Pure Storage Stock Rallies After Earnings. The Market Was ‘Reasonably Strong.’

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Shares of Pure Storage are down 11% this year.

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Pure Storage shares are trading higher after the storage company posted better results than expected in a quarter that challenged some other companies serving the enterprise market.

Hewlett Packard Enterprise (ticker: HPE) and Cisco Systems (CSCO) turned in solid recent results, but the numbers were softer from Dell Technologies (DELL), HP Inc . (HPQ), and others. Earlier Wednesday, the disk-drive maker Seagate (STX) reduced its full-year guidance, citing softening demand from some data-center and cloud customers.

Yet Pure (PSTG) sailed through, showing little damage from big-picture issues. In early morning trading, Pure was 5.8% higher at $30.65.

For its fiscal second quarter ended Aug. 7, Pure reported revenue of $646.8 million, up 30% from a year earlier, and ahead of management’s forecast of $635 million. On an adjusted basis, the company earned 32 cents a share, a dime ahead of Wall Street expectations. Under generally accepted accounting principles, the company earned 4 cents a share, up from a loss of 16 cents in the year-earlier quarter. Non-GAAP operating margin in the quarter was 16.4%, well above the company’s target of 11.8%.

Pure reported annual recurring revenue of $953.3 million, up 31%, with remaining performance obligations of $1.5 billion, up 25% from a year ago. The company bought back $61 million of stock in the quarter, ending the period with $1.4 billion in cash, cash equivalents, and marketable securities.

Pure is projecting fiscal third-quarter revenue of $670 million, above the Street consensus forecast of $651 million, with a non-GAAP operating margin of 12.7%. For the January 2023 fiscal year, the company now sees revenue of $2.75 billion, up from a previous forecast of $2.66 billion. Pure now projects full-year non-GAAP operating margin of 14%, up from a previous forecast of 12%.

CEO Charlie Giancarlo said in an interview with Barron’s that Pure had “an excellent quarter,” pointing to 31% growth in annual revenue for Pure’s subscription business. “We had strong operating margins, good cash flow, and good net new logo growth,” he said, referring to companies signing on as customers.

Giancarlo said Pure continues to see strong growth from cloud customers. He said that while the company is seeing the sales cycle slow a little at some customers, “the market has stayed reasonably strong” overall. He said he expects that Pure can continue to grow faster than the rest of the market whether or not there is a recession.

Asked about the higher-than-expected operating margin in the quarter, Giancarlo said that expenses were a little lower than anticipated due to slower-than-expected hiring in the period.

Write to Eric J. Savitz at eric.savitz@barrons.com