Specifically, the company posted EPS of $0.01, ahead of the ($0.06) consensus. In fact, after reporting nine straight quarterly losses from 3Q15-3Q17, PSTG has now posted a positive EPS figure in two of the past three quarters. As we discuss in more detail below, this quarter’s surprising profitability was driven by a combination of new customer adds and strong adoption of newer FlashArray product launches, resulting in the highest gross margin performance in its history.
First, before diving into its results in more detail, here is some more background on the company:
PSTG is a data storage company that is aiming to replace storage systems designed with mechanical disks with all-flash systems, optimized for solid-state memory. The company says that its platform can deliver a 10x acceleration in business applications over legacy disk-based storage. It helps customers to increase employee productivity, improve operational efficiency, and make better decisions using faster, more accurate analytics.
Flash Array is PSTG's all-flash hardware. In general, flash memory is also known as solid state storage, meaning there are no moving parts to it. Unlike a spinning hard drive, with flash memory, everything is electronic, not mechanical. The company’s Flash Array versions span a wide range of sizes and storage capabilities, spanning products that can store several terabytes of data to those that can manage in aggregate multiple petabytes. PSTG says that its FlashArray products are all built with a set of principles and allowances for innovation in mind: modularity and upgradability, rapid innovation, maximizing performance, high density at low costs, simplicity, and end-to-end optimization.
The company implements a different business model than many data storage providers. For instance, it uses what it calls an "evergreen storage" model of hardware and software upgrades rather than the traditional forklift upgrade cycle. What this specifically means is that instead of moving data between old and new systems via "forklift upgrades", it keeps business data and applications in place and upgrades technology around it. PSTG provides software updates, any needed hardware replacements, and a controller refresh every three years so its customers can run the latest "Purity Operating Environment" for predictable maintenance fees.
A Closer Look at 2Q18
Circling back to its impressive Q2 results, revenue climbed by 37.5% to $308.9 mln, beating the $301.3 mln consensus. Over the past six quarters, revenue growth has consistently landed within a 30-48% range, so, the Q2 figure is in-line with the company’s recent growth rates. During the conference call last night, management noted that this past May, PSTG launched the full FlashArray//X family -- the first all-NVMe all flash array. NVMe is an acronym for Non-Volatile Memory Express, and, the main advantages of NVMe are that it reduces I/O (Input/Output) overhead and provides various performance improvements, such as reduced latency, as compared to prior logical device interfaces.
In Q2, more than half of its shipments were all-NVMe; adoption of its X-family of devices has been robust, and PSTG expects that by year end, a majority of its revenue will be NVMe related.
PSTG also had a strong quarter in terms of adding new customers. Specifically, it added 400 new customers to reach a total of 5,150. According to management, win rates were very strong across the board, largely driven by the new NVMe FlashArray product lines. In turn, the strong demand for its X-family devices had a positive impact on gross margin, which hit 68%, up 1.7 points for the year ago quarter, to represent its highest gross margin in its history.
To conclude, PSTG has been on quite a roll, and given the momentum underlying its new product launches, along with its growing presence in high-growth AI environments, PSTG looks to be in good position to continue delivering solid results.