Pure Storage (PSTG) Shares Down on Q1 Loss and Revenue Miss

Zacks Equity Research

Pure Storage Inc. PSTG reported non-GAAP loss of 11 cents per share in the first quarter of fiscal 2020, which was wider than the Zacks Consensus Estimate of a loss of 8 cents and the year-ago quarter’s loss of 7 cents.

Although total revenues surged 28% from the year-ago quarter to $326.7 million, it lagged the Zacks Consensus Estimate of $334 million. The top line was also below management’s guidance of $327-$339 million.

The year-over-year increase in revenues can be attributed to robust business fundamentals, strong FlashBlade implementation, higher adoption of new products and strong go-to-market strategies.

Following the unimpressive first-quarter results and tepid outlook, shares of Pure Storage went down more than 19% in after-hours trading.

Pure Storage, Inc. Revenue (Quarterly)

 

Pure Storage, Inc. Revenue (Quarterly)

Pure Storage, Inc. revenue-quarterly | Pure Storage, Inc. Quote

Segmental Details

In the first quarter, Product revenues (representing 73% of total revenues) of $238.7 million increased 22% on a year-over-year basis, primarily on the back of existing customers and continued expansion of customer base.

The company’s strong product portfolio, including the likes of FlashArray, FlashStack and FlashBlade business segments, drove year-over-year growth.

Pure Storage recently unveiled flash and cloud-based ObjectEngine solution. The latest backup and restore storage solution is designed to enable customers to modernize data protection strategy. Additionally, ObjectEngine users can access required data in real time through a faster, secure and cost-effective medium.

Further, the company also announced the expansion of Evergreen Storage Service (ES2) – offering customers with a unified subscription model across hybrid environments.

Pure Storage recently also announced the buyout of Compuverde, a developer of file software solutions. The acquisition will aid Pure Storage's file abilities by offering a unified storage offering and enhance customers’ experience.

The company’s first-ever buyout of StorReduce remains a notable development. Management remains elated on the acquisition of StorReduce’s de-duplication technology. The company announced the availability of StorReduce to provide backup and speed up analytics processes for data warehouses.

Support subscription revenues (27%) of $87.9 million increased 45% on a year-over-year basis, driven by the company’s ongoing support contracts.

During the reported quarter, Pure Storage added more than 350 customers, bringing the total base to more than 6,200 organizations. Management remains elated on strong growth witnessed in Global 2000, Fortune 500, big government organizations and healthcare companies, and leading 1000 cloud vendors.

Geographically, the United States comprised 70% of total revenues while remaining 30% came from international markets.

Operating Details

Non-GAAP gross margin was at 68.1%, up 180 bps from the year-ago quarter. Strength in gross margin was primarily driven by better-than-expected growth in products, technological innovation, and benefits related to the launch of FlashArray//X product line.

Non-GAAP Product gross margin was 68.7%, up 240 bps on a year-over-year basis due to benefits from component costs.

Non-GAAP Support subscription gross margins were 66.3%, flat on a year-over-year basis.

Pure Storage reported non-GAAP operating loss of $31.2 million compared with the year-ago quarter loss of $15.3 million. Operating results were impacted primarily owing to lower than expected revenues during the quarter.

Balance Sheet & Cash Flow

Pure Storage exited the quarter ended Apr 30, 2019, with cash and cash equivalents, and marketable securities of $1.2 billion almost flat from the previous quarter.

Cash flow from operations during the reported quarter was at $6.6 million compared with $80.5 million in the previous quarter.

Non-GAAP free cash flow without the impact of employee stock purchase plan (ESPP) for the quarter ended Apr 30, 2019, was reported at ($17.7) million.

Guidance

Pure Storage expects revenues of $389-$401 million (mid-point $395 million) in second-quarter fiscal 2020. The Zacks Consensus Estimate for revenues is pegged at $397.1 million.

Non-GAAP gross margin is anticipated to be 65-68%. Non-GAAP operating margin is expected to be in the range of (5)% to (1)%.

Management is lowering its fiscal 2020 outlook. The company now expects revenues of $1.70-$1.77 billion (previously $1.735-$1.805 billion). The Zacks Consensus Estimate for revenues is pegged at $1.77 billion.

Non-GAAP gross margin is now projected to be 65.5-68% (previously 65-68%). Non-GAAP operating margin is now anticipated to be 1.5-5.5% (previously 3-7%).

Other Key Picks

Pure Storage currently carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the broader technology sector are Cirrus Logic, Inc. CRUS, Universal Display Corporation OLED and Match Group, Inc. MTCH, each sporting a Zacks Rank #1 (Strong Buy). You can see  the complete list of today's Zacks #1 Rank stocks here.

Cirrus Logic, Universal Display and Match Group have a long-term earnings growth rate of 15%, 30% and 15.15%, respectively.

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