Pure Storage Announces Third Quarter Fiscal 2021 Financial Results

Rhea-AI Summary

Pure Storage (NYSE: PSTG) reported Q3 2020 financials with revenue of $410.6 million, a 4% decline year-over-year. Subscription services revenue rose 29% to $136.1 million. Notably, GAAP gross margin was 67.3%, with a non-GAAP operating income of $3.4 million. The company announced the acquisition of Portworx to enhance its Kubernetes offerings. Although Q4 expectations indicate a decline to $480 million, ongoing strong demand in its Subscription Services and product sales reflects positive momentum in the hybrid cloud space.

Positive

• Subscription services revenue rose 29% year-over-year to $136.1 million.
• Total cash and investments amounted to $1.2 billion.
• Deferred revenue increased by 19% year-over-year to $762.8 million.
• Acquisition of Portworx enhances Kubernetes data services.
• FlashArray//C received Best of Show Award at Flash Memory Summit.

Negative

• Q3 revenue declined by 4% year-over-year.
• GAAP operating loss of $65.2 million reported.
• Expectations for Q4 indicate total revenue will decline by 2% year-over-year.

MOUNTAIN VIEW, Calif., Nov. 24, 2020 /PRNewswire/ -- Pure Storage (NYSE: PSTG), the IT pioneer that delivers storage as-a-service in a multi-cloud world, today announced financial results for its third quarter ended November 1, 2020.

"Our strategy and vision to deliver hybrid and multi-cloud data services is exciting the industry, our customers and developers alike," said Charles Giancarlo, Chairman and CEO of Pure Storage. "Pure made bold moves in the quarter to deliver on our strategy with the acquisition of Portworx and the addition of Dominick Delfino to lead our sales organization."

Third Quarter Financial Highlights 

• Revenue $410.6 million, down 4% year-over-year
• Subscription services revenue $136.1 million, up 29% year-over-year
• GAAP gross margin 67.3%; non-GAAP gross margin 69.1%
• GAAP operating loss $(65.2) million; non-GAAP operating income $3.4 million
• Operating cash flow was $32.8 million
• Free cash flow was $7.9 million
• Total cash and investments of $1.2 billion
• Deferred revenue $762.8 million, up 19% year-over-year
• Remaining performance obligations (RPO) exceeding $1.0 billion, up 25% year-over-year

"We are pleased with our financial performance and execution during the quarter which slightly exceeded our expectations at the beginning of the quarter," said Kevan Krysler, CFO of Pure Storage. "Key highlights include consecutive quarters of strong sales of our Subscription Services, and record sales during a quarter for our FlashBlade and FlashArray//C solutions."

Third Quarter Company Highlights

Pure continued setting the pace in the industry by changing expectations for data and storage management. The technology momentum in Q3 across the portfolio includes:

• Subscription Services momentum - Pure's Subscription Services, including Evergreen and unified Pure as-a-Service offerings, grew 29% year-over-year. Selecting Pure as-a-Service in Q3, leading organizations, including ME Bank in Australia and The University of Texas Health Science Center, recognize the flexibility and choice that these offerings provide. Our unified subscription, Pure-as-a-Service, which includes Cloud Block Store, enables customers to subscribe to storage in their data center and the cloud, paying for only what they consume, making migration to the public cloud possible at any time without worrying about stranded assets.
• Advancing Pure as-a-Service offerings - Today marks another milestone and industry first for the Pure as-a-Service offering with the announcement of the Pure Service Catalog, which includes a number of new service tiers. The new service tiers deliver increased transparency and flexibility for customers, allowing them to choose the right storage service level for each workload. Pure is also making Pure as-a-Service more accessible by offering lower cost service tiers.
• Acquisition of Portworx, market leader in Kubernetes storage - In Q3, Pure acquired Portworx, the leading Kubernetes data services platform that enterprises trust to run mission-critical applications in containers in production. By combining Portworx with Pure's industry-leading data platforms and Pure Service Orchestrator software, Pure provides a comprehensive suite of data services that can be deployed in-cloud, on bare metal, or on enterprise arrays, all natively orchestrated in Kubernetes.
• FlashArray//C Momentum - FlashArray//C, well into its second generation, continues to grow at an accelerated pace and this month, received the Best of Show Award at the Flash Memory Summit for Most Innovative Flash Memory Technology. The performance and financial efficiencies delivered by FlashArray//C enable customers to reduce the cost of running capacity-oriented workloads so significantly it eliminates the need for hybrid disk arrays.
• Strong FlashBlade momentum and AWS Outposts Designation - FlashBlade's unified fast file and object capabilities to consolidate and modernize unstructured data across a number of use cases including technical computing, analytics, backup and rapid restore is validated by strong customer momentum this quarter. Customers such as The First National Bankers Bank, Louisiana Office of Technology Services and Sinai Health System demonstrate that FlashBlade continues to be the leading choice to enable rapid recovery and defend against ransomware. Also in Q3, FlashBlade achieved the AWS Outposts Ready designation, delivering a hybrid cloud solution with all-flash performance, cloud scalability, and operational simplicity to accelerate modern applications and break down IT silos.

