EPS of $-0.04 decreased by 136.4% from previous year
Gross margin of 68.9%
Net income of -14.00M
"It was a solid start to the year with Q1 revenue growing 12%, driving $83 million of operating profit and achieving an operating margin of 10.6%." - Kevan Krysler
Pure Storage Inc (PSTG) QQ1 2026 Results: AI-Storage Momentum, Fusion 2.0 Adoption, and Hyperscale Collaboration Driving Recurring Revenue and Margin Resilience
Executive Summary
Pure Storage reported a solid start to FY2026 (QQ1) with 12% revenue growth and continued expansion of its recurring revenue base. Subscription services accounted for $406 million in revenue, representing 52% of total, while ARR grew 18% to $1.7 billion and remaining RPO rose 17% to $2.7 billion, signaling healthy renewals and a robust storage-as-a-service backlog. The quarter featured strong momentum in Evergreen One (TCV $95 million, up 70% YoY/QoQ) and a favorable mix toward software-driven, managed services that support greater visibility into ARR and longer-term customer engagement. On the AI/storage frontier, Pure highlighted significant traction across AI workloads, GPU farms, and inference/RAG use cases, alongside the introduction of FlashBlade EXA and the XL disaggregated option for hyperscale environments. Management reaffirmed FY2026 revenue and operating margin guidance, while adding that near-term macro uncertainty is expected to persist but that the core growth drivers remain intact. The balance sheet remains exceptionally healthy, with more than $1.6 billion in cash and investments and a net cash position, complemented by meaningful free cash flow generation ($211.6 million in FCF for QQ1). A leadership transition (CFO Kevan Krysler) was noted, with a smooth transition in mind for ongoing execution of Pure’s strategy. Looking ahead, the Meta hyperscale collaboration to deliver 1–2 exabytes in H2 2026 represents a meaningful upside to the multi-year data-cloud transition, while ongoing partnerships and product optimizations should support continued margin expansion and durable growth in ARR and RPO metrics.
Key Performance Indicators
Revenue
778.49M
QoQ: -11.52% | YoY:1.93%
Gross Profit
536.15M
68.87% margin
QoQ: -9.74% | YoY:-0.73%
Operating Income
-31.17M
QoQ: -173.40% | YoY:-225.30%
Net Income
-14.00M
QoQ: -132.98% | YoY:-139.23%
EPS
-0.04
QoQ: -130.77% | YoY:-136.36%
Revenue Trend
Margin Analysis
Key Insights
Revenue: $778.49 million, YoY +12%; QoQ not disclosed in the release, but operating metrics tethered to continued growth in subscription and services.
Gross margin: 70.9% (sequential improvement), with product margin up 1.1 percentage points to 64%; subscription gross margin at 77.2% contributing to a strong services/sustainable margin profile.
Operating performance: Operating loss of $31.17 million; operating margin -4.0%. EBITDA: $36.06 million; EBITDA margin 4.6%.
Profitability metrics: Net income of $(13.99) million; EPS of $(0.04) (diluted). Net income margin at approximately -1.80%.
Recurring revenue and backlog: Subscription services revenue $406 million, up +17% YoY and now >50% of total revenue. ARR $1.70 billion, +18% YoY. Total remaining performance obligations (RPO) $2.70 billion, +17% YoY; RPO exiting Q1 up 18% YoY.
Financial Highlights
Overview of QQ1 FY2026 financials and drivers
- Revenue: $778.49 million, YoY +12%; QoQ not disclosed in the release, but operating metrics tethered to continued growth in subscription and services.
- Gross margin: 70.9% (sequential improvement), with product margin up 1.1 percentage points to 64%; subscription gross margin at 77.2% contributing to a strong services/sustainable margin profile.
- Operating performance: Operating loss of $31.17 million; operating margin -4.0%. EBITDA: $36.06 million; EBITDA margin 4.6%.
- Profitability metrics: Net income of $(13.99) million; EPS of $(0.04) (diluted). Net income margin at approximately -1.80%.
- Recurring revenue and backlog: Subscription services revenue $406 million, up +17% YoY and now >50% of total revenue. ARR $1.70 billion, +18% YoY. Total remaining performance obligations (RPO) $2.70 billion, +17% YoY; RPO exiting Q1 up 18% YoY.
- Geography and customer growth: U.S. revenue $531 million, +9% YoY; International revenue $248 million, +21% YoY. Added 235 new customers; penetration reached 62% of the Fortune 500.
- Operating cash flow and capital allocation: Operating cash flow $283.9 million; capex $72.3 million; free cash flow $211.6 million. Cash and investments total about $1.6 billion; cash at period-end $760.1 million. Net debt position remained negative (net cash) at $(468) million.
- Balance sheet and liquidity: Total assets $3.81 billion; total liabilities $2.57 billion; total stockholders’ equity $1.24 billion. Strong liquidity supports ongoing investments in Fusion 2.0, hyperscale initiatives, and portfolio R&D.
