A month has gone by since the last earnings report for Pure Storage (PSTG). Shares have lost about 10.6% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Pure Storage due for a breakout? 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
Pure Storage reported non-GAAP earnings of 31 cents per share in third-quarter fiscal 2023, which beat the Zacks Consensus Estimate by 19.2% and increased 40.9% on a year-over-year basis.
Total revenues increased 20% from the year-ago reported quarter to $676.1 million. Moreover, the top line surpassed the Zacks Consensus Estimate by 0.6%.
The upside can be attributed to the momentum in Product and Subscription services and revenue growth in the domestic and international businesses. Considerable revenues from sales to Meta also acted as tailwinds.
Quarter in Detail
Product
revenues (contributing 64% to total revenues) amounted to $431.3 million, up 15% on a year-over-year basis.
Subscription
services revenues (36%) of $244.8 million rose 30% on a year-over-year basis. The upside can be attributed to ongoing support contracts and the robust adoption of Evergreen subscription services and synergies from Portworx acquisition.
Subscription annual recurring revenues (ARR) amounted to more than $1 billion, 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.
Total revenues in the United States moved up 21% and the same in International increased 19% year over year. International revenues were significantly affected by forex volatility.
Pure Storage has also been gaining from its growing clout of FlashArray, FlashArray//C, and FlashBlade, cost-effective storage array solutions. The said solutions provide customers higher performance capabilities and enable them to run complex cloud workloads on a single platform.
Pure Storage added more than 390 customers in the reported quarter. The company’s customer base has more than 11,000 customers and represents 58% of Fortune 500 companies.
Margin Highlights
The non-GAAP gross margin expanded 240 basis points (bps) from the year-ago reported quarter to 70.9%.
The non-GAAP Product gross margin expanded 340 bps from the year-ago reported quarter to 70.1%. The non-GAAP Subscription gross margin was 72.3%, which expanded 30 bps on a year-over-year basis.
Non-GAAP operating expenses, as a percentage of total revenues, were 55% compared with 56.2% reported in the prior-year quarter.
Pure Storage reported a non-GAAP operating profit of $107.2 million compared with the non-GAAP income of $69.5 million reported in the year-ago quarter. The non-GAAP operating margin stood was 15.9% compared with 12.3% reported in the prior-year quarter.
Balance Sheet & Cash Flow
Pure Storage exited the quarter ended Nov 6, with cash and cash equivalents and marketable securities of $1.5 billion compared with $1.4 billion as of Aug 7.
Cash flow from operations amounted to $154.7 million compared with $127.1 million in the prior-year reported quarter. Free cash flow was $114.8 million compared with $101.3 million reported in the previous-year quarter.
In the fiscal third quarter, the company returned $24.5 million to shareholders by repurchasing of 0.9 million shares. The company has approximately $100 million remaining under the $250 million share-repurchase plan.
Deferred revenues increased 31.3% to $1.248 billion in the quarter under review. The remaining performance obligations at the end of the fiscal third quarter totaled $1.575 billion, up 26% year over year. The metric represents total committed non-cancellable future revenues.
Guidance
Pure Storage expects revenues of $810 million for fourth-quarter fiscal 2023, indicating growth of 14% from the year-ago reported figure.The non-GAAP operating income for the fiscal fourth quarter is expected to be $130 million. The non-GAAP operating margin is expected to be 16%.
For fiscal 2023, Pure Storage expects revenues of $2.75 billion, indicating year-over-year growth of 26%.
The non-GAAP operating income is expected to be $430 million and the non-GAAP operating margin is expected to be 15.6%. Earlier, the non-GAAP operating income was expected to be $390 million and the non-GAAP operating margin to be 14%.
How Have Estimates Been Moving Since Then?
It turns out, estimates revision have trended upward during the past month.
The consensus estimate has shifted 88.89% due to these changes.
VGM Scores
Currently, Pure Storage has a great 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 D on the value side, putting it in the bottom 40% 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. Notably, 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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