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Pure Storage (PSTG) Up 6.5% 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 6.5% 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 drivers.

Pure Storage Q3 Earnings & Revenues Beat Estimates

Pure Storage 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.

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

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates. The consensus estimate has shifted 120.51% due to these changes.

VGM Scores

Currently, Pure Storage has a strong Growth Score of A, though it is lagging a bit on the Momentum Score front with a B. However, the stock was allocated a grade of F on the value side, putting it in the fifth quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. 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. It comes with little surprise Pure Storage has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.


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