Pure Storage Stock Soars On Cloud, All-Flash Growth

‘As a growing, share-taking company, we expect every quarter to be record breaking, but this quarter was extraordinary. Sales, revenue, and profitability were well above expectations. Revenue growth this quarter exceeded 23 percent, and we had the highest Q2 operating profit in our history,’ says Pure Storage CEO Charlie Giancarlo.

Pure Storage stock rose sharply Thursday a day after the company reported growth in cloud services combined with a big push from the post-COVID pandemic recovery.

Investors, sensing the future growth potential for Pure Storage, pushed the company’s shares up by over 14 percent to $23.90 per share at the end of trading.

Pure Storage CEO Charlie Giancarlo, talking Wednesday during his prepared remarks for the company’s quarterly financial analyst conference call, called the second fiscal quarter 2022 an outstanding one for the Mountain View, Calif.-based company.

“As a growing, share-taking company, we expect every quarter to be record breaking, but this quarter was extraordinary,” Giancarlo told analysts. “Sales, revenue, and profitability were well above expectations. Revenue growth this quarter exceeded 23 percent, and we had the highest Q2 operating profit in our history.”

[Related: Pure Storage CEO Charles Giancarlo’s 10 Boldest Remarks From BoB Virtual 2021]

Giancarlo said he was especially pleased with the growth of both new and existing products, the balance of performance geographically, and the continuing penetration of cloud and large enterprises.

“These are all key parts of our long-term strategy that we’ve shared over the past several years,” he said. “These results also show that our strategy of investing into the pandemic, and specifically investing in our enterprise sales capability and expanding our product line, was the right one.”

Pure Storage had been predicting its growth would accelerate as businesses adjusted to the COVID-19 coronavirus pandemic environment, and now believes growth will be even stronger as businesses return to an in-office environment, Giancarlo said.

“Looking ahead, we expect that businesses will continue to adjust to the effects of the pandemic while driving digital transformation,” he said. “We believe that the delta variant has slowed a return to the office environment only temporarily, and that large-scale global vaccinations will do much to enable a full return to normal by spring of next year. As we indicated last quarter, we believe that the current environment enables us to return to our historical double-digit growth rates with increasing profitability.”

Our leadership and innovation of the data storage and management market continues to grow.

Pure Storage’s strategy is focused on delivering a unified cloud operating and procurement model across all data storage use-cases and environments, enabling modern cloud-native applications built on containers, and driving the modernization of today’s infrastructure with a focus on the all-flash future, and the company’s second fiscal quarter 2022 reflect that strategy, Giancarlo said.

This past quarter provided many areas of outstanding performance, highlighted by the highest total sales for any second quarter in the history of the company, growing more than 30 percent year over year; continued strength and momentum in subscription services revenue, up 31 percent year-over-year with strong growth in Pure as-a-Service, which almost doubled revenues compared to the prior year; and our success in large enterprise [clients] with our top 10 customers spending more than $100 million in total,” he said.

Other highlights for the quarter include a tripling of sales of both Pure-as-a-Service and Pure Storage’s Portworx containerized storage services and an almost 50-percent year-over-year increase in total subscription sales, he said.

On the on-premises side, Pure Storage’s FlashArray//C entry-level all-flash storage array saw quarterly sales triple those of last year, Giancarlo said.

“It remains the fastest growing new product in Pure’s history, and is enabling customers to transition to an all-flash data center,” he said. “Cloud customers in particular are making use of FlashArray//C to improve their reliability, to reduce their environmental footprint, and to lower their operational costs.”

Kevan Krysler, Pure Storage’s chief financial officer, said during his prepared remarks that the company acquired 380 new customers representing a 10-percent year-over-year growth, with particular strength with new enterprise customers this quarter.

During the question and answer period following prepared remarks, when ask whether Pure Storage saw any surprises during the quarter, Giancarlo responded that the company continues to gain share and had such a good quarter because it has been preparing portfolio of products that are second to none.

“And while that was being done during the beginning of the COVID crisis, of course, there‘s a lot of disruption in our customer base,” he said. “But as the customers have become accustomed to operating within the COVID environment, that portfolio and our focus on developing a set of enterprise capabilities, both in sales support as well as with our products, is finally all coming together and hitting stride. And so no, we expect this to be the beginning, if you will, of very evident growth for the company as we go forward.”

When asked about possible supply chain issues during the quarter, Giancarlo said the company is doing a great job with its operations team in partnership with its suppliers.

“Obviously, the environment, from our perspective hasn‘t changed much from what we saw last quarter,” he said. “We just continue to be focused on it. ... This will be an area that we will continue to focus on through second half. We’ll manage that. But again, a testament to our sales team to continue selling the value, especially the software value associated with our solutions.”

Another analyst asked about component costs, to which Giancarlo responded that Pure Storage has seen an average increase of about 10 percent this year in increased component costs.

“But of course, we live in a longer-term deflationary environment on component costs,” he said. “So, we really view that as a temporary phenomenon having to do with supply chain shortages, and that should come back in the next year or so to the standard long-term price reduction curve that exists in that environment. We‘re already starting to see the signs of an inflationary environment around wages. Our forecast and guides take that into account, but certainly, what you speak of is becoming evident.”

Krysler said it is important to point out that Pure Storage’s approach to sourcing raw NAND really continues to be an advantage for the company when compared to competitors who leveraged sourced SSDs.

“[Our] leveraging our software capabilities to enable NAND management is really beneficial for us in this time as well,” he said.

Giancarlo also said that the company continues to investigate M&A opportunities.

“We believe that M&A that really enhances our ability to provide a cloud operating model for our customers is the right way for us to be focused,” he said in response to a question from an analyst. “And there isn‘t a quarter or even a week that goes by where we’re not investigating potential combinations for the company.”

For its second fiscal quarter 2022, Pure Storage reported total revenue of $496.8 million, up over 21 percent compared to the $403.7 million the company reported for its second fiscal quarter 2021.

That included product revenue of $324.9 million, up from $272.9 million, and subscription services of $171.9 million, up from $131.4 million.

The company reported a GAAP net loss of $45.3 million, or 16 cents per share, for the quarter, which was much better than the net loss it reported of $65.0 million, or 25 cents per share, last year. On a non-GAAP basis, Pure Storage reported net income of $43.0 million, or 14 cents per share, up significantly from the $17.5 million, or 6 cents per share, it reported last year.