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Pure Storage Announces Second Quarter Fiscal 2019 Financial Results

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Pure Storage Announces Second Quarter Fiscal 2019 Financial Results

PR Newswire

MOUNTAIN VIEW, Calif., Aug. 21, 2018 /PRNewswire/ -- Pure Storage (NYSE:PSTG), the all-flash storage leader that helps innovators build a better world with data, today announced financial results for its second quarter ended July 31, 2018.

www.purestorage.com (PRNewsFoto/Pure Storage) (PRNewsfoto/Pure Storage)

Key quarterly business and financial highlights include:

  • Revenue: $308.9 million, up 37% Y/Y, exceeding the high end of our guidance;
  • Gross margin: 66.7% GAAP; 68.0% non-GAAP, all-time high in history;
  • Operating margin: -17.9% GAAP; 0.3% non-GAAP, up 9.2 ppts and 10.6 ppts Y/Y, respectively;
  • Acquired StorReduce, Inc., a cloud-first software-defined storage solution.

"Pure has delivered another exceptional quarter, with all measures exceeding our Q2 guidance ranges," said Charles Giancarlo, CEO, Pure Storage. "Our continued focus on enabling customers to succeed in a data-centric world is working and validated, maintaining Pure's lead in the data storage market."

Nearly 400 new customers joined Pure Storage in the quarter, increasing the total to more than 5,150 organizations. New customer wins in the quarter include: Dustin Sverige, Honda Federal Credit Union, Fresenius Medical Care, Lufthansa Aero Alzey Gmbh, New York Genome Center, Syntax, TaxSlayer, The University of Texas MD Anderson Cancer Center, and Zeiss Vision Care France.

"Q2 was another strong quarter for Pure," said Tim Riitters, CFO, Pure Storage. "Growth was strong, gross margins were the highest in history, and we achieved another profitable quarter."

Second Quarter Fiscal 2019 Financial Highlights

The following tables summarize our consolidated financial results for the fiscal quarters ended July 31, 2018 and 2017 (in millions except percentages, per share amounts and headcount, unaudited):

GAAP Quarterly Financial Information



Three Months Ended
July 31, 2018


Three Months Ended
July 31, 2017


Y/Y Change

Revenue


$308.9


$224.7


37%

Gross Margin


66.7%


66.0%


0.7 ppts

Product Gross Margin


67.5%


68.1%


-0.6 ppts

Support Subscription Gross Margin


63.9%


57.3%


6.6 ppts

Operating Loss


$(55.2)


$(60.9)


$5.7

Operating Margin


-17.9%


-27.1%


9.2 ppts

Net Loss


$(60.1)


$(58.4)


$(1.7)

Net Loss per Share – Basic and Diluted


$(0.26)


$(0.28)


$0.02

Weighted-Average Shares


229.4


209.2


20.2

Headcount


>2,450


>1,900


~550

 

Non-GAAP Quarterly Financial Information



Three Months Ended
July 31, 2018


Three Months Ended
July 31, 2017


Y/Y Change

Gross Margin


68.0%


67.2%


0.8 ppts

Product Gross Margin


67.9%


68.3%


-0.4 ppts

Support Subscription Gross Margin


68.4%


62.5%


5.9 ppts

Operating Income (Loss)


$0.9


$(23.1)


$24.0

Operating Margin


0.3%


-10.3%


10.6 ppts

Net Income (Loss)


$2.4


$(20.7)


$23.1

Net Income (Loss) per Share – Diluted


$0.01


$(0.10)


$0.11

Weighted-Average Shares – Diluted


262.6


209.2


53.4

A reconciliation between GAAP and non-GAAP information is provided at the end of this release.

