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Pure Storage: Fiscal 1Q17 Financial Results

Decline of revenue for first time, and record loss

(in $ million) 1Q16 1Q17 Growth
Revenue
74.1 139.9 89%
Net income (loss) (49.1) (63.5)  

Highlights:

  • Quarterly revenue: $139.9 million, up 89% Y/Y, and ahead of the guidance range
  • Quarterly gross margin: 66.5% GAAP; 67.3% non-GAAP, up 6.5 ppts and 6.8 ppts YYY, respectively
  • Quarterly operating margin: -45.6% GAAP; -29.4% non-GAAP, up 19.5 ppts and 23.8 ppts Y/Y, respectively

We are pleased to report another strong quarter,” said Scott Dietzen, CEO. “Year over year, our revenue growth continues to dramatically outpace both our storage industry competitors and the broader enterprise technology sector. While the legacy players retool complex, 20-year-old products to compete, customers continue to be attracted to Pure’s simplicity and superior customer experience across flash-optimized software, hardware, our Evergreen business model and cloud management.”

Pure delivered robust April quarter results, with better-than-expected revenue and improving margin performance year over year,” said Tim Riitters, CFO. “We continue to expect to reach sustained positive cash flow by the second half of calendar year 2017.”

In the quarter, Pure Storage grew its customer base to more than 1,950 organizations, adding almost 300 new customers, including SoftBank, the University of Melbourne, The World Bank and GMO cloud K.K., Japan’s largest Internet hosting company.

Second Quarter Fiscal 2017 Guidance:

  • Revenue in the range of $153 million to $157 million
  • Non-GAAP gross margin in the range of 65% to 68%
  • Non-GAAP operating margin in the range of -30% to -26%

Comments

For the first time, Pure Storage recorded a quarterly decline in revenue, down 7% Q/Q (but up 89% Y/Y), "which is seasonally typical for enterprise IT in the first quarter of the year," for CFO Tim Riitters. It was not the case in 1FQ16 with Q/Q growth of 34%.

Product revenue in 1FQ17 grew 76% Y/Y, driven by repurchase trends and new customer additions, but decreased 12% Q/Q to $111.7 million. Support revenue grew 170% Y/Y and 23% Q/Q to $28.2 million, driven by continued revenue recognition of ongoing support contracts. Support accounted for 20% of total sales versus 14% in the year ago period.

79% of revenue came from the U.S. and 21% from international. This compares to a 78%/22% split in the prior fiscal year.

Pure Storage never was profitable with now an accumulated deficit of more than half billion dollar since its inception and profitability is far from now. "We're on plan to make FY17 the turning point in terms of absolute losses," said the company.

Main reason is that the firm was spending a lot during the three-month period: R&D investment in absolute dollars increased 47.0% year on year, sales and marketing expense of $75.1 million represented 53.7% of revenue, G&A spend grew 67.8% year over year, headcount is over 1,500 up from over 1,300 at the end of 4FQ16, largely attributable to sales hiring.

The finished the April quarter with cash and investments of $607 million, reflecting a modest uplift from former Q4 ending balance. Free cash flow was negative at $17.6 million or 13% of revenue.

Latest product FlashBlade with new flash architecture is targeting for general availability for later this year.

CEO Scott Dietzen comments on the customer base: "Pure now serves 72 of the Fortune 500, up from 66 one quarter earlier. The World Bank became a Pure customer in the quarter, as did Bank of New York Mellon which is using Pure to build its own private cloud. Softbank, one of Japan's largest wireless carriers, chose Pure to support its cloud-based desktop as a service offering, vastly boosting performance and operational efficiency. The University of Melbourne, one of the top 50 universities in the world, now uses Pure to support 1,200 virtual machines. And GMO CLOUD, Japan's largest Internet hosting company, also chose Pure for its cloud service."

About the Dell/EMC merger, he is not anxious, writing in a blog on May 25, 2016: "Together [they] have nine distinct all-flash storage offerings. The uncertainty over which of those products will survive (e.g., all-flash VMAX now appears to have a leg up on XtremIO), and what role the channel will play in its combined go to market, as well as their level of integration with non-Dell servers, is creating uncertainty for others and an opportunity for Pure." 

Period Revenue Q/Q  growth Loss
2FQ15 24.6 NA (30.0)
3FQ15 34.8 41% (65.2)
4FQ15 49.2 41% (40.4)
FY15 174.5 NA (183.2)
1FQ16 65.9 34% (47.6)
2FQ16 74,1 12% (49.1)
3FQ16 131.4 77% (56.5)
4FQ16 150.2 14% (44.3)
FY16 440.3** 152%* (213.8)**
1FQ17 139.9 -7% (63.5)

 * Y/Y growth

** For unknown reasons, the total revenue for the year ($440.3 million) published is superior to the addition of the four quarters of the year ($421.6 million) as reported. Yearly loss ($213.8) is also superior to the addition of the four quarters of the year ($197.5 million).

To read the earnings call transcript

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