Ok earnings out last night.
- Q2 Non-GAAP EPS of $0.34 beats by $0.06.
- GAAP EPS of -$0.02 misses by $0.03.
- Revenue of $688.7M (+6.5% Y/Y) beats by $8.76M.
- GAAP gross margin 70.7%; non-GAAP gross margin 72.8%
- GAAP operating loss $(6.2) million; non-GAAP operating income $111.8 million
- GAAP operating margin (0.9)%; non-GAAP operating margin 16.2%
- Operating cash flow $101.6 million; free cash flow $46.5 million
- Total cash, cash equivalents, and marketable securities $1.2 billion
- Revenue $688.7 million, an increase of 6.5% year-over-year
- Subscription services revenue $288.9 million, up 24% year-over-year
- Subscription annual recurring revenue (ARR) $1.2 billion, up 27% year-over-year
- Remaining performance obligations (RPO) $1.9 billion, up 26% year-over-year
- Returned approximately $22.0 million in Q2 to stockholders through share repurchases of 0.6 million shares
My take was this was probably what we could have realistically hoped for. Pure still creamed the competition and stole more market share with their 6.5% revenue growth. They beat on top and bottom line for the quarter, guided towards a return to double digit revenue growth in Q3 (~12%) and ~20% growth in Op Inc and re-affirmed their double digit second half and high single digit guidance for the whole year. (YoY comparisons, which were 50% in Q1 FY’23 and 30% in Q2 FY’23 also get easier from Q3 where compares are versus 20% growth in Q3 FY’23 and 14% in Q4 FY’23).
Additionally Pure kept up their fast growth progress (27% YoY in Q2 or 28% when counting contracted but not initiated recurring subscriptions), in turning their operating model into a subscription based recurring business. This quarter’s revenue number was 42% subscription recurring based which was second highest on record after Q1 and up from 35% in Q2 last year. RPO (26% growth headline but 30% on a like for like basis), was in line with the subscription ARR growth rate.
Customer adds were ~325 which is slightly down from the ~350 adds in the year ago quarter but up from the Q1 adds of 276 making 12,000+ enterprise customers in total. This takes the Fortune 500 penetration to 59% so still plenty of land potential to go as well as expand.
Lastly their Gross Margins across the board were at all time highs and whilst they did make a higher capex investment this quarter free cash flow and operating margin were strong.
What was even more interesting was the earnings call where both prepared remarks and the Q&A provided a lot of additional context and encouragement for future growth.
Takeaways:-
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Flashblade E is the fastest launch uptake product in the company’s history (in terms of revenues booked and pipeline established and the whole Flashblade family had a stand out quarter).
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Flashblade S and E sales seem to be wrapped in with Evergreen/One which maybe why they don’t show up so much in the in quarter 2 revenues but subscription revenues, ARR and RPO seems to be growing strongly.
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AI is driving considerable interest in Pure demand, they booked a low 8 figure deal booked in the quarter from an AI deployment - the largest of its kind incorporating Flashblade S /One. Portworx also captured AI deployment wins and is more related to AI opportunities than had been appreciated by analysts. AI on prem exists for development and moves to cloud for full release. Flashblade S relates to AI training model development and Flashblade E for full release.
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AI driven storage demand is sequential behind compute capacity build up. AI demand for storage will arrive once clients have taken possession of physical compute installations which are still coming through (supply chain and order fulfilment lags at play here). Expects this to move from a compute priority to a storage priority from Q4 and into next year.
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Product release roadmap hasn’t finished with Flashblade E, as Pure will be releasing Flash Array E later in the year which should provide another growth boost. Additionally they are “shipping 48 terabyte DFMs currently and will introduce 75 terabyte DFM later this year. Today, Pure’s DFM’s are 2 to 4 times denser than the largest hard disk and SSDs in competitive use and the advantage and density is accelerating. Roadmap calls for a 150 terabyte DFM next year and a 300 terabyte DFM by 2026.”
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Competitive position is unparalleled. Pure continues to distinguish its QLC advanced flash versus HDD and even other commodity flash products of the competitors and remains the only native software driven flash storage with its Purity software operating system. Flashblade E is unparalleled vs competing flash E products from NTAP etc.
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Evergreen//One, Pure’s storage as a service offering saw sales double again year-over-year. They estimated headwind impact of the subscription ARR growth is 1-2% off headline revenue growth numbers. Eventually this will feed into the YoY revenue numbers but in the meantime it is growing the long term revenues under contract on a multi year subscription basis.
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Competitor pricing saw some deep discounting which pressured their margins although you wouldn’t know it looking at the GM lines.
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Pure have not seen any “spin down” cannibalisation of revenues from high performance storage to lower cost storage in the current climate.
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Pure consider the announced Microsoft Azure + VMWare relationship with their Cloud Block Store business as highly significant. They had been working on this for over a year. Customers have been pushing for this and it effectively provides a simpler methodology for customers to move their existing workloads into the cloud and reduces cost.
Results announcement and presentation:-
https://investor.purestorage.com/financial-information/quarterly-results/default.aspx
Transcript:-