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Pure Storage (PSTG) Up 2.8% Since Last Earnings Report: Can It Continue?

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It has been about a month since the last earnings report for Pure Storage (PSTG - Free Report) . Shares have added about 2.8% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Pure Storage due for a pullback? 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 Q1 Earnings & Revenues Beat Estimates

Pure Storage reported breakeven earnings on a non-GAAP basis for first-quarter fiscal 2022. The Zacks Consensus Estimate stood at a loss per share of 7 cents. For first-quarter fiscal 2021, the company had reported loss of 2 cents per share.

Total revenues increased 12.4% from the year-ago quarter’s level to $412.7 million. Moreover, the top line surpassed the Zacks Consensus Estimate by 1.6%.

The upside can be attributed to growth in subscription services, led by momentum in Pure as-a-Service, Cloud Block Store and Evergreen offerings.

Quarter Details

In fiscal first quarter, Product revenues (contributed 61% to total revenues) amounted to $249.9 million, up 1.2% on a year-over-year basis.

Subscription services revenues (39%) of $162.8 million surged 35% 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 in the United States were up 12%, while International revenues saw 14% year-over-year growth.

Pure Storage also announced the general availability of Pure Cloud Block Store on Amazon’s Amazon Web Services as well as Microsoft’s Azure platform.

Also, the company rolled out a new Bare Metal as-a-Service solution with Equinix that provides a cohesive and connected platform for any stage of cloud migration.

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

Also, solid pipeline and synergies from Portworx acquisition, which strengthened capabilities for containerized and cloud-native applications, favored performance.

Pure Storage reported 15% increase in new customer acquisition in the reported quarter driven primarily by strength in commercial business.

Margin Highlights

Non-GAAP gross margin contracted 140 basis points (bps) from the year-ago quarter’s level to 70.5%. The contraction in gross margin can be attributed to margin contraction of Product revenues.

Non-GAAP Product gross margin shrunk 310 bps from the year-ago quarter’s level to 70.2%. Non-GAAP Subscription gross margin came in at 71.1%, which expanded 220 bps on a year-over-year basis.

Non-GAAP operating expenses, as a percentage of total revenues, came in at 70.4% that contracted 300 bps on a year-over-year basis.

Pure Storage reported a non-GAAP operating income of $0.3 million in the fiscal first quarter against non-GAAP loss of 5.4 million reported in the year-ago quarter. Non-GAAP operating margin stood at 0.1%.

Balance Sheet & Cash Flow

Pure Storage exited the quarter ended May 2, 2021, with cash, cash equivalents and marketable securities of $1.234 billion compared with $1.254 billion as of Jan 31, 2021.

Cash flow from operations during the reported quarter was $21.4 million compared with $69 million in the prior quarter. Free cash outflow was $6.4 million compared with free cash flow of $47.7 million in the prior quarter.

During the fiscal first quarter, the company returned $30 million to shareholders via share repurchases of more than 1.38 million shares.

On Feb 24, Pure Storage’s board of directors approved incremental share buybacks of up to an additional $200 million under its stock repurchase program.

Deferred revenues increased 23% to $866.2 million in the fiscal first quarter.

Remaining performance obligations (RPO) at the end of fiscal first 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 second-quarter fiscal 2022 revenues to be $470 million, indicating year-over-year growth of 16%.

Non-GAAP operating income for fiscal second quarter is expected to be $15 million.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in estimates revision. The consensus estimate has shifted 6.9% due to these changes.

VGM Scores

At this time, Pure Storage has a nice Growth Score of B, though it is lagging a bit on the Momentum Score front with a C. Charting a somewhat similar path, 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 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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