Financial Outlook

Pure Storage's third quarter fiscal 2019 guidance is as follows:

  • Revenue in the range of $361 million to $369 million
  • Non-GAAP gross margin in the range of 64.5% to 67.5%
  • Non-GAAP operating margin in the range of 4.0% to 8.0%

Pure Storage's full year fiscal 2019 guidance is as follows:

  • Revenue in the range of $1.350 billion to $1.380 billion
  • Non-GAAP gross margin in the range of 65.5% to 67.5%
  • Non-GAAP operating margin in the range of 2.5% to 4.5%

All forward-looking non-GAAP financial measures contained in this section titled "Financial Outlook" exclude stock-based compensation expense, payroll tax expense related to stock-based activities, amortization of debt discount and debt issuance costs and any applicable anti-dilutive share count impact of our convertible debt hedge agreements and, as applicable, other special items. We have not reconciled guidance for non-GAAP gross margin and non-GAAP operating margin to their most directly comparable GAAP measures because the items that impact these measures are not within our control and/or cannot be reasonably predicted. Accordingly, a reconciliation of the non-GAAP financial measure guidance to the corresponding GAAP measures is not available without unreasonable effort.

Conference Call Information

Pure Storage will host a teleconference to discuss the second quarter fiscal 2019 results at 2:00 p.m. (PT) on August 21, 2018. Pure Storage will post its supplemental earnings presentation to the investor relations website at investor.purestorage.com following the conference call.

Teleconference details are as follows:

  • To Listen via Telephone: (877) 201-0168 or (647) 788-4901 (for international callers).
  • To Listen via the Internet: A live and replay audio broadcast of the conference call with corresponding slides will be available at investor.purestorage.com.
  • Replay: A telephone playback of this conference call is scheduled to be available approximately two hours after the call ends on Tuesday, August 21, 2018, through September 4, 2018. The replay will be accessible by calling (800) 585-8367 or (416) 621-4642 (for international callers), with conference ID 9794206.

Upcoming Events

Management will participate in upcoming financial Q&A discussions at Deutsche Bank Technology Conference on September 13, 2018 at 10:00 a.m. (PT). Pure Storage will post a link to these events on the investor relations website at investor.purestorage.com for both the live and archived webcasts.

About Pure Storage

Pure Storage (NYSE:PSTG) helps innovators build a better world with data. Pure's data solutions enable SaaS companies, cloud service providers, and enterprise and public sector customers to deliver real-time, secure data to power their mission-critical production, DevOps, and modern analytics environments in a multi-cloud environment. One of the fastest growing enterprise IT companies in history, Pure Storage enables customers to quickly adopt next-generation technologies, including artificial intelligence and machine learning, to help maximize the value of their data for competitive advantage. And with a Satmetrix-certified NPS customer satisfaction score in the top one percent of B2B companies, Pure's ever-expanding list of customers are among the happiest in the world.

Analyst Recognition

Gartner Magic Quadrant for Solid-State Arrays
IDC MarketScape for All-Flash Arrays

Pure Storage, Evergreen, FlashBlade, FlashStack and the "P" Logo mark are trademarks of Pure Storage, Inc. All other trademarks or names referenced in this document are the property of their respective owners.

Forward Looking Statements
This press release contains forward-looking statements regarding our products, business and operations, including our growth prospects and expectations regarding technology differentiation, and our outlook for the third quarter and full year fiscal 2019, and statements regarding our products, business, operations and results. Forward-looking statements are subject to known and unknown risks and uncertainties and are based on potentially inaccurate assumptions that could cause actual results to differ materially from those expected or implied by the forward-looking statements. Actual results may differ materially from the results predicted, and reported results should not be considered as an indication of future performance. The potential risks and uncertainties that could cause actual results to differ from the results predicted include, among others, those risks and uncertainties included under the captions "Risk Factors" and elsewhere in our filings and reports with the U.S. Securities and Exchange Commission, which are available on our investor relations website at investor.purestorage.com and on the SEC website at www.sec.gov. Additional information will also be available in our Quarterly Report on Form 10-Q for the quarter ended July 31, 2018. All information provided in this release and in the attachments is as of August 21, 2018, and we undertake no duty to update this information unless required by law.

Non-GAAP Financial Measures
To supplement our condensed consolidated financial statements, which are prepared and presented in accordance with GAAP, we use the following non-GAAP financial measures: non-GAAP gross profit, non-GAAP gross margin, non-GAAP operating income (loss), non-GAAP operating margin, non-GAAP net income (loss), non-GAAP net income (loss) per share, free cash flow, free cash flow as a percentage of revenue, free cash flow without ESPP impact, and free cash flow without ESPP impact as a percentage of revenue.

