Pure Storage CEO: The Channel Is Essential To Our Customer Reach

All-flash storage array vendor Pure Storage shows sales growth and trimmed its losses during its third fiscal quarter 2017 customers look to its flash storage products as a cost-effective way to keep their data.

Shares of Pure Storage closed at $13.95 on Wednesday, following the earnings announcement. The stock has been as high as $18.39 and as low as $9.62 in the last 52 weeks.

Pure Storage CEO Scott Dietzen, in his prepared remarks for the company's investor conference call, said his company is doing well as customers try to make sense of big data and require new ways to increase the bandwidth needed to access it.

[Related: Q&A: Pure Storage CEO Dietzen Talks About NetApp/SolidFire, Flash Storage Future]

"Pure is winning in the marketplace because our storage platform is enabling people to get value from their data," Dietzen said. "Legacy and commodity storage alternatives are too slow to deliver that value."

Another factor in the growth of Pure Storage's business is a strengthening business through indirect sales channels, Dietzen said. About 76 percent of new customer logos in the third fiscal quarter came through channel partners. "[That] is essential to our customer reach," he said.

During the question and answer period of the analyst call, Dietzen said that while Dell EMC is Pure Storage's most commonly seen competitor, it has not posed a big threat to his company's growth because of customer confusion from their recently-concluded merger, and that Pure Storage has won significant business from Dell EMC. "We're benefitting from the fact that [Dell EMC] has nine different all-flash storage offerings in the field," he said.

Dietzen, responding to a separate question about the potential impact of hyper-converged infrastructure solutions, said vendors in that space like San Jose, Calif.-based Nutanix pose no threat to the all-flash storage industry.

Pure Storage sees competition from hyper-converged infrastructure vendors in the low single-digit percentage of deals, he said.

"Pure is competing for the most critical data our customers have. … Hyper-converged infrastructure is competing mainly in the remote office where less mission-critical data is stored. … For cloud and enterprise, it's where we're less likely to see hyper-converged infrastructure."

Pure Storage is pinning much of its future growth on NVMe flash storage technology, said Matt Kixmoeller, Pure Storage's vice president of product, during the conference call question and answer period.

While most of today's all-flash storage technology is based on SATA SSDs with their serial interfaces, NVMe storage allows multiple paths between processors and storage to increase performance, Kixmoeller said. "It really helps us take advantage of multi-core CPUs with massive amounts of flash," he said.

Pure Storage has been preparing for the transition to NVMe, and is the vendor most ready to take immediate advantage of the new technology as it becomes widely available, Kixmoeller said. "We've built our technology to be ready to upgrade it as soon as it becomes available," he said.

Kixmoeller also said that Pure Storage is doing well in the converged infrastructure market thanks to its strong FlashStack partnership with Cisco. "It's why we've invested to make Pure the most channel-friendly company in the industry," he said. "That allows us to leverage Cisco's partner channel."

For the fiscal third quarter of 2017, which ended October 31, Pure Storage reported revenue of $197 million, up 50 percent over the $131.4 million the company reported a year ago.

On a GAAP basis, the company reported a loss of $78.8 million, or 40 cents per share, in the third fiscal quarter of 2017, an improvement on the year-ago loss of $56.5 million, or 76 cents per share. The company issued more shares during the year, which helped its loss per share figure shrink.

On a non-GAAP basis, Pure Storage reported a loss of $20.0 million, or 10 cents per share, which was an improvement over last year's loss of $29.1 million, or 18 cents per share.

Pure Storage beat analyst expectations for both revenue and non-GAAP income, according to analysts surveyed by Seeking Alpha.

Dietzen, during his remarks, said Pure Storage picked up over 300 new customers during the quarter to bring the total number of customers to about 2,600.

Tim Riitters, Pure Storage chief financial officer, said in his prepared remarks that product revenue increased about 23 percent over last year, and that the company was enjoying strong repeat business."For every one dollar our customers spend initially, they will spend another two dollars within the next 18 months," he said.

Looking forward, Riitters said Pure Storage is expecting fourth fiscal quarter 2017 revenue to grow about 65 percent year-over-year to reach between $219 million and $227 million. He said the fourth quarter is seasonally the company's strongest. He also said the company expects fourth fiscal quarter non-GAAP operating margins to show a 5 percent to 9 percent improvement.