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Pure Storage Inc. (PSTG - Free Report) reported non-GAAP loss of 11 cents per share in the second quarter of fiscal 2018, which was narrower than the Zacks Consensus Estimate by 3 cents. The figure was also much narrower than the year-ago loss of 16 cents per share.

Total revenue was $224.5 million, which was up 38% year over year and ahead of the Zacks Consensus Estimate of $219 million. The figure was also 3% higher than the mid-point of the guidance.

Although the narrower loss and revenue beat are positives for Pure Storage, it continues to experience intensifying competition due to the presence of major players such as Amazon’s Amazon Web Services, Microsoft’s (MSFT - Free Report) Azure in cloud storage and NetApp (NTAP - Free Report) .

Pure Storage stock has gained 11% year to date, underperforming the 11.8% rally of the industry it belongs to.



Quarter Details

In the second quarter, Product revenues of $175 million surged 33.7% on a year-over-year basis, primarily driven by “strong repeat purchases” by existing and new customers. FlashArray and FlashBlade business segments also boosted revenue growth.

Support revenues of $49.4 million increased a massive 53.1% on a year-over-year basis as the company’s ongoing support contracts gained traction.

During the quarter, Pure Storage added more than 350 new customers, bringing the total base to 3,700 organizations with nearly 25% of Fortune 500 customers.

Some notable companies that adopted Pure Storage’s technology during the quarter were AirBus, COCC, Delta Dental of Michigan, Ford Otomotiv Turkey, Man AHL, Mentor, NASA's Kennedy Space Center.

Pure Storage, Inc. Price, Consensus and EPS Surprise

Pure Storage, Inc. Price, Consensus and EPS Surprise | Pure Storage, Inc. Quote

In the second quarter, the company expanded its ties with ServiceNow, a long-term FlashArray customer, which now also is a customer of the FlashBlade product line.

Additionally, Zenuity, a joint venture between Volvo and Autoliv, adopted Pure Storage and NVIDIA’s (NVDA - Free Report) solutions for development of software for its autonomous driving and driver assistance systems (ADAS).

The company’s FlashArray, FlashStack and FlashBlade portfolios have been the key growth drivers during the quarter. Management was particularly positive about the performance of the cloud segment. The company’s parallel performance software suite required for machine learning, artificial intelligence (AI) and Internet of Things (IoT) has also been a positive. The ongoing trend of upgrading the on-premises information technology (IT) systems in organizations also bode well for Pure Storage’s accelerated top-line growth.

Notably, Charlie Giancarlo has been appointed as the company’s new CEO with Scott Dietzen taking up the chairman’s role.

Management was optimistic about top-line growth positively impacting operating leverage, with non-GAAP operating margin increasing 750 basis points (bps) to (11.8%), ahead of the guidance of 200 bps increase.

The margin expansion was driven by the impact of one-time benefits of using lower cost components from the previous quarter’s inventory as well as positive seasonal effects on logistics and related cost of goods sold (COGS).

Guidance

Pure Storage expects third-quarter fiscal 2018 revenues in the range of $267–$275 million. Non-GAAP gross margin is anticipated to be in the range of 63.5% to 66.5%. Non-GAAP operating margin is projected to remain in the range of (1%) to (5%).

For fiscal 2018, management expects revenues to be in the range of $985 million to $1.03 billion. Non-GAAP gross margin is expected to be in the range of 63.5% to 66.5%. Non-GAAP operating margin is anticipated to be in the range of (3%) to (7%).

Zacks Rank

Pure Storage currently has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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