Guidance

Consistent with the prior quarter, Pure is sharing its internal expectations of Q4 business outlook, but will not provide formal guidance due to the resurgence and continued uncertainty of COVID-19.

Pure's current internal view of fiscal Q4 outcomes, which should not be viewed as guidance, is that total revenue for Q4 will be $480 million, a decline of two percent year-over-year. With the current view of revenue, Pure believes non-GAAP operating profit will be approximately $26 million in Q4.

Conference Call Information

Pure will host a teleconference to discuss the third quarter fiscal 2021 results at 2:00 p.m. PT on November 24, 2020. A live audio broadcast of the conference call will be available at the Pure Storage Investor Relations website at investor.purestorage.com. Pure will also post its supplemental earnings presentation and prepared conference call remarks to the Investor Relations website in advance of the call for reference. A replay will be available following the call on the Pure Storage Investor Relations website or for two weeks at (855) 859-2056 (or 404-537-3406 for international callers) with passcode 2343447.

Upcoming IR Events

• Pure will be presenting at the Credit Suisse 24th Annual Technology Virtual Conference on November 30 at 10:40 a.m. PT.
• Wells Fargo Technology, Media and Telecom Virtual Summit on December 2 at 9:00 a.m. PT.
• Barclays Global Technology, Media and Telecommunications Virtual Conference on December 9 at 1:00 p.m. PT.

The presentations from these events will be webcast live, and all information will be available on the Investor Relations website at investor.purestorage.com.

About Pure Storage

Pure Storage (NYSE: PSTG) gives technologists their time back. Pure delivers a Modern Data Experience that empowers organizations to run their operations as a true, automated, storage as-a-service model seamlessly across multiple clouds. One of the fastest-growing enterprise IT companies in history, Pure helps customers put data to use while reducing the complexity and expense of managing the infrastructure behind it. And with a certified customer satisfaction score in the top one percent of B2B companies, Pure's ever-expanding list of customers are among the happiest in the world.

Analyst Recognition: Pure Storage has been named a Leader in the 2019 Gartner Magic Quadrant for Primary Storage.

Forward Looking Statements

This press release contains forward-looking statements regarding our products, business and operations, including but not limited to our views relating to future period outcomes, the scope and duration of the COVID-19 pandemic and its impact on our business operations, liquidity and capital resources, employees, customers, supply chain, financial results and the economy, our expectations regarding product and technology differentiation, including our new offerings, strategy and adoption of subscription services, the impact of the Portworx acquisition and technology, and other statements regarding our products, business, operations and results. Forward-looking statements are subject to known and unknown risks and uncertainties and are based on potentially inaccurate assumptions that could cause actual results to differ materially from those expected or implied by the forward-looking statements. Actual results may differ materially from the results predicted, and reported results should not be considered as an indication of future performance. The potential risks and uncertainties that could cause actual results to differ from the results predicted include, among others, those risks and uncertainties included under the captions "Risk Factors" and elsewhere in our filings and reports with the U.S. Securities and Exchange Commission, which are available on our Investor Relations website at investor.purestorage.com and on the SEC website at www.sec.gov. Additional information is also set forth in our Annual Report on Form 10-K for the year ended February 2, 2020. All information provided in this release and in the attachments is as of November 24, 2020, and Pure undertakes no duty to update this information unless required by law.

Non-GAAP Financial Measures

To supplement our unaudited condensed consolidated financial statements, which are prepared and presented in accordance with GAAP, Pure uses the following non-GAAP financial measures: non-GAAP gross profit, non-GAAP gross margin, non-GAAP operating income (loss), non-GAAP operating margin, non-GAAP net income (loss), non-GAAP net income (loss) per share, free cash flow and free cash flow as a percentage of revenue.