- Capital allocation: $120 million returned to shareholders via 2.5 million share repurchases; $61 million in withholding taxes; 1.1 million shares offset. Remaining buyback authorization: $152 million.
- Guidance and outlook: FY2026 revenue and operating margin guidance reiterated. For Q2’FY26, revenue guidance is $845 million (+10.6% YoY) with operating profit of $125 million and an operating margin of 14.8%. Management notes that Q2’23 expense comparisons reflect prior workforce realignment savings in a prior year but otherwise sees continued execution against strategic priorities.
Income Statement
Metric
Value
YoY Change
QoQ Change
Revenue
778.49M
1.93%
-11.52%
Gross Profit
536.15M
-0.73%
-9.74%
Operating Income
-31.17M
-225.30%
-173.40%
Net Income
-14.00M
-139.23%
-132.98%
EPS
-0.04
-136.36%
-130.77%
Key Financial Ratios
Net Income vs. Revenue
Expense Breakdown
Management Commentary
Key insights from the QQ1 FY2026 earnings call, organized by themes:
- Strategy and AI/Cloud platform evolution
- Fusion 2.0 has been well received; Charlie Giancarlo emphasized that Fusion V2 eliminates data silos and transforms fragmented storage into an enterprise data cloud, setting the stage for broader adoption and ecosystem integration (quote: Fusion V2 eliminates data silos, transforming fragmented storage into a unified enterprise data cloud).
- Pure’s long-term vision centers on unifying data management and enabling a cloud-like operating model across on-prem and cloud environments, with ongoing investments in Fusion 2.0 and Portworx integrations.
- The Meta hyperscale collaboration remains a key strategic driver, with production validation testing on track for the 1–2 exabytes target in the second half of the year.
- Hyperscale and partnerships
- The Meta program is progressing toward a large-scale deployment, acknowledging the extended design cycle that characterizes hyperscaler data center evolution (as described by Charlie and Rob on the call).
- New collaborations with SK Hynix to address energy efficiency and hyperscale demands, plus existing partnerships with Kioxia and Micron, underscore Pure’s strategy to broaden NAND technology options.
- Nutanix virtualization alliance was highlighted as a major near-term win, illustrating a path to broader data center modernization through hyperconverged infrastructure with Pure’s storage platform.
- Product and AI-focused offerings
- XL (FlashBlade XL) is positioned to serve large GPU clusters, sovereign clouds, and high-end cloud-inference workloads; Pure indicated margins on the data-nodes software will be at or above current company margins over the long term.
- FlashBlade EXA introduction targets AI/ HPC workloads with ultra-fast data access and a disaggregated architecture designed to scale with GPU clusters.
- Customer adoption and mix
- Q1 saw broad-based strength across traditional storage and Evergreen One, with 235 new customers and continued demand for storage-as-a-service. Evergreen One bookings were robust in Q1 (TCV up 70% to $95 million).
- The company noted that tariff-related pricing pressure is not expected to materially impair subscription gross margins, given Evergreen’s lifecycle economics and tariff absorption within the service model.
- Guidance, execution, and execution risk
- Management reaffirmed FY26 revenue and operating margin targets while acknowledging macro uncertainty in the second half. The Q2 guide implies continued double-digit growth and margin expansion as the mix shifts toward higher-margin subscriptions and services.
- Management quotes on execution and macro backdrop
- Coherently, executives stressed that macro uncertainty will persist, but the firm’s disciplined execution and recurring-revenue focus bolster resilience against external shocks and tariff dynamics.
It was a solid start to the year with Q1 revenue growing 12%, driving $83 million of operating profit and achieving an operating margin of 10.6%.
— Kevan Krysler
Fusion V2 software eliminates data silos, transforming fragmented storage into a unified enterprise data cloud.
— Charlie Giancarlo
Forward Guidance
Outlook and near-term trajectory:
- Revenue and earnings guidance: Pure reaffirmed FY2026 revenue and operating margin guidance, signaling confidence in the long-term growth framework and demand for evergreen software-defined storage, AI-ready infrastructure, and cloud-connected capabilities.
- Q2FY26 target: Revenue of $845 million (+10.6% YoY) and operating profit of $125 million with an operating margin of 14.8%. The company notes that Q2 operating expenses will be compared against the benefit realized from a workforce realignment in Q4 FY24, which may create a modest comparison headwind for YoY expense progression.
- Meta hyperscale contribution: Management indicated there will be a de minimis revenue contribution from the Meta program in H2 (licensing model), already baked into the annual guide. This provides upside optionality if the design and validation milestones progress as expected, potentially adding to revenue in the second half.
- Tariffs and macro risk: Evergreen One is designed to absorb tariff-related costs within its lifecycle economics, limiting subscription margin impact. Investors should monitor tariff dynamics and potential macro volatility in the second half, which could influence deal timing and pipeline conversion.
