Pure Storage Announces First Quarter Fiscal 2020 Financial Results

05.21.2019

MOUNTAIN VIEW, Calif., May 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 first quarter ended April 30, 2019.

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"Pure continues to gain market share with innovation, a differentiated business model and our laser focus on customer delight," said Charles Giancarlo, Chairman and CEO, Pure Storage. "As enterprises embark on their hybrid cloud journeys, Pure is excited to play a role in modernizing their business."

Q1 Key Business and Financial Highlights:

  • Revenue: $326.7 million, up 28% year over year
  • Gross margin: GAAP 66.2%; non-GAAP 68.1%
  • Operating margin: GAAP -29.8%; non-GAAP -9.6%

Recent Company Highlights:

During Pure's first quarter of fiscal year 2020, the Company:

  • Announced the acquisition of Compuverde - a leading developer of file software solutions for enterprises and cloud providers. The acquisition will expand Pure Storage's file capabilities by providing a unified storage offering, as well as empowering customers to implement true hybrid architectures.
  • Released ObjectEngine for General Availability - the industry's first data protection platform purpose-built for flash and cloud. ObjectEngine unifies cloud and on-premises with seamless, rapid backup and recovery across both on-prem and the cloud and enables customers to modernize their entire data protection strategy to a "flash-to-flash-to-cloud" model.
  • Announced expansion of Evergreen Storage Service (ES2) - to enable a unified subscription model across hybrid environments. This allows organizations to leverage Pure's best-in-class storage-as-a-service model on-premises, hosted and in the cloud, without the need to manage multiple subscriptions or purchase separate or overlapping capacity.

"Q1 was a solid beginning of the year for Pure," said Tim Riitters, CFO, Pure Storage. "We continued to demonstrate strong growth, industry-leading margins, and innovation across our product portfolio."

First Quarter Fiscal 2020 Financial Highlights

The following tables summarize our consolidated financial results for the fiscal quarters ended April 30, 2019 and 2018 (in millions except percentages, per share amounts and headcount, unaudited):

GAAP Quarterly Financial Information



Three Months Ended
April 30, 2019


Three Months Ended
April 30, 2018


Y/Y Change

Revenue


$326.7


$255.9


28%

Gross Margin


66.2%


65.0%


1.2 ppts

Product Gross Margin


67.9%


66.0%


1.9 ppts

Support Subscription Gross Margin


61.7%


61.6%


0.1 ppts

Operating Loss


$(97.4)


$(61.9)


$(35.5)

Operating Margin


-29.8%


-24.2%


-5.6 ppts

Net Loss


$(100.3)


$(64.3)


$(36.0)

Net Loss per Share – Basic and Diluted


$(0.41)


$(0.29)


$(0.12)

Weighted-Average Shares


245.3


223.8


21.5

Headcount


>3,150


>2,300


~850


Non-GAAP Quarterly Financial Information



Three Months Ended
April 30, 2019


Three Months Ended
April 30, 2018


Y/Y Change

Gross Margin


68.1%


66.3%


1.8 ppts

Product Gross Margin


68.7%


66.3%


2.4 ppts

Support Subscription Gross Margin


66.3%


66.3%


0.0 ppts

Operating Loss


$(31.2)


$(15.3)


$(15.9)

Operating Margin


-9.6%


-6.0%


-3.6 ppts

Net Loss


$(27.6)


$(16.2)


$(11.4)

Net Loss per Share


$(0.11)


$(0.07)


$(0.04)

Weighted-Average Shares


245.3


223.8


21.5

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

Financial Outlook

Second quarter fiscal 2020 guidance:

  • Revenue in the range of $389 million to $401 million, or $395 million at the midpoint
  • Non-GAAP gross margin in the range of 65.0% to 68.0%, or 66.5% at the midpoint
  • Non-GAAP operating margin in the range of -5.0% to -1.0%, or -3.0% at the midpoint

Full year fiscal 2020 guidance:

  • Revenue in the range of $1.70 billion to $1.77 billion, or $1.735 billion at the midpoint
  • Non-GAAP gross margin in the range of 65.5% to 68.0%, or 66.75% at the midpoint
  • Non-GAAP operating margin in the range of 1.5% to 5.5%, 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.

Conference Call Information

Pure Storage will host a teleconference to discuss the first quarter fiscal 2020 results at 2:00 p.m. (PT) on May 21, 2019. 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: (866) 393-4306 or (734) 385-2616 (for international callers) with passcode 4955207.
  • 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 Tuesday, May 21, 2019, through June 4, 2019. The replay will be accessible by calling (855) 859-2056 or (404) 537-3406 (for international callers), with conference ID 4955207.

Upcoming Events

Management will participate in upcoming financial Q&A discussions at the Bank of America Global Technology Conference on June 4th at 3:50 pm PT, the William Blair 2019 Growth Stock Conference on June 6th at 6 am PT, and the Stifel Cross Sector Insights Conference on June 11th at 12:35 pm PT. Pure Storage will post a link to each session on the investor relations website at investor.purestorage.com for both live and archived events.

