Back to top

Image: Bigstock

Pure Storage (PSTG) Q3 Earnings Beat Estimates, Shares Up

Read MoreHide Full Article

Pure Storage Inc. (PSTG - Free Report) reported non-GAAP earnings of 22 cents per share for third-quarter fiscal 2022, which beat the Zacks Consensus Estimate by 83.3%. In the prior-year quarter, the company reported earnings of 1 cent per share.

Total revenues increased 37% from the year-ago quarter’s level to $562.7 million. The top line surpassed the Zacks Consensus Estimate by 6.1%.

The upside can be attributed to growth in all product lines as well as revenue growth in the domestic and international segments.

Following the better-than-expected results, shares of Pure Storage are up 10.3% in the pre-market trading on Nov 24. The stock has gained 50.4% in the past year compared with the industry’s rally of 46.2%.

Pure Storage, Inc. Price, Consensus and EPS Surprise

 

Pure Storage, Inc. Price, Consensus and EPS Surprise

Pure Storage, Inc. price-consensus-eps-surprise-chart | Pure Storage, Inc. Quote

 

Quarter Details

Product revenues (contributed 66.6% to total revenues) amounted to $374.9 million, up 37% on a year-over-year basis. Product revenue benefitted from the sale of FlashArray//C to one of the top 10 hyperscalers in the quarter under review.

Subscription services revenues (33.4%) of $187.8 million surged 38% on a year-over-year basis. The upside can be attributed to robust adoption of Evergreen subscription services and Pure as-a-Service subscription and Portworx.

Subscription Annual Recurring Revenue (ARR) was $788 million, up 30% on a year-over-year basis. Subscription ARR includes the annualized value of all active subscription contracts as of the last day of the quarter plus annualized on-demand revenues, added Pure Storage.

Management reported that total revenues in the United States were up 35% and International revenues saw 42% year-over-year growth.

Pure Storage reported 12% increase (or 345 new customers) in new customer acquisition in the reported quarter. The company’s customer count stands at 9,500, which includes 50% of the Fortune 500 companies, noted Pure Storage.

Margin Highlights

Non-GAAP gross margin contracted 60 basis points (bps) from the year-ago quarter’s level to 68.5%.

Non-GAAP Product gross margin contracted 300 bps from the year-ago quarter’s level to 66.7%. Product gross margin was affected by the sale of FlashArray//C to one of the top 10 hyperscalers and increasing supply chain costs in the quarter under review. Non-GAAP Subscription gross margin came in at 72%, up 390 bps on a year-over-year basis.

Non-GAAP operating expenses, as a percentage of total revenues, came in at 56.2% compared with 68.3% reported in the prior-year quarter.

Pure Storage reported a non-GAAP operating income of $69.5 million in the fiscal third quarter compared with a non-GAAP income of 3.4 million reported in the year-ago quarter. Non-GAAP operating margin stood at 12.3% compared with 0.8% reported in the prior-year quarter.

Balance Sheet & Cash Flow

Pure Storage exited the quarter ended on Oct 31, 2021, with cash, cash equivalents and marketable securities of $1.363 billion compared with $1.285 billion as of Aug 1, 2021. As of Oct 31, long-term debt stood at $778 million compared with long-term debt of $771 million as of Aug 2, 2021

Cash flow from operations was $127 million compared with $123.4 million in the prior quarter. Free cash flow was $101.3 million compared with $95.7 million in the previous quarter.

During the fiscal third quarter, the company returned $56 million to shareholders via share repurchases of more than 2.3 million shares as part of the $200-million share repurchase authorization. The company has $70 million worth of shares left under repurchases.

Deferred revenues increased 24.5% to $950 million in the quarter under review.

The remaining performance obligations (RPO) at the end of the fiscal third quarter were $1.2 billion, up 27% on a year-over-year basis. The metric represents total committed non-cancelable future revenues.

Guidance

Pure Storage expects fourth-quarter fiscal 2022 revenues to be $630 million, indicating year-over-year growth of 25%. The Zacks Consensus Estimate is pegged at $601.11 million, suggesting year-over-year growth of 19.6%.

Non-GAAP operating income for the fiscal fourth quarter is expected to be $90 million, and the non- GAAP operating margin is expected to be nearly 14%.

Pure Storage expects fiscal 2022 revenues to be $2.1 billion, up from the previous guidance of $2.04 billion. The figure indicates year-over-year growth of 25%. The Zacks Consensus Estimate is pegged at $2.04 billion, suggesting year-over-year growth of 21.2%.

Non-GAAP operating income is expected to be $206 million and non- GAAP operating margin is expected to be nearly 10%.

Zacks Rank and Stock to Consider

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

Some better-ranked stocks worth consideration in the broader technology space includes Arrow Electronics (ARW - Free Report) , Alphabet (GOOGL - Free Report) and Monolithic Power Systems (MPWR - Free Report) .

While Alphabet sport a Zacks Rank #1 (Strong Buy), Arrow Electronics and Monolithic carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Arrow Electronics’ shares have gained 33.2% on a year-to-date basis. The long-term earnings growth rate for the company is currently projected at 27.4%.

Alphabet’s shares have surged 66.4% on a year-to-date basis. The long-term earnings growth rate for the company is currently projected at 25.8%.

Monolithic’s shares have rallied 49.1% on a year-to-date basis. The long-term earnings growth rate for the company is currently projected at 25%.