Pure Storage Inc. didn’t miss a beat in its transition to a new chief executive, beating Wall Street earnings estimates and forecasting that it will turn a profit next quarter and become a $1 billion company next year.

Three months after closing out a strong quarter by shifting Chief Executive Scott Dietzen out of an operational role in favor of Silicon Valley veteran Charles Giancarlo (pictured) — a move that baffled some analysts — the company reported that revenue growth actually accelerated in the succeeding three months.

Quarterly sales of $278 million were up 41 percent over the previous year, and 3 percent ahead of analysts’ consensus estimates of $270 million. Pure Storage maintained its full-year guidance of between $985 million and $1.025 billion, but raised its full-year fiscal 2018 revenue guidance to between $1.012 billion and $1.020 billion.

Quarterly earnings of a penny per share were 2 cents better than consensus estimates. Cash flow was positive and cash reserves grew.

Investors in the frothy tech market evidently wanted more, though. Pure Storage stock drifted down about 2 percent in immediate after-hours trading.

$1 billion milestone

Crossing the $1 billion sales threshold in 2018 will be an important milestone not just psychologically, but for customer acceptance, Giancarlo said in an interview. “Customers have resisted buying from a startup.” he said. “We’re no longer a startup. We’re an established company that has a substantial market share.”

But the $1 billion milestone today is different from 20 years ago, said David Vellante, chief analyst at Wikibon, a sister company to SiliconANGLE. “Pure has done an amazing job of disrupting the old guard in storage, but it must do more,” he said. “To really impress going forward it has to demonstrate that it can lead in the next wave of storage growth, namely infrastructure for AI-based apps. I️ think Pure has a good shot.”

Pure has so far bucked the trend among flash array startups, most of which have sold out or succumbed to competition from big incumbents, who are now fully on board. In September, Dell EMC executives said sales of flash arrays were twice that of the company’s closest competitor and that flash now represents the majority of enterprise shipments. Two weeks ago, NetApp Inc. reported strong sales and earnings growth, primarily on performance of its all-flash arrays.

Those entrenched vendors will do well for the short term as they replace legacy disk technology with flash, but they don’t have Pure’s technology edge, Giancarlo said. Pure’s FlashArray, FlashStack and FlashBlade appliances were built from the ground up for solid-state storage, whereas disk-based incumbents “simply put flash into their existing environments, treating flash as a magnetic disk,” he said. “We’re getting better performance and density with lower cost, and our competitors can’t copy that.  The biggest surprise of my first three months is that customers have told me Pure is the best product they ever bought.”

Target: AI

The artificial intelligence applications that Wikibon’s Vellante noted are one of the three strategic areas the company is targeting, the others being cloud and large enterprises. In comments on the company’s conference call, President David Hatfield positioned Pure as joined at the hip with partner Nvidia Corp., whose stock has rocketed more than 600 percent since the beginning of 2016 on demand for its graphics processing units coprocessors. “Pure is to storage what Nvidia is to compute for AI,” Hatfield said.

About a quarter of the company’s business comes from large enterprises and another quarter from cloud providers. “We continue to move upstream and the per-deal basis is getting larger,” Giancarlo said.

The company said it added more than 300 new customers in the quarter, about the same as in the previous quarter, to bring the total to more than 4,000. More than 70 percent of all business came from existing customers, said Hatfield. Average deal sizes aren’t growing, but prices are steady and the company is competing for a larger number of deals each quarter, Giancarlo added.

Picky investors are keeping a close eye on profit margins these days, and Pure obliged with gross margin growth of about 1 percent, to 66.4 percent. Operating margins improved even more substantially to -0.7 percent from -9.8 percent a year earlier.

However, the continuing loss may surprise some analysts. Tim Long, managing director at BMO Capital Markets, had earlier in the day forecast that the company would turn a profit this quarter.

Giancarlo waved off questions about the company’s stock price, which has advanced about 65 percent this year, about double the growth in the Nasdaq Composite Index. “We’re going to focus on revenue and earnings and let stock take care of itself,” he said.

Although the company doesn’t break out revenues by product line, its FlashArray//X high-performance appliance has been a particularly strong performer, Giancarlo said. “The FlashArray product family had a great quarter and continues to deliver great results in large part due to FlashArray//X,” he said.

The FlashBlade, an all-flash memory system for cloud-scale applications continues to perform well 18 months into its life. “We are, if anything, more optimistic about FlashBlade than when we first introduced it,” Giancarlo said, adding that the product seems to be particularly well-suited for AI applications.

Photo: Ikhlaq Sidhu