Pure Storage Inc. today reported fourth-quarter financial results that topped the market’s revenue and profit expectations.

Despite the strong results, the company’s stock was down almost 8% in after-hours trading. The selloff may be related to its first-quarter guidance, which projects lower adjusted operating income than what analysts had hoped for. 

Pure Storage makes all-flash storage arrays that read and write data faster than traditional disk systems. The company’s appliances are organized into two product lines. The FlashBlade array series is optimized to store unstructured data, while the FlashArray system family is geared towards structured information and provides higher capacity.

Pure’s //E flash array products are seeing strong adoption, but Steve McDowell of NAND Research told SiliconANGLE that was a mixed blessing that may have contributed to the stock decline for Pure. “Efficiency-targeted all-flash arrays are a growth driver for Pure, but they’re also lower-margin than its performance-oriented arrays,” he said.

The company sells its hardware alongside a collection of software tools. Its Portworx platform, which it obtained through a 2020 startup acquisition, helps manage storage capacity in container clusters. It also provides software tools for related tasks such as creating backups and blocking ransomware.

Revenue climbed 11% year-over-year, to $879 million in the fourth quarter, topping the $870.4 million consensus estimate. The better-than-expected sales increase was partly driven by the growth of Pure’s installed base. The company ended the three months through Feb. 2 with more than 13,5000 customers, up from about 11,000 the same time a year earlier.

“Pure is simply executing well,” McDowell said. “This is its eight consecutive quarter beating estimates and has shown greater than 10% year-over-year growth in three of the last four quarters. None of its competitors can say that.

Subscription business was another source of sales growth. The segment reached $385.1 million in quarterly revenues thanks to a 17% year-over-year increase, meaning it outpaced the company as a whole. The business’ annualized recurring revenue grew at an even faster clip.

Pure Storage enables companies to purchase its arrays through a collection of subscriptions called Evergreen. Two of the plans remove the need for companies to buy their storage equipment upfront, which eases procurement. A third subscription provides customers who opt for an upfront purchase with access to software updates and component replacements.

The company is prioritizing the artificial intelligence market as part of its efforts to maintain revenue growth. In the fourth quarter, the company launched a collection of AI system designs called the Pure Storage GenAI Pod. The designs combine the company’s arrays with hardware from partners such as Nvidia Corp., with software and professional services.

McDowell noted that Chief Executive Charlie Giancarlo called out AI as a “growth driver,” but the analyst said there’s not much evidence that storage from any vendor is yet seeing strong tailwinds from AI. “It’s coming, but it’s just early,” he said. “Dell and NetApp both announce tomorrow, so that’ll give us the real level-set on AI and storage.”

The revenue growth Pure logged in the fourth quarter had a positive impact on its profitability. It generated $153.1 million in adjusted operating income, which translated to adjusted earnings of 45 cents per share. Analysts polled by Zacks had anticipated 42 cents.

Despite the strong fourth-quarter results, the company is projecting adjusted operating income of $83 million for the current quarter, which is below the $90 million that the market had expected. That may have contributed to the after-hours stock decline. The company’s revenue guidance of $770 million is in line with the consensus estimate.

For the full fiscal year, it’s forecasting adjusted operating income of $595 million on $3.51 billion in sales.

Image: Pure Storage