We use these non-GAAP financial measures for financial and operational decision-making and as a means to evaluate period-to-period comparisons. Our management believes that these non-GAAP financial measures provide meaningful supplemental information regarding our performance and liquidity by excluding certain expenses and expenditures such as stock-based compensation expense and amortization of debt discount and debt issuance costs that may not be indicative of our ongoing core business operating results. We believe that both management and investors benefit from referring to these non-GAAP financial measures in assessing our performance and when analyzing historical performance and liquidity and planning, forecasting, and analyzing future periods. The presentation of these non-GAAP financial measures is not meant to be considered in isolation or as a substitute for, or superior to, our financial results prepared in accordance with GAAP, and our non-GAAP measures may be different from non-GAAP measures used by other companies.

For a reconciliation of these non-GAAP financial measures to GAAP measures, please see the tables captioned "Reconciliations of non-GAAP results of operations to the nearest comparable GAAP measures" and "Reconciliation from net cash provided by (used in) operating activities to free cash flow and free cash flow without ESPP impact," included at the end of this release.

PURE STORAGE, INC.

Condensed Consolidated Balance Sheets

(in thousands, unaudited)




As of
July 31, 2018


As of
January 31, 2018





(As Adjusted*)

Assets





Current assets:





Cash and cash equivalents


$

370,457



$

244,057


Marketable securities


736,205



353,289


Accounts receivable, net of allowance of $957 and $1,062


242,409



243,001


Inventory


41,673



34,497


Deferred commissions, current


23,521



21,088


Prepaid expenses and other current assets


36,071



47,552


Total current assets


1,450,336



943,484


Property and equipment, net


101,718



89,142


Intangible assets, net


4,305



5,057


Deferred income taxes, non-current


1,534



1,060


Restricted cash


15,778



14,763


Deferred commissions, non-current


67,948



66,225


Other assets, non-current


4,610



4,264


Total assets


$

1,646,229



$

1,123,995







Liabilities and stockholders' equity





Current liabilities:





Accounts payable


$

68,058



$

84,420


Accrued compensation and benefits


51,654



59,898


Accrued expenses and other liabilities


27,049



26,829


Deferred revenue, current


213,100



191,229


Liability related to early exercised stock options




320


Total current liabilities


359,861



362,696


Convertible senior notes, net


436,687




Deferred revenue, non-current


200,147



182,873


Other liabilities, non-current


5,140



4,025


Total liabilities


1,001,835



549,594







Stockholders' equity:





Common stock and additional paid-in capital


1,675,234



1,479,905


Accumulated other comprehensive loss


(2,826)



(1,917)


Accumulated deficit


(1,028,014)



(903,587)


Total stockholders' equity


644,394



574,401


Total liabilities and stockholders' equity


$

1,646,229



$

1,123,995



* Prior period information has been adjusted to reflect the adoption impact of Accounting Standards Codification 606, Revenue from Contracts with Customers (ASC 606), which we adopted on February 1, 2018.

 

PURE STORAGE, INC.

Condensed Consolidated Statements of Operations

(in thousands, except per share data, unaudited)



Three Months Ended July 31,


Six Months Ended July 31,


2018


2017


2018


2017




(As Adjusted*)




(As Adjusted*)

Revenue:








Product

$

241,137



$

179,669



$

436,586



$

322,519


Support subscription

67,747



45,001



128,243



84,796


Total revenue

308,884



224,670



564,829



407,315










Cost of revenue:








Product (1)

78,262



57,252



144,682



103,897


Support subscription(1)

24,457



19,199



47,667



36,102


Total cost of revenue

102,719



76,451



192,349



139,999










Gross profit

206,165



148,219



372,480



267,316










Operating expenses:








Research and development (1)

84,031



69,361



162,523



134,789


Sales and marketing (1)

143,749



117,552



266,116



209,315


General and administrative (1)