We use these non-GAAP financial measures for financial and operational decision-making and as a means to evaluate period-to-period comparisons. Our management believes that these non-GAAP financial measures provide meaningful supplemental information regarding our performance and liquidity by excluding certain expenses and expenditures such as stock-based compensation expense, payments to former shareholders of acquired companies, payroll tax expense related to stock-based activities, amortization of debt discount and debt issuance costs, amortization of intangible assets acquired from acquisitions, acquisition-related transaction and integration expenses, restructuring activities, and expenses directly related to the COVID-19 pandemic that may not be indicative of our ongoing core business operating results. Pure believes that both management and investors benefit from referring to these non-GAAP financial measures in assessing our performance and when analyzing historical performance and liquidity and planning, forecasting, and analyzing future periods. The presentation of these non-GAAP financial measures is not meant to be considered in isolation or as a substitute for our financial results prepared in accordance with GAAP, and our non-GAAP measures may be different from non-GAAP measures used by other companies.

The non-GAAP operating profit for Q4 above also excludes the expenses and expenditures consistent with the non-GAAP financial measures described above. Non-GAAP operating profit is not reconciled to GAAP operating profit as the items that impact this measure are not within our control and/or cannot be reasonably predicted. Accordingly, a reconciliation is not available without unreasonable effort.

For a reconciliation of these non-GAAP financial measures to GAAP measures, please see the tables captioned "Reconciliations of non-GAAP results of operations to the nearest comparable GAAP measures" and "Reconciliation from net cash provided by operating activities to free cash flow," included at the end of this release.

 

PURE STORAGE, INC. Condensed Consolidated Balance Sheets (in thousands, unaudited)
		At the End of
		Third Quarter of Fiscal 2021				Fiscal 2020
Assets
Current assets:
Cash and cash equivalents		$	263,702			$	362,635
Marketable securities		937,718				936,518
Accounts receivable, net of allowance of $558 and $542		378,193				458,643
Inventory		43,152				38,518
Deferred commissions, current		42,728				37,148
Prepaid expenses and other current assets		77,813				56,930
Total current assets		1,743,306				1,890,392
Property and equipment, net		158,200				122,740
Operating lease right-of-use-assets		137,856				112,854
Deferred commissions, non-current		109,361				102,056
Intangible assets, net		81,075				58,257
Goodwill		360,997				37,584
Restricted cash		11,349				15,287
Other assets, non-current		50,851				25,034
Total assets		$	2,652,995			$	2,364,204
Liabilities and stockholders' equity
Current liabilities:
Accounts payable		$	89,369			$	77,651
Accrued compensation and benefits		83,163				106,592
Accrued expenses and other liabilities		47,939				47,223
Operating lease liabilities, current		30,902				27,264
Deferred revenue, current		408,086				356,011
Total current liabilities		659,459				614,741
Long-term debt		748,422				477,007
Operating lease liabilities, non-current		124,382				92,977
Deferred revenue, non-current		354,678				341,277
Other liabilities, non-current		30,973				8,084
Total liabilities		1,917,914				1,534,086
Stockholders' equity:
Common stock and additional paid-in capital		2,238,741				2,107,605
Accumulated other comprehensive income		9,059				5,449
Accumulated deficit		(1,512,719)				(1,282,936)
Total stockholders' equity		735,081				830,118
Total liabilities and stockholders' equity		$	2,652,995			$	2,364,204

 

PURE STORAGE, INC. Condensed Consolidated Statements of Operations (in thousands, except per share data, unaudited)
	Third Quarter of Fiscal								First Three Quarters of Fiscal
	2021				2020				2021				2020
Revenue:
Product	$	274,470			$	323,268			$	793,718			$	862,137
Subscription services	136,149				105,141				387,743				289,299
Total revenue	410,619				428,409				1,181,461				1,151,436
Cost of revenue:
Product (1)	86,661				89,998				240,677				259,460
Subscription services(1)	47,442				37,773				132,717				106,632
Total cost of revenue	134,103				127,771				373,394				366,092
Gross profit	276,516				300,638				808,067				785,344
Operating expenses:
Research and development (1)	122,981				106,663				350,079				318,758
Sales and marketing (1)	172,282				184,819				517,149				537,633
General and administrative (1)	46,467				37,416				132,063				119,542
Restructuring and other (2)	—				—				22,990				—
Total operating expenses	341,730				328,898				1,022,281				975,933
Loss from operations	(65,214)				(28,260)				(214,214)				(190,589)
Other income (expense), net	(4,887)				9				(6,700)				(2,459)
Loss before provision for income taxes	(70,101)				(28,251)				(220,914)				(193,048)
Income tax provision	4,121				1,731				8,869				3,288
Net loss	$	(74,222)			$	(29,982)			$	(229,783)			$	(196,336)
Net loss per share attributable to common stockholders, basic and diluted	$	(0.28)			$	(0.12)			$	(0.87)			$	(0.78)
Weighted-average shares used in computing net loss per share attributable to common stockholders, basic and diluted	269,144				255,047				265,626				250,618
(1) Includes stock-based compensation expense as follows:
Cost of revenue -- product	$	1,027			$	912			$	3,013			$	2,843
Cost of revenue -- subscription services	3,883				3,517				10,961				11,101
Research and development	29,220				27,827				87,770				85,180
Sales and marketing	14,898				16,802				48,018				51,171
General and administrative	10,581				5,171				29,993				24,495
Total stock-based compensation expense	$	59,609			$	54,229			$	179,755			$	174,790
(2) Includes expenses related to restructuring and incremental expenses directly related to COVID-19

