Pure Storage’s first earnings call since its October IPO was a rosy one on the revenue side.
The all-flash array vendor’s revenue hit $131.4 million in its fiscal 2016 third quarter – a 167% increase over the $49.2 million for the same three-month period ending Oct. 31 a year ago. Pure Storage claimed to have added 250 new customers, including Domino’s Pizza and The Boston Globe, in the quarter to boost the total number north of 1,350.
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Pure’s strong revenue growth stood out especially in comparison to the dismal earnings report Tuesday from another all-flash array (AFA) specialist. Violin Memory reported revenue of just $12.5 million – down 18% from the prior quarter and 42% over the same period a year ago.
Pure will rank third in revenue among AFA vendors, behind EMC and IBM, in an International Data Corp. (IDC) forecast due out next week, according to Eric Burgener, a research director in IDC’s storage practice.
Although Pure stands tall over other AFA startups, the company faces increasingly stiff competition from long-established storage vendors. EMC recently said its XtremIO AFA line saw triple-digit revenue growth year-over-year for the last two quarters and remains on track to do $1 billion in business in calendar 2015. IBM reported flash revenue increases of more than 50% in each of the last three quarters.
Among the other large vendors doing well on the flash front is Hewlett Packard Enterprise (HPE). CEO Meg Whitman said last week that revenue for HPE’s 3PAR AFAs more than doubled during the last quarter, and the product is on pace for $500 million in sales in the next year.
“Guys like EMC, IBM and HPE all have secondary storage platforms, and they can replicate between their primary all-flash arrays and any of their other platforms if they want to use them for backup, for disaster recovery, to move data into an archive,” Burgener said. “That’s going to be a challenge for companies like Pure that are currently selling only a primary storage array because obviously the other guys are pitching the full portfolio.”
Another challenge for Pure will be keeping expenses down to keep its losses in check. The company made progress last quarter, reducing its non-GAAP operating loss to $28.1 million compared to $51.6 million in the previous quarter.
Stifel Financial Corp. analyst Aaron Rakers wrote in a research note that he was more impressed by Pure’s operating leverage than by its revenue exceeding expectations by 16.2%. Stifel noted that Pure reported a decrease in non-GAAP operating expenses to $109.2 million – 5.4% lower than the financial firms’s expectations – although Pure did push out some marketing and engineering spend to this quarter.
In a blog post, Pure CEO Scott Dietzen wrote that the company added $1.70 in revenue for each additional $1 of operational expense. Dietzen claimed Pure would continue to improve its operating efficiency as it invests aggressively in sales, marketing, support and its channel to maximize growth.
“If you look at Q3 this year vs. Q3 last year, we’ve cut our operating losses more than in half,” said Pure CFO Tim Riitters, citing the shrinking operating losses as a reflection of the company’s “discipline and focus.”
Riitters said Pure expects to generate positive cash flow in 2018.
“Right now we’re still only about a ,1200-person organization worldwide. EMC is a much, much larger organization,” Riitters said. “One of the reasons we’re growing and investing so much is really to increase the number of what we call at-bats. We’re constrained by the ability just to get in front of customers and show them how profoundly different the Pure Storage technology is. When we do that, we win our fair share.”