Software, Cloud Push Pure Storage Into Second Full Non-GAAP Profitable Year

Pure Storage Chairman and CEO tells analysts that the storage company's focus on building cloud-focused storage and storage-as-a-service is giving the company the base on which to continue growing in the future.

Strong product differentiation and a focus on the cloud and storage-as-a-service has given Pure Storage the ability to close out its second full year of profitability and build for the future, said Chairman CEO Charles Giancarlo.

Giancarlo, speaking to financial analysts during the Mountain View, Calif.-based all-flash storage company’s fourth fiscal quarter 2020 financial conference call, said he is pleased with the company's fourth quarter which resulted in Pure Storage reporting record revenue and its largest bookings quarter.

These are the results of a strategy tying all the company's products together under a single software base and closely to the cloud, Giancarlo said.

[Related: Pure Storage CEO Giancarlo Talks Cloud, Exec Changes, And Having '56 Billion More Dollars Than Dell']

"Our portfolio of products running our unified Purity software, and all managed by our PureOne cloud, can now serve the majority of data workloads for our customers," he said. "Mission critical production, test/dev, analytics, disaster recovery, and backup and recovery in all environments, on-premise, in-cloud, and hybrid."

The Purity software platform brings performance, simplicity, and cloud-era API automation to storage at any scale in what Giancarlo called the company's modern data experience.

"And we are succeeding by helping our customers transform their storage operations to a modern shared as-a-service model," he said.

Pure Storage is delivering its modern data experience through a portfolio of solutions and services built around what Giancarlo called four key tenants: fast matters, cloud everywhere, simple is smart, and a subscription to innovation.

"These tenants drive our engineering innovation engine and resonate with customers because it aligns with their requirements for cloud-like API driven operations and performance across their infrastructure," he said. "It enables them to deliver a storage-as-a-service experience to meet the needs of their developers, DevOps teams, and modern applications."

Pure Storage's move to help businesses transform their storage operations from manually-managed silos to shared as-a-service models gives them choice and flexibility in how they consume and manage storage, Giancarlo said.

This includes the company's subscription services based on Cloud Block Store, Pure-as-a-service, and Evergreen business model which promises free upgrades to the latest technology every three years, he said.

"Cloud Block Store on AWS, released in Q2 of last year, is helping customers implement migration, test/dev, and disaster recovery use cases for mission-critical applications," he said. "And Cloud Block Store is now in beta for Microsoft Azure."

Pure Storage also joined Google Cloud's Anthos Ready Storage initiative for multi-cloud deployments this month, and recorded its largest-ever bookings of Pure-as-a-service during the fourth quarter, he said.

To help accelerate that growth, Pure Storage this week also unveiled its new third-generation FlashArray//X all-NVMe flash arrays with an average 25-percent increase in performance thanks to the new second-generation Intel Xeon Scalable processors, Giancarlo said.

Pure Storage in the third quarter also introduced its all-new FlashArray//C, which Giancarlo called the first and only all-flash product in the industry to bring flash performance to tier-two application economics. It is based on low-cost QLC flash memory technology.

Giancarlo said the coronavirus outbreak is on customers' minds, but is so far having no impact on Pure Storage.

Pure Storage sympathizes with everyone directly affected by the virus, and commends everyone working tirelessly to address it, he said.

"We have taken active measures to ensure the safety of our employees and those of our supply chain partners," he said. "Based on what we know today, we do not anticipate a significant impact to this quarter's supply and operations, although the situation remains quite fluid. Pure has in place a multi-continent supply chain strategy to source components and assemble our products. And we continue to monitor the developing situation diligently.

When asked by an analyst how Pure Storage sees the current flash memory pricing environment, Giancarlo said that the company in early fiscal 2020 saw price declines that were "breath-taking" and that were created by a free-fall in NAND pricing.

"NAND prices do fall every year, which is generally good for us because it creates elasticity in the market and allows us to go after more magnetic storage, which we're very excited about," he said. "But when [the costs drop] very suddenly, it doesn't let prices keep-up."

NAND prices in the fourth fiscal quarter were more in-line with what Pure Storage was used to seeing, generally year-in and year-out in normal years, Giancarlo said.

"And we know that the commodity prices have stabilized for some time, and are projected to go up next year," he said. "And so that [makes us expect] a normal pricing environment, one in which we can hopefully regain even better growth initiative and certainly allow us to grow ahead of the industry."

An analyst who noted that Pure Storage has been reporting strong gross margins asked how the company might use them, and Giancarlo said it could use them to either fund its business or fund pricing declines compared to competitors.

"Our belief is in fact it's the software value that we provide that is having our customers paying 10-[percent] to 20-percent premiums vs. our competition," he said. "And we don't really believe that we ever lose a deal based on price. We do lose deals, and when we do the price may be lower than ours, but generally it will be for other reasons. We could certainly trade off price for more wins, but we don't believe that's what we're seeing right now. We continue to believe that expansion of our salesforce, more feet on the street, calling on more customers on more opportunities, is the right way to use our margin."

When asked by an analyst about opportunities to expand Pure Storage's Cloud Block Store and similar offerings, Giancarlo said that 95 percent of the company's developers are software developers.

"We're a software company that started out by shrink-wrapping [our software] in iron," he said. "And now, more significantly, we have products such as Cloud Block Store, which is 100-percent of our Purity software operating on top of [Amazon Web Services] and now in beta on Azure. And it's a unique and unified software offering operating across all of our products. It's multi-cloud, multi-platform, and pretty soon, with respect to FlashArray, multi-tier and multi-protocol."

This is a big differentiator for Pure Storage, said Giancarlo.

"Most of our competitors have multiple products to deal with different workloads and environments," he said. "We're going to be able to satisfy it with one software base managed by a single management system in PureOne."

When asked by an analyst about Pure Storage's operational efficiencies, Giancarlo said the company has a big push planned for this year to expand the efficiency and effectiveness of its channels.

Channel partners in the past relied on Pure Storage to do most of the selling, he said. "As we're getting bigger, and as a greater percentage of their portfolio is based on Pure, they're training more of their staffs to do more of the selling," he said.

Pure in the past was also deficient in its positions and materials to better enable its channel partners to be independent, Giancarlo said.

"There's been a big initiative starting last year but on-going this year, and I think we'll see more fruit coming out of that this year," he said.

For its fourth fiscal quarter 2020, which ended February 2, Pure Storage reported revenue of $492.0 million, up 17 percent over the $422.2 million the company reported for its fourth fiscal quarter 2019.

This included product revenue of $376.5 million, up from last year's $340.1 million, and subscription services revenue of $115.5 million, up from last year's $82.1 million.

On a GAAP basis, Pure Storage reported a net loss of $4.7 million, or 2 cents per share, a big improvement from last year's net loss of $25.8 million, or 11 cents per share.

On a non-GAAP basis, the company reported net income of $63.9 million, or 23 cents per share, up significantly from last year's $37.0 million, or 14 cents per share.

Full fiscal year 2020 revenue reached $1.6 billion, up 21 percent over last year's revenue of $1.4 million. That included product revenue of $1.2 million, and subscription services revenue of $404.8 million.

Pure Storage reported a full fiscal year 2020 GAAP net loss of $201.0 million, or 79 cents per share, up slightly from last year's net loss of $178.4 million, or 77 cents per share.