 

PURE STORAGE, INC. Condensed Consolidated Statements of Cash Flows (in thousands, unaudited)
	Third Quarter of Fiscal								First Three Quarters of Fiscal
	2021				2020				2021				2020
Cash flows from operating activities
Net loss	$	(74,222)			$	(29,982)			$	(229,783)			$	(196,336)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization	18,214				23,194				49,811				66,785
Amortization of debt discount and debt issuance costs	7,400				6,896				21,525				20,186
Stock-based compensation expense	59,609				54,229				179,755				174,790
Impairment of long-lived assets	—				—				7,505				—
Other	2,139				(810)				4,111				(483)
Changes in operating assets and liabilities, net of effects of acquisitions:
Accounts receivable, net	(8,676)				(9,474)				83,220				17,079
Inventory	(6,459)				(4,130)				(4,724)				2,722
Deferred commissions	(7,402)				(4,563)				(12,885)				(8,158)
Prepaid expenses and other assets	(11,217)				2,099				(37,606)				1,464
Operating lease right-of-use assets	7,253				6,524				21,434				19,962
Accounts payable	29,656				(4,417)				8,566				(35,244)
Accrued compensation and other liabilities	(6,520)				(5,307)				(9,737)				(31,011)
Operating lease liabilities	(7,373)				(5,937)				(20,444)				(19,020)
Deferred revenue	30,397				35,935				57,860				106,980
Net cash provided by operating activities	32,799				64,257				118,608				119,716
Cash flows from investing activities
Purchases of property and equipment	(24,867)				(20,977)				(73,643)				(74,206)
Acquisitions, net of cash acquired	(339,806)				(3,713)				(339,806)				(51,594)
Purchase of intangible assets	—				—				—				(9,000)
Purchase of strategic investment	(5,000)				—				(5,000)				—
Purchases of marketable securities	(163,154)				(151,527)				(454,391)				(640,024)
Sales of marketable securities	40,856				56,150				132,207				116,518
Maturities of marketable securities	118,606				74,901				324,780				345,657
Net cash used in investing activities	(373,365)				(45,166)				(415,853)				(312,649)
Cash flows from financing activities
Net proceeds from exercise of stock options	4,019				6,544				25,677				25,804
Proceeds from issuance of common stock under employee stock purchase plan	16,418				11,249				32,439				43,291
Proceeds from borrowings, net of issuance costs	246,942				—				251,892				—
Repayment of debt assumed from acquisition	—				—				—				(11,555)
Tax withholding on vesting of restricted stock	(1,239)				(1,614)				(4,080)				(8,787)
Repurchases of common stock	(21,411)				—				(111,554)				—
Net cash provided by financing activities	244,729				16,179				194,374				48,753
Net increase (decrease) in cash, cash equivalents and restricted cash	(95,837)				35,270				(102,871)				(144,180)
Cash, cash equivalents and restricted cash, beginning of period	370,888				284,363				377,922				463,813
Cash, cash equivalents and restricted cash, end of period	$	275,051			$	319,633			$	275,051			$	319,633

Reconciliations of non-GAAP results of operations to the nearest comparable GAAP measures

The following table presents non-GAAP gross margins by revenue source before certain items (in thousands except percentages, unaudited):

