Pure Storage To Price Senior Notes Worth $450 Million

Pure Storage Inc. PSTG recently announced plans of offering $450 million of convertible senior notes in a private placement.

The interest rate, conversion rate and certain other terms of the notes are yet to be determined.

Delving into the Headlines

The notes will be offered to qualified institutional buyers only, and in accordance with Rule 144A under the Securities Act of 1933, as amended. The company will also give the initial purchasers of the notes an option to buy up to an additional $67.5 million aggregate principal amount of the notes to cover any over allotment.

Interest on the notes will be paid semi-annually and mature in 2023, subject to customary closing conditions.

In connection with the pricing of the notes, Pure Storageexpects to enter into more convertible note hedge transactions with the initial purchasers or their affiliates if required.

The company also anticipates utilizing certain portion of the net proceeds to pay the cost of the capped call transactions. The remaining net proceeds will be used for working capital, general corporate purposes and to repurchase up to $20 million of shares of its Class A common stock.

Cash Position

The enhanced capital deployment reflects Pure Storage's strong balance sheet and confidence in long-term business prospects. The company exited the year ended Jan 31, 2018 with cash and cash equivalents of $183.7 million.

Positive free cash flow for the full-year ended Jan 31, 2018 was reported for the first time in the company's history at $7.7 million, compared with ($61.2 million) fiscal 2017. This can be attributed to strong performance in the quarter and employee stock purchase worth $11.5 million in the fourth quarter of fiscal 2018.

We believe that the company has a strong balance sheet, which will help it in capitalizing on investment opportunities and pursuing strategic acquisitions, further improving growth prospects. Moreover, the senior notes offering will lower its cost of capital, consequently strengthening balance sheet and supporting growth.

Bottom Line

The company's strong product portfolio including the likes of FlashArray, FlashStack and FlashBlade business segments aid in bolstering the top line. Additionally, the company's data platform for cloud is gaining traction.

Pure Storage continues to focus on three major aspects, namely increasing cloud customer base, solidifying the position of its next generation workload related core data infrastructure and tapping large enterprises as they "cloudify" their on-premise IT infrastructure.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report