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Pure Storage (PSTG) Down 10.8% Since Last Earnings Report: Can It Rebound?

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A month has gone by since the last earnings report for Pure Storage (PSTG - Free Report) . Shares have lost about 10.8% in that time frame, underperforming 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 drivers.

Pure Storage Q4 Earnings Beat Estimates

Pure Storage Inc. reported non-GAAP earnings of 13 cents per share in fourth-quarter fiscal 2021, outpacing the Zacks Consensus Estimate by 44.44%. However, the bottom line of 13 cents per share declined 43.5% from the year-ago quarter.

Total revenues improved 2.2% from the year-ago quarter’s level to $502.7 million. Moreover, the top line surpassed the Zacks Consensus Estimate by 4.63%.

Year-over-year improvement in revenues can be attributed to growth in subscription services, led by momentum in Pure as-a-Service, Cloud Block Store, and Evergreen offerings. However, decline in Product revenues limited growth.

Quarter Details

In the fiscal fourth quarter, Product revenues (contributed 70% to total revenues) amounted to $350.4 million, reflecting a decline of 6.9% on a year-over-year basis.

Subscription services revenues (30%) of $152.3 million surged 31.9% on a year-over-year basis, driven by the company’s ongoing support contracts and robust adoption of Evergreen subscription services and Pure as-a-Service subscription, which includes Cloud Block Store.

Management noted that total revenues both in the United States and International saw slight growth compared to a strong fiscal fourth quarter.

Business Highlights

Pure Storage is gaining from growing clout of its latest second generation FlashArray//C, cost effective storage array solution to provide customers with higher performance capabilities and enable them to run complex cloud workloads onto a single platform.

During the fiscal fourth quarter, Pure as-a-Service customer base witnessed expansion. The service has been adopted by U.S.-based Cloud at Work, Australia-based MACA mining services and Germany-based telecom provider Wob-Com GmbH, among other notable organizations.

Management noted strength in FlashBlade and FlashArray business segments primarily courtesy of existing customers and continued expansion of enterprise customer base. During the reported quarter, Pure Storage added more than 471 customers, bringing the total count to more than 8,800 organizations.

The company closed several deals above $10 million and accomplished record sales during the reported quarter to Fortune 500 customers.

Margin Highlights

Non-GAAP gross margin contracted 270 basis points (bps) from the year-ago quarter’s level to 69.4%. The contraction in gross margin can be attributed to margin contraction of Product revenues. Non-GAAP Product gross margin shrunk 420 bps from the year-ago quarter’s level to 69.1%. Non-GAAP Subscription gross margin came in at 70.2%, which expanded 210 bps on a year-over-year basis.

Non-GAAP operating expenses as a percentage of total revenues, came in at 62.1%, which expanded 240 bps on a year-over-year basis.

Pure Storage reported a non-GAAP operating income of $36.7 million in the fiscal fourth quarter, down 39.7% from the prior-year quarter. Non-GAAP operating margin contracted 510 bps year over year to 7.3%.

Balance Sheet & Cash Flow

Pure Storage exited the quarter ended Jan 31, 2021, with cash, cash equivalents and marketable securities of $1.254 billion, compared with $1.201 billion as of Nov 1, 2020.

Cash flow from operations during the reported quarter was $69 million compared with $32.8 million in the fiscal third quarter. Free cash flow was $47.7 million compared with $7.9 million in the prior quarter.

During the fiscal fourth quarter, the company returned $23.6 million to shareholders via share repurchases of over 1 million shares completing the planned share repurchase authorization of $150 million.

Total deferred revenues in the fiscal fourth quarter were $843.7 million, compared with $763 million at the end of the prior quarter. Remaining performance obligations (RPO) at the end of fiscal fourth quarter were $1.1 billion, up 24% on a year-over-year basis. The metric represents total committed non-cancelable future revenues.

Guidance

Pure Storage expects first-quarter fiscal 2022 revenues to be $405 million. Moreover, the company estimates fiscal 2022 revenues to improve 14-15% on a year-over-year basis.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates.

VGM Scores

At this time, Pure Storage has a nice Growth Score of B, however its Momentum Score is doing a bit better with an A. However, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Pure Storage has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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