		Third Quarter of Fiscal 2021																				Third Quarter of Fiscal 2020
		GAAP results				GAAP gross margin (a)			Adjustment						Non- GAAP results				Non- GAAP gross margin (b)			GAAP results				GAAP gross margin (a)			Adjustment						Non- GAAP results				Non- GAAP gross margin (b)
									$	1,027			(c)																$	912			(c)
									13				(d)																21				(d)
									2,396				(e)																1,933				(e)
Gross profit -- product		$	187,809			68.4	%		$	3,436					$	191,245			69.7	%		$	233,270			72.2	%		$	2,866					$	236,136			73.0	%
									$	3,883			(c)																$	3,517			(c)
									59				(d)																96				(d)
									7				(f)																—
Gross profit -- subscription services		$	88,707			65.2	%		$	3,949					$	92,656			68.1	%		$	67,368			64.1	%		$	3,613					$	70,981			67.5	%
									$	4,910			(c)																$	4,429			(c)
									72				(d)																117				(d)
									2,396				(e)																1,933				(e)
									7				(f)																—
Total gross profit		$	276,516			67.3	%		$	7,385					$	283,901			69.1	%		$	300,638			70.2	%		$	6,479					$	307,117			71.7	%

(a) GAAP gross margin is defined as GAAP gross profit divided by revenue.

(b) Non-GAAP gross margin is defined as non-GAAP gross profit divided by revenue.

(c) To eliminate stock-based compensation expense.

(d) To eliminate payroll tax expense related to stock-based activities.

(e) To eliminate amortization expense of acquired intangible assets.

(f) To eliminate payments to former shareholders of acquired company.

 

The following table presents certain non-GAAP consolidated results before certain items (in thousands, except per share amounts and percentages, unaudited):

	Third Quarter of Fiscal 2021																				Third Quarter of Fiscal 2020
	GAAP results				GAAP operating margin (a)			Adjustment						Non- GAAP results				Non- GAAP operating margin (b)			GAAP results				GAAP operating margin (a)			Adjustment				Non- GAAP results				Non- GAAP operating margin (b)
								$	59,609			(c)																$	52,335		(c)
								3,533				(d)																1,894			(d)
								1,166				(e)																1,160			(e)
								2,573				(f)																1,933			(f)
								1,762				(g)																—
Operating Income (loss)	$	(65,214)			-15.9	%		$	68,643					$	3,429			0.8	%		$	(28,260)			-6.6	%		$	57,322			$	29,062			6.8	%
								$	59,609			(c)																$	52,335		(c)
								3,533				(d)																1,894			(d)
								1,166				(e)																1,160			(e)
								2,573				(f)																1,933			(f)
								1,762				(g)																—
								7,400				(h)																6,896			(h)
Net income (loss)	$	(74,222)						$	76,043					$	1,821						$	(29,982)						$	64,218			$	34,236
Net income (loss) per share -- basic and diluted	$	(0.28)												$	0.01						$	(0.12)										$	0.13
Weighted-average shares used in per share calculation -- basic and              diluted	269,144							15,677				(i)		284,821							255,047							17,161			(i)	272,208

(a) GAAP operating margin is defined as GAAP operating loss divided by revenue.

(b) Non-GAAP operating margin is defined as non-GAAP operating loss divided by revenue.

(c) To eliminate stock-based compensation expense.

(d) To eliminate payments to former shareholders of acquired companies.

(e) To eliminate payroll tax expense related to stock-based activities.

(f) To eliminate amortization expense of acquired intangible assets.

(g) To eliminate acquisition-related transaction and integration expenses.

(h) To eliminate amortization expense of debt discount and debt issuance costs related to our long-term debt.

(i) To include effect of dilutive securities (employee stock options, restricted stock, and shares from employee stock purchase plan).

 

Reconciliation from net cash provided by operating activities to free cash flow (in thousands except percentages, unaudited):

	Third Quarter of Fiscal								Change
	2021				2020				$
Net cash provided by operating activities	$	32,799			$	64,257			$	(31,458)
Less: purchases of property and equipment	(24,867)				(20,977)				(3,890)
Free cash flow (non-GAAP)	$	7,932			$	43,280			$	(35,348)
Free cash flow as % of revenue	1.9		%		10.1		%

 

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SOURCE Pure Storage

FAQ

What were Pure Storage's Q3 2020 earnings results?

Pure Storage reported Q3 2020 revenue of $410.6 million, a 4% decrease year-over-year, with subscription services revenue increasing by 29%.

How did Pure Storage perform in Q3 regarding Subscription Services?

Subscription Services revenue for Q3 2020 was $136.1 million, reflecting a 29% year-over-year growth.

What are the revenue expectations for Pure Storage in Q4 2020?

For Q4 2020, Pure Storage anticipates revenue to be around $480 million, representing a 2% decline year-over-year.

What notable acquisitions did Pure Storage make in Q3 2020?

In Q3 2020, Pure Storage acquired Portworx, a leading Kubernetes data services platform.

What financial metrics did Pure Storage report for Q3 2020?

Pure Storage reported a GAAP gross margin of 67.3% and a GAAP operating loss of $65.2 million for Q3 2020.