 2018 was reported at $30.6 million.
Pure Storage expects fourth-quarter fiscal 2019 revenues in the range of $438-$446 million. Non-GAAP gross margin is anticipated to be in the range of 64.5-67.5%. Non-GAAP operating margin is projected to be in the range of 8-12%.
For fiscal 2019, management revised anticipated revenue range from the initial range of $1.35-$1.38 billion to $1.376-$1.384 billion.
Moreover, management also updated the remaining guidance. Non-GAAP gross margin is now projected to be in the range of 66.6-67.6% (previously 65.5-67.5%). Non-GAAP operating margin is now anticipated to be in the range of 3.9-5.3% (previously 2.5-4.5%).
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in fresh estimates. The consensus estimate has shifted 15.79% due to these changes.
Currently, Pure Storage has a great Growth Score of A, a grade with the same score on the momentum front. However, the stock was allocated a grade of F on the value side, putting it in the lowest quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Pure Storage has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.
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