UPDATED 18:57 EDT / AUGUST 21 2018

INFRA

Pure Storage shares rocket 14% after solid earnings and first acquisition

Updated:

Everything came together today for Pure Storage Inc.

In its fiscal second quarter reported today, the maker of all-flash-memory storage devices said its customers’ accelerating move to flash storage combined with stabilization in component pricing helped the company beat its revenue and margin forecasts and raise its full-year guidance.

Investors celebrated by bidding shares up 9 percent in immediate after-hours trading. Update: Shares shot up more than 14 percent Wednesday.

Quarterly revenue rose 37 percent from the same quarter a year ago, to $309 million, beating the high end of the company’s previous guidance of $304 million as well as consensus analyst estimates. Gross profit margins of 60 percent also beat high-end guidance and the company turned a surprise profit of a penny per share in the quarter compared with consensus estimates of a loss of 6 cents.

The company raised its third-quarter and full-year estimates, forecasting that quarterly revenues will come in between $361 million and $369 million, or a growth rate of between 30 and 32 percent. The full fiscal-year forecast revenue of between $1.35 billion and $1.38 billion was about $20 million higher than the midpoint of earlier guidance. Pure Storage also issued preliminary guidance of revenues of $1.78 billion for fiscal year 2020.

“We had an exceptional quarter with all metrics above our forecast range,” Chief Executive Charlie Giancarlo (pictured) in an interview with SiliconANGLE. “Now that we’re profitable on an annualized bases, our focus is on growth. We’ve got our foot on the gas.”

Growth was balanced across Pure Storage’s three major customer segments of enterprises, cloud providers and midsized corporations, he said. Just 26 percent of revenues come from international customers, making overseas growth an opportunity.

Executives said the company’s early bet on nonvolatile memory express or NVMe, a high-speed protocol for handling the flow of information between the processors in a server and the solid-state memory attached to that machine, is paying off. Pure Storage recorded a record 400 new customer sales in the quarter and the largest number of $1 million-plus deals in its history. “Flash array win rates were incredible, driven by new all-NVMe products,” said President David Hatfield.

Morgan Stanley analyst Katy Huberty called the NVMe shipments impressive. “The company’s differentiated NVMe offering allows it to hold pricing better than competitors which flows through to higher margins for FlashArray//X relative to the rest of the product portfolio,” she wrote in a note to clients.

Analyst Patrick Moorhead of Moor Insights & Strategy didn’t find the results surprising. “I believe Pure can keep the revenue growth going,” he said. “It still has a very differentiated offering and the most focus of anyone.”

Growing enterprise interest in artificial intelligence is another key factor fueling growth, Giancarlo said. AI applications typically require large amounts of processing power and storage, with performance being a critical issue with machine learning algorithms.

“One reason we’re so excited is we tend to win all of those [AI] deals,” he said. Among the new AI-focused deals the company closed in the quarter were the New York Genome Center Inc. and the the University of Texas MD Anderson Cancer Center.

First-ever acquisition

Coincident with the earnings report, Pure Storage also announced that it has acquired StorReduce Inc., a small maker of software for data deduplication and cloud migration. “We can now optimize many modern cloud-native applications as well as many existing unstructured data workloads, in particular rapid recovery, at a faster rate,” StorReduce CEO Vanessa Wilson said in a statement. The terms of Pure’s first-ever acquisition weren’t disclosed.

“This acquisition allows Pure to better offer a seamless experience to customers storing data across both public and private cloud data centers,” Huberty noted. “It also allows Pure Storage to catch up with competitors who cultivated relationships with the large cloud providers over the past year given StorReduce has established relationships with the big three cloud vendors and a particularly strong relationship with AWS.”

Executives said the company’s early lead in the market, combined with growing customer acceptance of flash means it now commands a premium for its products, enabling it to both grow revenue and operating margins. Meanwhile, competition from rigid disk makers is falling away as customers buy in wholesale to flash technology.

“For the first time I see customers starting to make decisions with the recognition that within a year or two everything is going to be flash,” Giancarlo said. “Do they want to be stuck with a magnetic array or start down the flash path now?”

Competition from Dell Technologies Inc.’s Dell EMC division apparently hasn’t materialized, despite that company’s insistence that it was turning around its storage business. “Dell has changed the culture of EMC and we see a lot of those folks leaving,” Hatfield said. “Dell seems more focused on top-line servers than on storage.”

Meanwhile, flash component prices have finally started to come down after two years of often acute shortages. “We’ve been predicting for a year that we’d start to see a decline of flash pricing in the second half of this year and we’re seeing that,” Giancarlo said. “We feel good about pricing for the rest of the year.”

Giancarlo went into more detail about Pure’s strategy in a conversation with theCUBE, SiliconANGLE’s livestreaming studio, at Pure’s annual Accelerate conference in May:

Photo: SiliconANGLE

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