Pure Storage: Fiscal 3Q20 Financial Results

(in $ million)	3Q19	3Q20	9 mo. 19	9 mo. 20
Revenue	372.8	428.4	937.6	1,151.4
*Growth*		15%		*23%*
Net income (loss)	(28.2)	(30.0)	(152.6)	(196.3)

Pure Storage, Inc. announced financial results for its third quarter ended October 31, 2019.

“Our continued market-beating growth is a result of ever more customers realizing the superior value that our solutions offer,” said Charles Giancarlo, chairman and CEO. “With one integrated data platform, Pure’s Modern Data Experience frees our customers to benefit from infrastructure that enables them to better manage their applications and data to fuel their digital transformation.“

Financial Highlights:

Revenue: $428.4 million, up 15% Y/Y
Gross margin: GAAP 70.2%; non-GAAP 71.7%
Operating margin: GAAP -6.6%; non-GAAP 6.8%

Recent Company Highlights:
Third quarter yielded growth as customers continued to select modern approach that enables organizations to better utilize their data across both their private and public cloud infrastructures.

Product innovation performance this quarter as the company released:

VM Analytics Pro – a new feature bundle offered within Pure1, allowing customers to map out their infrastructure more efficiently and intelligently discover and resolve issues.
Cloud Block Store on AWS – enterprises can migrate applications to and from the public cloud with minimal re-architecture, and leverage public cloud economics for any use case.
FlashArray//C – capacity-optimized AFA, built to bring consistent all-flash performance with tier-1 reliability at disk economics with customer adoption including ServiceNow and European-based Idealista.
DirectMemory Cache – a combination of Purity and Intel Optane storage class memory providing FlashArray//X customers with a software-based accelerant that delivers performance improvement for applications that require high-performance storage.
Expanded FlashBlade capacity and introduced the AI Data Hub and AIRI as-a-Service, extending traditional analytics and providing more performance and security at a lower cost.
Pure as-a-Service – Portfolio of integrated solutions, giving customers choice of both CAPEX and OPEX business models.

Organizational Changes

Kevan Krysler will be joining as new CFO. Most recently, he serves as the SVP of finance and chief accounting officer at VMware and brings experience in finance and the industry. Prior to that, he was a partner with KPMG, where he serv-ed both multi-national and emerging software and technology companies.

4FQ20 guidance:

Revenue in the range of $484 million to $496 million, or $490 million at the midpoint
Non-GAAP gross margin in the range of 67.5% to 70.5%, or 69.0% at the midpoint
Non-GAAP operating margin in the range of 10.0% to 14.0%, or 12.0% at the midpoint

FY20 guidance:

Revenue in the range of $1.635 billion to $1.647 billion, or $1.641 billion at the midpoint
Non-GAAP gross margin in the range of 69.2% to 70.1%, or 69.6% at the midpoint
Non-GAAP operating margin in the range of 2.6% to 3.9%, or 3.2% at the midpoint

Comments

Quarterly revenue increased 8% Q/Q and 15% Y/Y, this later percentage being apparently the lowest in the company's history. Last quarter, it was 28% Y/Y.

Stock plunges 23% after earnings miss.

Net loss continues as it was the case since the inception of Pure, but at an amount of $30 million, probably the lowest figure never recorded by the AFA maker, even if finally it never was profitable.

At the end of the quarter, deferred revenue was $643 million, an increase of 39% Y/Y and included a record amount of Pure as-a-Service deal, again formerly ES2.

Pure finished the quarter with cash and investments of $1.2 billion, an increase of $59 million from the previous three-month period. Free cash flow in 3FQ20 was positive at $43 million.

Total customers

The firm finished the quarter with 7,000 customers, adding approximately 6 net-new customers per day, equating to nearly 400 new customers in 3FQ20. The government segment in particular continued to be accelerating in this period, with business doubling on a year-to-date basis.

CEO Charles Giancarlo commented: "Continued pricing declines, which were higher than we expected, accounted for the gap to our revenue expectations at the beginning of the quarter, although we are also seeing signs of a more challenging global business environment as commented on by other large infrastructure suppliers."

Despite these in-quarter headwinds, Pure achieved all-time-high gross margins for the most recent quarter of 71.7%, above guided range of 66% to 69%. Operating margin for the quarter was 6.8%, at the high end of guided range.

The firm will finished FY20 with a record of more than $1.6 billion in revenue, up between 20% and 21% from FY19.

Revenue in $ million
(FY ended January 31)

Period

Revenue

Y/Y growth

Loss

FY13

6.1

(23.4)

FY14

42.7

603%