It has been about a month since the las t earnings report for Pure Storage (PSTG). Shares have added about 6.4% 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 the most recen t earnings report in order to get a better handle on the important drivers.
Pure Storage Lags Q4 Earnings & Revenue Estimates
Pure Stora ge report ed non-GAAP earnings of 14 cents per share in the fourth quarter of fiscal 2019, missing the Zacks Consensus Estimate of 18 cents. The figure however increased on a year-over-year basis.
Although total revenues surged 24% from the year-ago quarter to $422.2 million, it lagged the Zacks Consensus Estimate of $443 million. Revenues were also below the management's guidance of $438-$446 million.
Revenues were below expectations primarily due to "a process breakdown at a contract manufacturer prevented a number of orders from shipping in the quarter." Moreover, the second reason was the company "exceeded its expectations in selling the company's ES2 subscription offering, which ultimately drives positive long-term economics for Pure, but resulted in lower revenue recognized in the quarter."
Nonetheless, the year-over-year increase in revenues can be attributed to robust business fundamentals, strong FlashBlade implementation, higher adoption of new products and strong go-to-market strategies.
In the fourth quarter, Product revenues (representing 80.6% of total revenues) of $340.1 million increased 19.7% on a year-over-year basis, primarily on the back of existing customers and continued expansion of customer base.
Non-GAAP Product gross margin was 67.8%, up 130 basis points (bps) on a year-over-year basis due to FlashBlade's increased contribution to revenues.
The company's strong product portfolio, including the likes of FlashArray, FlashStack and FlashBlade business segments, drove year-over-year growth.
Pure Storage recently unveiled flash and cloud-based ObjectEngine solution. The latest backup and restore storage solution is designed to enable customers to modernize data protection strategy.
Additionally, ObjectEngine users can access the required data in real time through a faster, secure and cost-effective medium.
Further, the company launched DirectFlash Fabric for end-to-end NVMe and NVMe-oF support, helping customers to enhance performance of mission-critical applications and web-scale applications.
Pure Storage's first-ever buyout of StorReduce remains a notable development in the quarter under review. Management remains elated on gaining StorReduce's de-duplication technology. The company announced the availability of StorReduce to provide backup and speed up the analytics processes for data warehouses.
We believe that the company dominates the space, driven by its robust all-flash and NVMe portfolio, leaving companies like NetApp (NTAP - Free Report) , Dell EMC and Hewlett Packard Enterprise trailing.
Support subscription revenues (19.4%) of $82.1 million increased 47% on a year-over-year basis, driven by the company's ongoing support contracts.
Non-GAAP Support subscription gross margins were 66.8%, up 140 bps on a year-over-year basis.
During the reported quarter, Pure Storage added more than 400 customers, bringing the total base to more than 5,850 organizations. Management remains elated on strong growth witnessed in Global 2000, Fortune 500, big government organizations and healthcare companies as well as leading 1000 cloud vendors.
Geographically, the United States comprised 71% of total revenues while remaining 29% came from international markets.
Non-GAAP gross margin was at 67.6%, up 130 bps from the year-ago quarter. Strength in gross margin was primarily driven by better-than-expected growth in products, lower costs and benefits related to the launch of FlashArray//X product line.
Pure Storage reported non-GAAP operating income of $31.1 million compared with the year-ago quarter figure of $24.9 million. Non-GAAP operating margins during the reported quarter were 7.4%, up 10 bps year over year. This year-over-year improvement was due to the company's sustained focus on improving operational efficiency and higher revenue base.
Balance Sheet & Cash Flow
Pure Storage exited the quarter ended Jan 31, 2018, with cash and cash equivalents, and marketable securities of $1.2 billion compared with $1.1 billion reported in the previous quarter.
Cash flow from operations during the reported quarter was at $80.8 million compared with $56.5 million in the previous quarter.
Non-GAAP free cash flow without the impact of employee stock purchase plan (ESPP) for the quarter ended Jan 31, 2018, was reported at $34.3 million.
Fiscal 2019 Highlights
Pure Storage reported total revenues of $1.36 billion in fiscal 2019, which surged 33% year over year.
In fiscal 2019, Product revenues (representing 79% of total revenues) of $1.075 billion increased 28.9% on a year-over-year basis. Support subscription revenues (21%) of $284.2 million increased 49.4% on a year-over-year basis.
Pure Storage expects revenues of $327-$339 million in first-quarter fiscal 2020. Non-GAAP gross margin is anticipated to be 65-68%.
For fiscal 2020, management anticipated revenues of $1.735-$1.805 billion.
Non-GAAP gross margin is projected to be 65-68%. Non-GAAP operating margin is anticipated to be 3-7%.
How Have Estimates Been Moving Since Then?
Fresh estimates followed a downward path over the past two months. The consensus estimate has shifted -16.67% due to these changes.
At this time, Pure Storage has a strong Growth Score of A, though it is lagging a lot on the Momentum Score front with a D. Charting a somewhat similar path, 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 C. If you aren't focused on one strategy, this score is the one you should be interested in.
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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