- Catalysts and risk factors to watch: (1) progression of hyperscaler validations beyond Meta into additional partners; (2) adoption rate of Fusion 2.0 and Portworx integrations across VMs and containers; (3) uptake of XL/EXA platforms in targeted AI/HPC markets; (4) ongoing supply chain/tariff environment and FX effects; (5) leadership transition risk around the CFO role and its impact on execution if not smoothly managed.
Competitive Position
Company
Gross Margin
Operating Margin
Return on Equity
P/E Ratio
PSTG Focus
68.87%
N/A
N/A
N/A
NTAP
71.30%
18.30%
26.70%
26.20%
ANET
63.70%
42.80%
8.04%
29.99%
DELL
21.60%
4.14%
-34.00%
23.07%
DDD
34.60%
-38.90%
-25.40%
-1.90%
Gross Profit Margin
Operating Profit Margin
Return on Equity
P/E Ratio Comparison
Investment Outlook
Pure Storage enters FY2026 with meaningful AI/storage demand tailwinds, a growing base of recurring revenue, and strategic hyperscaler collaborations that could unlock multi-year growth. The QQ1 results show healthy revenue growth, expanding gross margins in a software-driven model, and robust cash flow generation, supporting continued investments in Fusion 2.0, Portworx, XL/EXA platforms, and hyperscale programs. The reaffirmed FY26 guidance provides visibility into steady growth and improving profitability as the mix shifts toward higher-margin software and as EvergreenOne scales. Key catalysts include the Meta program’s validation and potential design wins with other hyperscalers, greater integration between Fusion and Portworx, and accelerating adoption of evergreen subscription models across enterprises. Investors should monitor macro developments, tariff dynamics, hyperscaler development timelines, and execution risk during leadership transition, but the risk-reward appears favorable given the company’s cash position, backlog, and strategic AI-storage differentiation.
Key Investment Factors
Growth Potential
AI/storage leadership remains a primary growth vector. The company targets multi-hyperscaler deployments (Meta among the early entrants) and expands its portfolio with XL and EXA to address scaling GPU clusters, sovereign clouds, and cloud-native workloads. EvergreenOne continues to drive recurring revenue and visibility through ARR and renewing RPO, while Fusion 2.0 and Portworx integration are expected to unlock cross-sell opportunities across VM and container paradigms.
Profitability Risk
Key risks include: macroeconomic uncertainty and tariff headwinds that could affect IT budgets; long and iterative design cycles with hyperscalers, delaying revenue realization; reliance on a limited set of hyperscaler partnerships for large-scale deployments; competition from other storage vendors; FX volatility and potential supply-chain disruptions affecting timing and cost structure; execution risk around the CFO transition and strategic initiatives (Fusion, XL/EXA, Cloud Block Store integrations).
Financial Position
extraordinarily strong liquidity and cash generation: cash and investments of ~$1.6B, net cash position (~$468M) despite ongoing buybacks, solid free cash flow generation ($211.6M in QQ1), and a diversified capital allocation policy (buybacks, disciplined capex, and Oracle-like subscription growth). The balance sheet supports ongoing investments in AI/storage platforms, hyperscaler partnerships, and software-defined storage expansions.
SWOT Analysis
Strengths
Leadership in AI-ready storage platforms (FlashBlade EXA, XL) and a unified software-defined storage stack (Fusion 2.0).
Strong recurring revenue trajectory driven by EvergreenOne; ARR +18% YoY to $1.7B; RPO +17% to $2.7B.
Healthy profitability potential with high subscription margins (77.2% in QQ1) and robust FCF generation.
Strategic partnerships with hyperscalers (Meta) and NAND suppliers (Kioxia, Micron, SK Hynix) improving supply chain resilience and market reach.
Solid balance sheet and shareholder capital discipline (net cash position, $152M remaining buyback authorization).
Weaknesses
Near-term GAAP profitability is pressured by FX and higher operating expenses; QQ1 operating loss of $31.2M.
Dependency on hyperscaler cycles and the long design-validation process can delay revenue recognition from key strategic programs.
Leadership transition risk with CFO Kevan Krysler leaving; potential disruption during transition if not managed effectively.
Opportunities
1–2 exabytes of Meta collaboration in H2 2026; expansion into additional hyperscalers could materially lift ARR and NRR.
XL and EXA platforms open new markets for large GPU clusters, sovereign clouds, and cloud-native workloads.
Deeper integration of Fusion, Portworx, and traditional workloads to accelerate cloud operating model adoption in enterprises.
Cloud Block Store integration with AVS and Microsoft ecosystem broadens cross-sell opportunities.
Threats
Macro deterioration or tariff escalation could dampen IT capex and delay customer deployments.
Competitive pressure from other enterprise storage vendors; potential pricing pressures in a commoditized hardware segment.
Execution risk related to ramping hyperscaler-driven manufacturing/testing across multiple NAND suppliers.
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