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Pure Storage (PSTG) Q4 Earnings & Revenues Beat Estimates

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Pure Storage Inc. (PSTG - Free Report) reported non-GAAP earnings of 23 cents per share in fourth-quarter fiscal 2020, beating the Zacks Consensus Estimate by 4.6%. Moreover, the bottom line improved 64.3% on a year-over-year basis.

Total revenues rose 17% from the year-ago quarter’s level to $492 million. Moreover, the top line surpassed the Zacks Consensus Estimate of $489.2 million. Notably, the figure came within  management’s guidance of $484-$496 million.

Year-over-year increase in revenues can be attributed to strong FlashBlade implementation and new deal wins from three major international banks. Moreover, growth was driven by robust adoption of subscription offerings, including Pure as-a-Service, Cloud Block Store, and Evergreen.

Shares Down on Bleak Revenue Outlook

Following bleak outlook for fiscal first quarter and fiscal 2021, shares of Pure Storage were down 3.4% in the after-hours on Feb 27.

Pure Storage expects revenues of approximately $365 million in first-quarter fiscal 2021. The Zacks Consensus Estimate for revenues is pegged at $380.29 million.

Moreover, for fiscal 2021, the company expects revenues of approximately $1.9 billion. The Zacks Consensus Estimate for revenues is pegged at $1.94 billion.



Notably, the stock has fallen 26.8% in the past year compared with the industry’s decline of 6.3%.

Segmental Details

In the fiscal fourth quarter, Product revenues (contributed 76.5% to total revenues) of $376.5 million increased 10.7% on a year-over-year basis, primarily on the back of existing customers and continued expansion of the customer base.

During the reported quarter, Pure Storage added more than 500 customers, bringing the total count to more than 7,500 organizations.

Robust adoption of strong product portfolio, including the likes of FlashArray, FlashStack and FlashBlade business segments, is a key catalyst.

Subscription revenues (23.5%) of $115.5 million surged 40.7% on a year-over-year basis, driven by the company’s ongoing support contracts and robust adoption of Pure as-a-Service, Cloud Block Store, and Evergreen subscription services.

Margin Highlights

Non-GAAP gross margin expanded 350 basis points (bps) from the year-ago quarter’s level to 72.1%. Management had anticipated non-GAAP gross margin in the range of 67.5-70.5%. Better-than-expected gross margin was primarily driven by product differentiation, and margin expansion of Product and Subscription services.

Non-GAAP Product gross margin expanded 550 bps from the year-ago quarter’s level to 73.3%.

Non-GAAP Subscription gross margin was 68.1%, which expanded 130 bps on a year-over-year basis.

Total operating expenses climbed 14.1% year over year to $348.9 million. As a percentage of total revenues, the figure came in at 70.9%, which contracted 150 bps on a year-over-year basis.

Pure Storage reported a non-GAAP operating margin of 12.4%, which expanded 500 bps on a year-over-year basis.

Balance Sheet & Cash Flow

Pure Storage exited the quarter ended Feb 2, 2020 with cash, cash equivalents and marketable securities of $1.299 billion, up from $1.24 billion as of Oct 31, 2019.
 

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

Cash flow from operations during the reported quarter was $69.9 million compared with $64.3 million in the fiscal third quarter.

Free cash flow came in at $56.2 million compared with $45.6 million in the prior quarter.

Fiscal 2020 at a Glance

The company reported revenues of $1.643 billion in fiscal 2020, up 21% over fiscal 2019 tally. Product revenues amounted to 75.4% of the total revenues, while Support contributed the balance 24.6%.

Management had projected revenues in the band of $1.635-$1.647 billion. The Zacks Consensus Estimate for revenues was $1.64 billion.

In fiscal 2020, non-GAAP gross margin came in at 70.5%. The company had projected non-GAAP gross margin in the band of 69.2-70.1%.

Non-GAAP operating margin came in at 3.4%. Management had projected non-GAAP operating margin in the range of 2.6-3.9%.

Guidance

For first-quarter fiscal 2021, Pure Storage anticipates non-GAAP gross margin of approximately 69.5%. Non-GAAP operating profit is anticipated at approximately $60 million.

For fiscal 2021, the company expects non-GAAP gross margin of approximately 69.5%. Non-GAAP operating loss is anticipated at $40 million.

Conclusion

Pure Storage delivered stellar fiscal fourth-quarter results. The company is banking on robust adoption of cloud storage solutions, including Cloud Block Store, ObjectEngine Cloud, and CloudSnap.

Moreover, the company continues to enhance all-flash portfolio including AIRI, FlashArray, FlashBlade and FlahStack offerings with new low-latency and high-bandwidth support capabilities to aid customers accelerate high-performance applications efficiently.

Furthermore, the company is well poised to benefit from incremental adoption of latest subscription-based Evergreen, Modern Data Experience and Pure as-a-Service solutions. The robust adoption of latest subscription services is expected to drive profitability in the days ahead.

Nevertheless, pricing declines and tough business environment limited top-line growth in fiscal 2020. The company provided bleak revenue guidance for fiscal 2021.

Further, growing expenses on product development amid stiff competition NetApp and Dell is a headwind.

Zacks Rank & Key Picks

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

Some better-ranked stocks in the broader technology sector are Dropbox, Inc. (DBX - Free Report) , Microchip Technology Incorporated (MCHP - Free Report) and Garmin Ltd. (GRMN - Free Report) , each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Long-term earnings growth rate for Dropbox, Microchip and Garmin is currently pegged at 22.2%, 13.28% and 7.35%, respectively.

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