33,591



22,162



60,921



42,258


Total operating expenses

261,371



209,075



489,560



386,362










Loss from operations

(55,206)



(60,856)



(117,080)



(119,046)


Other income (expense), net

(4,032)



3,266



(5,031)



5,261


Loss before provision for income taxes

(59,238)



(57,590)



(122,111)



(113,785)


Provision for income taxes

885



821



2,316



1,785


Net loss

$

(60,123)



$

(58,411)



$

(124,427)



$

(115,570)










Net loss per share attributable to common stockholders, basic and diluted

$

(0.26)



$

(0.28)



$

(0.55)



$

(0.56)


Weighted-average shares used in computing net loss per share attributable to common stockholders, basic and diluted

229,359



209,193



226,609



207,515



* Prior period information has been adjusted to reflect the adoption impact of ASC 606, which we adopted on February 1, 2018.


(1) Includes stock-based compensation expense as follows:


Cost of revenue -- product

$

720



$

358



$

1,328



$

755


Cost of revenue -- support subscription

2,929



2,245



5,613



4,019


Research and development

22,232



17,971



43,322



33,559


Sales and marketing

17,269



11,439



31,209



22,065


General and administrative

10,504



4,825



16,137



8,659


Total stock-based compensation expense

$

53,654



$

36,838



$

97,609



$

69,057


 

PURE STORAGE, INC.

Condensed Consolidated Statements of Cash Flows

(in thousands, unaudited)



Three Months Ended July 31,


Six Months Ended July 31,


2018


2017


2018


2017




(As Adjusted*)




(As Adjusted*)

Cash flows from operating activities








Net loss

$

(60,123)



$

(58,411)



$

(124,427)



$

(115,570)


Adjustments to reconcile net loss to net cash provided by (used in) operating activities:








Depreciation and amortization

17,173



15,175



33,590



30,000


Amortization of debt discount and debt issuance costs

6,434





7,889




Stock-based compensation expense

53,654



36,838



97,609



69,057


Other

(70)



346



82



797


Changes in operating assets and liabilities:








Accounts receivable, net

(46,436)



(36,546)



707



25


Inventory

(4,471)



5,618



(8,900)



(10,487)


Deferred commissions

(5,424)



(8,220)



(4,155)



(9,587)


Prepaid expenses and other assets

23



3,758



11,134



(186)


Accounts payable

667



4,183



(18,135)



201


Accrued compensation and other liabilities

22,423



21,201



(7,458)



(2,993)


Deferred revenue

24,634



15,867



39,144



24,251


Net cash provided by (used in) operating activities

8,484



(191)



27,080



(14,492)










Cash flows from investing activities








Purchases of property and equipment

(20,437)



(17,331)



(42,733)



(30,100)


Purchases of marketable securities

(412,805)



(39,382)



(494,507)



(95,358)


Sales of marketable securities

3,131



28,145



13,585



33,529


Maturities of marketable securities

36,770



27,360



97,793



73,681


Net cash used in investing activities

(393,341)



(1,208)



(425,862)



(18,248)










Cash flows from financing activities








Net proceeds from exercise of stock options

19,453



4,536



29,067



6,793


Proceeds from issuance of common stock under employee stock purchase plan





19,698



14,166


Proceeds from issuance of convertible senior notes, net of issuance costs





562,062




Payment for purchase of capped calls





(64,630)




Repurchase of common stock





(20,000)




Net cash provided by financing activities

19,453



4,536



526,197



20,959










Net increase (decrease) in cash, cash equivalents and restricted cash

(365,404)



3,137



127,415



(11,781)


Cash, cash equivalents and restricted cash, beginning of period

751,639



181,491



258,820



196,409


Cash, cash equivalents and restricted cash, end of period

$

386,235



$

184,628



$

386,235



$

184,628



* Prior period information has been adjusted to reflect the adoption impact of ASC 606 and ASU No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash, which we adopted on February 1, 2018.

