Pure Storage (PSTG) Q2 Earnings & Revenues Beat Estimates

Pure Storage Inc. (NYSE:PSTG) reported non-GAAP earnings of 1 cent per share in the second quarter of fiscal 2020 against the Zacks Consensus Estimate of a loss of 4 cents. However, earnings were flat on a year-over-year basis.

Total revenues rose 28% from the year-ago quarter to $396.3 million and marginally surpassed the Zacks Consensus Estimate of $395 million. The top line was within the management’s guidance of $389-$401 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 impressive second-quarter results, shares of Pure Storage grew 3.1% in after-hours trading.

Segmental Details

In the second quarter, Product revenues (representing 76% of total revenues) of $300.1 million increased 24% on a year-over-year basis, primarily on the back of existing customers and continued expansion of the customer base.

The company’s strong product portfolio, including the likes of FlashArray, FlashStack and FlashBlade business segments, drove the 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 announced the expansion of Evergreen Storage Service (ES2), offering customers a unified subscription model across hybrid environments.

Support subscription revenues (24%) of $96.2 million surged 42% on a year-over-year basis, driven by the company’s ongoing support contracts.

During the reported quarter, Pure Storage added more than 450 customers, bringing the total count to more than 6,600 organizations.

Geographically, the United States comprised 74% of total revenues, while the remaining 26% came from international markets.

Operating Details

Non-GAAP gross margin was 69.4%, up 140 bps from the year-ago quarter. Strength in gross margin was primarily driven by better-than-expected growth in products, technological innovation, and benefits of product rollouts.

Non-GAAP Product gross margin was 70%, up 210 bps on a year-over-year basis due to benefits from component costs.

Non-GAAP Support subscription gross margin was 67.4%, which contracted 100 bps on a year-over-year basis.

Pure Storage reported a non-GAAP operating loss of $3.2 million compared with the year-ago quarter’s operating income of $0.9 million.

Balance Sheet & Cash Flow

Pure Storage exited the quarter ended Jul 31 with cash, cash equivalents and marketable securities of $1.2 billion, almost flat sequentially.

Cash flow from operations during the reported quarter was $48.8 million compared with $6.6 million in the previous quarter.

Non-GAAP free cash flow, excluding the impact of employee stock purchase plan (ESPP), was $14.2 million.

During the quarter, the company authorized a share repurchase program worth $150 million.

Guidance

Pure Storage expects revenues of $434-$446 million (mid-point $440 million) in third-quarter fiscal 2020. The Zacks Consensus Estimate for revenues is pegged at $470 million.

Non-GAAP gross margin is anticipated to be 66-69%. Non-GAAP operating margin is expected to be 3-7%.

Management is updating its fiscal 2020 outlook. The company now expects revenues of $1.645-$1.715 billion (previous guidance $1.70-$1.77 billion). The Zacks Consensus Estimate for revenues is pegged at $1.73 billion.

Non-GAAP gross margin is now projected to be 67-69% (previous guidance 65.5-68%). Non-GAAP operating margin is now anticipated to be 2.25-4.75% (previous guidance 1.5-5.5%).

Zacks Rank & Key Picks

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

Some better-ranked stocks in the broader technology sector are Fortinet, Inc. (NASDAQ:FTNT) , Chegg (NYSE:CHGG) and Anixter International (NYSE:AXE) . All three stocks flaunt a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Long-term earnings growth rate for Fortinet, Chegg and Anixter is currently pegged at 15.5%, 30% and 8%, respectively.

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