PSTG
$17.39
Pure Storage
($.28)
(1.58%)
Earnings Details
2nd Quarter July 2019
Wednesday, August 21, 2019 4:03:00 PM
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Summary

Pure Storage Beats but Guides Lower

Pure Storage (PSTG) reported 2nd Quarter July 2019 earnings of $0.01 per share on revenue of $396.3 million. The consensus estimate was a loss of $0.04 per share on revenue of $394.6 million. The Earnings Whisper number was for a loss of $0.05 per share. Revenue grew 28.3% on a year-over-year basis.

The company said it expects third quarter revenue of $434.0 million to $446.0 million. The current consensus revenue estimate is $470.0 million for the quarter ending October 31, 2019. The company also said it expects fiscal year revenue of $1.645 billion to $1.715 billion. The company's previous guidance was revenue of $1.70 billion to $1.77 billion and the current consensus estimate is revenue of $1.73 billion for the year ending January 31, 2020.

Results
Reported Earnings
$0.01
Earnings Whisper
($0.05)
Consensus Estimate
($0.04)
Reported Revenue
$396.3 Mil
Revenue Estimate
$394.6 Mil
Growth
Earnings Growth
Revenue Growth
Power Rating
Grade
Earnings Release

Pure Storage Announces Second Quarter Fiscal 2020 Financial Results

MOUNTAIN VIEW, Calif., Aug. 21, 2019 /PRNewswire/ -- Pure Storage (NYSE: PSTG), the data solutions leader that helps innovators build a better world with data, today announced financial results for its second quarter ended July 31, 2019.

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

"Our significant growth this quarter and continued market share gains are the result of creating a modern data experience for our customers," said Charles Giancarlo, Chairman and CEO, Pure Storage. "Pure frees enterprises to leverage their data rather than locking it away."

Key Financial Highlights:

  • Revenue: $396.3 million, up 28% Year-over-Year
  • Gross margin: GAAP 67.7%; non-GAAP 69.4%
  • Operating margin: GAAP -16.4%; non-GAAP -0.8%

Recent Company Highlights:

Pure's second quarter yielded strong momentum as customers are selecting Pure's modern approach that enables organizations to better utilize all data today and for the future direction of their hybrid IT environment.

  • Customer Traction: Added more than 450 new customers in Q2, the highest number in any Q2 of our history.
  • Technology Momentum: The subscription-based Cloud Block Store beta as part of Pure Cloud Data Services, is oversubscribed and early customer feedback has been overwhelmingly positive.
  • Repurchase Program: Pure's board of directors authorized a $150 million share buy-back program.

"Pure's strong growth in Q2 has separated us from the legacy vendors," said Tim Riitters, CFO, Pure Storage. "Our fundamentals remain strong, and our innovative product cycle is helping customers leverage their data in a powerful way."

Organizational Update

Chief Financial Officer Tim Riitters will be departing the company this year after a successful five-year tenure. Riitters will remain on into the Fall as the company undergoes the search for a replacement CFO. Riitters first joined Pure in August 2014, assuming leadership of the company's worldwide financial and accounting operations. In that time, he has helped drive an increase in revenue of nearly 10x, while also helping the company achieve profitability.

"Tim has been an integral part of the Pure Storage leadership team for the last five years. As our CFO, the success of his tenure is in the numbers and the numbers speak for themselves," said Giancarlo. "Everyone at Pure has the utmost respect for what Tim has accomplished and we wish him well."

Second Quarter Fiscal 2020 Financial Highlights

The following tables summarize our consolidated financial results for the fiscal quarters ended July 31, 2019 and 2018 (in millions except percentages, per share amounts and headcount, unaudited):

GAAP Quarterly Financial Information



Three Months Ended
July 31, 2019


Three Months Ended
July 31, 2018


Y/Y Change

Revenue


$ 396.3


$ 308.9


28 %

Gross Margin


67.7 %


66.7 %


1.0 ppts

Product Gross Margin


69.1 %


67.5 %


1.6 ppts

Support Subscription Gross Margin


63.5 %


63.9 %


-0.4 ppts

Operating Loss


$ (64.9)


$ (55.2)


$ (9.7)