 

Reconciliations of non-GAAP results of operations to the nearest comparable GAAP measures


The following table presents non-GAAP gross margins by revenue source before certain items (in thousands except percentages, unaudited):




Three Months Ended July 31, 2018


Three Months Ended July 31, 2017 (As Adjusted*)



GAAP
results


GAAP
gross
margin (a)


Adjustment




Non-
GAAP
results


Non-
GAAP
gross
margin (b)


GAAP
results


GAAP
gross
margin (a)


Adjustment




Non-
GAAP
results


Non-
GAAP
gross
margin (b)
































$

720



(c)










$

358



(c)











36



(d)










8



(d)





Gross profit -- product


$

162,875



67.5

%


$

756





$

163,631



67.9

%


$

122,417



68.1

%


$

366





$

122,783



68.3

%
































$

2,929



(c)










$

2,245



(c)











137



(d)










87



(d)





Gross profit -- support subscription


$

43,290



63.9

%


$

3,066





$

46,356



68.4

%


$

25,802



57.3

%


$

2,332





$

28,134



62.5

%
































$

3,649



(c)










$

2,603



(c)











173



(d)










95



(d)





Total gross profit


$

206,165



66.7

%


$

3,822





$

209,987



68.0

%


$

148,219



66.0

%


$

2,698





$

150,917



67.2

%


 * Prior period information has been adjusted to reflect the adoption impact of ASC 606, which we adopted on February 1, 2018.


(a) GAAP gross margin is defined as GAAP gross profit divided by revenue.

(b) Non-GAAP gross margin is defined as non-GAAP gross profit divided by revenue.

(c) To eliminate stock-based compensation expense.

(d) To eliminate payroll tax expense related to stock-based activities.

 

The following table presents certain non-GAAP consolidated results before certain items (in thousands, except per share amounts and percentages, unaudited):



Three Months Ended July 31, 2018


Three Months Ended July 31, 2017 (As Adjusted*)


GAAP

results


GAAP

operating

margin (a)


Adjustment




Non-

GAAP

results


Non-

GAAP

operating

margin (b)


GAAP

results


GAAP

operating

margin (a)


Adjustment


Non-

GAAP

results


Non-

GAAP

operating

margin (b)




























$

53,654



(c)










$

36,838


(c)









2,427



(d)










906


(d)




Operating income (loss)

$

(55,206)



-17.9

%


$

56,081





$

875



0.3

%


$

(60,856)



-27.1

%


$

37,744



$

(23,112)



-10.3

%




























$

53,654



(c)










$

36,838


(c)









2,427



(d)










906


(d)









6,434



(e)















Net income (loss)

$

(60,123)





$

62,515





$

2,392





$

(58,411)





$

37,744



$

(20,667)


























Net income (loss) per share --diluted

$

(0.26)









$

0.01





$

(0.28)







$

(0.10)































Weighted-average shares used in per share calculation --  diluted

229,359





33,216



(f)


262,575





209,193







209,193










































 * Prior period information has been adjusted to reflect the adoption impact of ASC 606, which we adopted on February 1, 2018.


(a) GAAP operating margin is defined as GAAP operating income (loss) divided by revenue.

(b) Non-GAAP operating margin is defined as non-GAAP operating income (loss) divided by revenue.

(c) To eliminate stock-based compensation expense.

(d) To eliminate payroll tax expense related to stock-based activities.

(e) To eliminate the amortization expense of debt discount and debt issuance costs related to our convertible debt.

(f) To include effect of dilutive securities (employee stock options, restricted stock units, and shares from employee stock purchase plans (ESPP)).

 

Reconciliation from net cash provided by (used in) operating activities to free cash flow and free cash flow without ESPP impact (in thousands except percentages, unaudited):



Three Months Ended July 31,


2018


2017

Net cash provided by (used in) operating activities

$

8,484



$

(191)


Less: purchases of property and equipment

(20,437)



(17,331)


Free cash flow (non-GAAP)

$

(11,953)



$

(17,522)


Adjust: ESPP impact

(6,982)



(4,964)


Free cash flow without ESPP impact (non-GAAP)

$

(18,935)



$

(22,486)






Free cash flow as % of revenue

-3.9

%


-7.8

%

Free cash flow without ESPP impact as % of revenue

-6.1

%


-10.0

%

 

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