Operating Margin


-16.4 %


-17.9 %


1.5 ppts

Net Loss


$ (66.0)


$ (60.1)


$ (5.9)

Net Loss per Share – Basic and Diluted


$ (0.26)


$ (0.26)


Weighted-Average Shares


251.3


229.4


21.9

Headcount


>3,300


>2,450


~850



Non-GAAP Quarterly Financial Information



Three Months Ended
July 31, 2019


Three Months Ended
July 31, 2018


Y/Y Change

Gross Margin


69.4 %


68.0 %


1.4 ppts

Product Gross Margin


70.0 %


67.9 %


2.1 ppts

Support Subscription Gross Margin


67.4 %


68.4 %


-1.0 ppts

Operating Income (Loss)


$ (3.2)


$ 0.9


$ (4.1)

Operating Margin


-0.8 %


0.3 %


-1.1 ppts

Net Income


$ 2.5


$ 2.4


$ 0.1

Net Income per Share


$ 0.01


$ 0.01


Weighted-Average Shares


270.8


262.6


8.2

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

Financial Outlook

Third quarter fiscal 2020 guidance:

  • Revenue in the range of $434 million to $446 million, or $440 million at the midpoint
  • Non-GAAP gross margin in the range of 66.0% to 69.0%, or 67.5% at the midpoint
  • Non-GAAP operating margin in the range of 3.0% to 7.0%, or 5.0% at the midpoint

Full year fiscal 2020 guidance:

  • Revenue in the range of $1.645 billion to $1.715 billion, or $1.680 billion at the midpoint
  • Non-GAAP gross margin in the range of 67.0% to 69.0%, or 68.0% at the midpoint
  • Non-GAAP operating margin in the range of 2.25% to 4.75%, or 3.5% at the midpoint

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, amortization of intangible assets acquired from acquisitions, 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.

Share Repurchase Authorization

Pure's board of directors has authorized a $150 million stock repurchase program. This authorization allows the company to repurchase shares of its common stock opportunistically and will be funded from working capital. Repurchases may be made at management's discretion from time to time on the open market, through privately negotiated transactions, transactions structured through investment banking institutions, block purchase techniques, 10b5-1 trading plans, or a combination of the foregoing. The authorization for share repurchases is effective immediately, with no end date. The repurchase program does not obligate Pure to acquire any of its common stock, and may be suspended or discontinued by the company at any time without prior notice.

Conference Call Information

Pure will host a teleconference to discuss the second quarter fiscal 2020 results at 2:00 p.m. (PT) on August 21, 2019. Pure 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: (866) 393-4306 or (734) 385-2616 (for international callers) with passcode 7071658.
  • 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 two hours after the call ends on Wednesday, August 21, 2019, through September 4, 2019. The replay will be accessible by calling (855) 859-2056 or (404) 537-3406 (for international callers), with conference ID 7071658.

Upcoming Events

In conjunction with Pure's customer conference, Pure//Accelerate 2019 being held in Austin, Texas, Pure will be hosting an Investor Session on September 17th at 1 p.m. (CT). This event will be webcast and all information will be available on the Investor Relations website at investor.purestorage.com.

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 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.

Pure Storage, DirectFlash, Evergreen, FlashBlade, FlashStack, ObjectEngine 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 outlook for the third quarter and full year fiscal 2020, our momentum, growth prospects and expectations regarding product and technology differentiation, including our new products and innovative product cycle, and statements regarding our products, business, operations and results, including our plans with respect to our share repurchase authorization and possibility that share repurchases may be suspended or discontinued. 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 is also set forth in our Annual Report on Form 10-K for the year ended January 31, 2019. All information provided in this release and in the attachments is as of August 21, 2019, 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, amortization of debt discount and debt issuance costs, and amortization of intangible assets acquired from acquisitions 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, 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 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, 2019


As of
January 31, 2019






Assets





Current assets:





Cash and cash equivalents


$

268,938



$

447,990


Marketable securities


913,521



749,482


Accounts receivable, net of allowance of $614 and $660


352,617



378,729


Inventory


35,820



44,687


Deferred commissions, current


31,273



29,244


Prepaid expenses and other current assets


47,776



51,695


Total current assets


1,649,945



1,701,827


Property and equipment, net


131,048



125,353


Operating lease right-of-use-assets


114,339




Deferred commissions, non-current


87,295



85,729


Intangible assets, net


63,659



20,118


Goodwill


36,420



10,997


Deferred income taxes, non-current


939



1,060


Restricted cash


15,425



15,823


Other assets, non-current


16,904



12,118


Total assets


$

2,115,974



$

1,973,025







Liabilities and stockholders' equity





Current liabilities:





Accounts payable


$

64,582



$

103,462


Accrued compensation and benefits


70,753



99,910


Accrued expenses and other liabilities


44,690



39,860


Operating lease liabilities, current


26,005




Deferred revenue, current


308,523



266,584


Total current liabilities


514,553



509,816


Convertible senior notes, net


463,118



449,828


Operating lease liabilities, non-current


94,941




Deferred revenue, non-current


298,740



269,336


Deferred tax liabilities, non-current


5,697




Other liabilities, non-current


1,386



6,265


Total liabilities


1,378,435



1,235,245







Stockholders' equity:





Common stock and additional paid-in capital


1,982,433



1,820,067


Accumulated other comprehensive income (loss)


3,409



(338)


Accumulated deficit


(1,248,303)



(1,081,949)


Total stockholders' equity


737,539



737,780


Total liabilities and stockholders' equity


$

2,115,974



$

1,973,025


 

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,


2019


2018


2019


2018









Revenue:








Product

$

300,128



$

241,137



$

538,869



$

436,586


Support subscription

96,199



67,747



184,158



128,243


Total revenue

396,327



308,884



723,027



564,829










Cost of revenue:








Product (1)

92,870



78,262



169,462



144,682


Support subscription(1)

35,138



24,457



68,859



47,667


Total cost of revenue

128,008



102,719



238,321



192,349










Gross profit

268,319



206,165



484,706



372,480










Operating expenses:








Research and development (1)

107,020



84,031



212,095



162,523


Sales and marketing (1)

186,188



143,749



352,814



266,116


General and administrative (1)

40,016



33,591



82,126



60,921


Total operating expenses

333,224



261,371



647,035



489,560










Loss from operations

(64,905)



(55,206)



(162,329)



(117,080)


Other income (expense), net

(652)



(4,032)



(2,468)



(5,031)


Loss before provision for income taxes

(65,557)



(59,238)



(164,797)



(122,111)


Income tax provision

461



885



1,557



2,316


Net loss

$

(66,018)



$

(60,123)



$

(166,354)



$

(124,427)










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

$

(0.26)



$

(0.26)



$

(0.67)



$

(0.55)


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

251,298



229,359



248,366



226,609




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

Cost of revenue -- product

$

954



$

720



$

1,931



$

1,328


Cost of revenue -- support subscription

3,633



2,929



7,584



5,613


Research and development

29,108



22,232



57,353



43,322


Sales and marketing

16,055



17,269



34,369



31,209


General and administrative

8,654



10,504



19,324



16,137


Total stock-based compensation expense

$

58,404



$

53,654



$

120,561



$

97,609


 

PURE STORAGE, INC.

Condensed Consolidated Statements of Cash Flows

(in thousands, unaudited)



Three Months Ended July 31,


Six Months Ended July 31,


2019


2018


2019


2018









Cash flows from operating activities








Net loss

$

(66,018)



$

(60,123)



$

(166,354)



$

(124,427)


Adjustments to reconcile net loss to net cash provided by operating activities:








Depreciation and amortization

22,531



17,173



43,591



33,590


Amortization of debt discount and debt issuance costs

6,800



6,434



13,290



7,889


Stock-based compensation expense

58,404



53,654



120,561



97,609


Other

1,138



(70)



327



82


Changes in operating assets and liabilities, net of effects of acquisition:








Accounts receivable, net

(40,746)



(46,436)



26,553



707


Inventory

8,875



(4,471)



6,852



(8,900)


Deferred commissions

(5,311)



(5,424)



(3,595)



(4,155)


Prepaid expenses and other assets

6,663



23



(635)



11,134


Operating lease right-of-use assets

7,229





13,438




Accounts payable

(5,020)



667



(30,827)



(18,135)


Accrued compensation and other liabilities

18,289



22,423



(25,704)



(7,458)


Operating lease liabilities

(7,049)





(13,083)




Deferred revenue

43,032



24,634



71,045



39,144


Net cash provided by operating activities

48,817



8,484



55,459



27,080










Cash flows from investing activities








Purchases of property and equipment

(28,933)



(20,437)



(53,229)



(42,733)


Acquisition, net of cash acquired





(47,881)




Purchase of intangible assets

(9,000)





(9,000)




Purchases of marketable securities

(175,638)



(412,805)



(488,497)



(494,507)


Sales of marketable securities

38,024



3,131



60,368



13,585


Maturities of marketable securities

106,617



36,770



270,756



97,793


Net cash used in investing activities

(68,930)



(393,341)



(267,483)



(425,862)










Cash flows from financing activities








Net proceeds from exercise of stock options

2,499



19,453



19,260



29,067


Proceeds from issuance of common stock under employee stock purchase plan





32,042



19,698


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







562,062


Payment for purchase of capped calls







(64,630)


Repayment of debt acquired from acquisition





(11,555)




Tax withholding on vesting of restricted stock

(1,501)





(7,173)




Repurchase of common stock







(20,000)


Net cash provided by financing activities

998



19,453



32,574



526,197










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

(19,115)



(365,404)



(179,450)



127,415


Cash, cash equivalents and restricted cash, beginning of period

303,478



751,639



463,813



258,820


Cash, cash equivalents and restricted cash, end of period

$

284,363



$

386,235



$

284,363



$

386,235


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, 2019


Three Months Ended July 31, 2018


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)






























$

954



(c)










$

720



(c)










27



(d)










36



(d)










1,971



(e)

















Gross profit -- product

$

207,258



69.1

%


$

2,952





$

210,210



70.0

%


$

162,875



67.5

%


$

756





$

163,631



67.9

%






























$

3,633



(c)










$

2,929



(c)










98



(d)










137



(d)





Gross profit -- support subscription

$

61,061



63.5

%


$

3,731





$

64,792



67.4

%


$

43,290



63.9

%


$

3,066





$

46,356



68.4

%






























$

4,587



(c)










$

3,649



(c)










125



(d)










173



(d)










1,971



(e)

















Total gross profit

$

268,319



67.7

%


$

6,683





$

275,002



69.4

%


$

206,165



66.7

%


$

3,822





$

209,987



68.0

%


(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.

(e) To eliminate amortization expense of acquired intangible assets.

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, 2019


Three Months Ended July 31, 2018


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)




























$

58,404



(c)










$

53,654


(c)









1,355



(d)










2,427


(d)









1,971



(e)















Operating income (loss)

$

(64,905)



-16.4

%


$

61,730





$

(3,175)



-0.8

%


$

(55,206)



-17.9

%


$

56,081



$

875



0.3

%




























$

58,404



(c)










$

53,654


(c)









1,355



(d)










2,427


(d)









1,971



(e)




















6,801



(f)










6,434


(f)




Net Income (loss)

$

(66,018)





$

68,531





$

2,513





$

(60,123)





$

62,515



$

2,392


























Net Income (loss) per share -- basic and diluted

$

(0.26)









$

0.01





$

(0.26)







$

0.01




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

251,298





19,550



(g)


270,848





229,359





33,216


(g)

262,575




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

(b) Non-GAAP operating margin is defined as non-GAAP operating 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 amortization expense of acquired intangible assets.

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

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

 

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


Three Months Ended July 31,


2019


2018

Net cash provided by operating activities

$

48,817



$

8,484


Less: purchases of property and equipment

(28,933)



(20,437)


Free cash flow (non-GAAP)

$

19,884



$

(11,953)


Adjust: ESPP impact

(5,671)



(6,982)


Free cash flow without ESPP impact (non-GAAP)

$

14,213



$

(18,935)






Free cash flow as % of revenue

5.0

%


-3.9

%

Free cash flow without ESPP impact as % of revenue

3.6

%


-6.1

%

 

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SOURCE Pure Storage