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 growth prospects and expectations regarding product and technology differentiation, and our outlook for the second quarter and full year fiscal 2020, 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 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 May 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
April 30, 2019


As of
January 31, 2019





Assets




Current assets:




Cash and cash equivalents

$

287,192



$

447,990


Marketable securities

878,958



749,482


Accounts receivable, net of allowance of $642 and $660

311,843



378,729


Inventory

45,936



44,687


Deferred commissions, current

28,532



29,244


Prepaid expenses and other current assets

54,570



51,695


Total current assets

1,607,031



1,701,827


Property and equipment, net

129,185



125,353


Operating lease right-of-use-assets

120,446




Deferred commissions, non-current

84,725



85,729


Intangible assets, net

57,220



20,118


Goodwill

36,407



10,997


Deferred income taxes, non-current

1,118



1,060


Restricted cash

16,286



15,823


Other assets, non-current

16,771



12,118


Total assets

$

2,069,189



$

1,973,025






Liabilities and stockholders' equity




Current liabilities:




Accounts payable

$

75,481



$

103,462


Accrued compensation and benefits

48,166



99,910


Accrued expenses and other liabilities

47,392



39,860


Operating lease liabilities, current

25,761




Deferred revenue, current

283,160



266,584


Total current liabilities

479,960



509,816


Convertible senior notes, net

456,318



449,828


Operating lease liabilities, non-current

101,112




Deferred revenue, non-current

281,070



269,336


Other liabilities, non-current

6,753



6,265


Total liabilities

1,325,213



1,235,245






Stockholders' equity:




Common stock and additional paid-in capital

1,924,972



1,820,067


Accumulated other comprehensive income (loss)

1,289



(338)


Accumulated deficit

(1,182,285)



(1,081,949)


Total stockholders' equity

743,976



737,780


Total liabilities and stockholders' equity

$

2,069,189



$

1,973,025




PURE STORAGE, INC.

Condensed Consolidated Statements of Operations

(in thousands, except per share data, unaudited)



Three Months Ended April 30,


2019


2018





Revenue:




Product

$

238,741



$

195,449


Support subscription

87,959



60,496


Total revenue

326,700



255,945






Cost of revenue:




Product (1)

76,592



66,420


Support subscription (1)

33,721



23,210


Total cost of revenue

110,313



89,630






Gross profit

216,387



166,315






Operating expenses:




Research and development (1)

105,075



78,492


Sales and marketing (1)

166,626



122,367


General and administrative (1)

42,110



27,330


Total operating expenses

313,811



228,189






Loss from operations

(97,424)



(61,874)


Other income (expense), net

(1,816)



(999)


Loss before provision for income taxes

(99,240)



(62,873)


Income tax provision

1,096



1,431


Net loss

$

(100,336)



$

(64,304)






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

$

(0.41)



$

(0.29)


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

245,334



223,768




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


Cost of revenue -- product

$

977



$

608


Cost of revenue -- support subscription

3,951



2,684


Research and development

28,245



21,090


Sales and marketing

18,314



13,940


General and administrative

10,670



5,633


Total stock-based compensation expense

$

62,157



$

43,955




PURE STORAGE, INC.

Condensed Consolidated Statements of Cash Flows

(in thousands, unaudited)



Three Months Ended April 30,


2019


2018





Cash flows from operating activities




Net loss

$

(100,336)



$

(64,304)


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




Depreciation and amortization

21,060



16,417


Amortization of debt discount and debt issuance costs

6,490



1,455


Stock-based compensation expense

62,157



43,955


Other

(811)



152


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




Accounts receivable, net

67,299



47,143


Inventory

(2,023)



(4,429)


Deferred commissions

1,716



1,269


Prepaid expenses and other assets

(7,298)



11,111


Operating lease right-of-use assets

6,209




Accounts payable

(25,807)



(18,802)


Accrued compensation and other liabilities

(43,993)



(29,881)


Operating lease liabilities

(6,034)




Deferred revenue

28,013



14,510


Net cash provided by operating activities

6,642



18,596






Cash flows from investing activities




Purchases of property and equipment

(24,296)



(22,296)


Acquisition, net of cash acquired

(47,881)




Purchases of marketable securities

(312,859)



(81,702)


Sales of marketable securities

22,344



10,454


Maturities of marketable securities

164,139



61,023


Net cash used in investing activities

(198,553)



(32,521)






Cash flows from financing activities




Net proceeds from exercise of stock options

16,761



9,614


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

(5,672)




Repurchase of common stock



(20,000)


Net cash provided by financing activities

31,576



506,744






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

(160,335)



492,819


Cash, cash equivalents and restricted cash, beginning of period

463,813



258,820


Cash, cash equivalents and restricted cash, end of period

$

303,478



$

751,639


 

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 April 30, 2019


Three Months Ended April 30, 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)






























$

977



(c)










$

608



(c)










49



(d)










25



(d)










922



(e)

















Gross profit -- product

$

162,149



67.9

%


$

1,948





$

164,097



68.7

%


$

129,029



66.0

%


$

633





$

129,662



66.3

%






























$

3,951



(c)










$

2,684



(c)










127



(d)










142



(d)





Gross profit -- support subscription

$

54,238



61.7

%


$

4,078





$

58,316



66.3

%


$

37,286



61.6

%


$

2,826





$

40,112



66.3

%






























$

4,928



(c)










$

3,292



(c)










176



(d)










167



(d)










922



(e)

















Total gross profit

$

216,387



66.2

%


$

6,026





$

222,413



68.1

%


$

166,315



65.0

%


$

3,459





$

169,774



66.3

%


(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 April 30, 2019


Three Months Ended April 30, 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)




























$

62,157



(c)










$

43,955


(c)









3,124



(d)










2,667


(d)









922



(e)















Operating loss

$

(97,424)



-29.8

%


$

66,203





$

(31,221)



-9.6

%


$

(61,874)



-24.2

%


$

46,622



$

(15,252)



-6.0

%




























$

62,157



(c)










$

43,955


(c)









3,124



(d)










2,667


(d)









922



(e)




















6,490



(f)










1,455


(f)




Net loss

$

(100,336)





$

72,693





$

(27,643)





$

(64,304)





$

48,077



$

(16,227)


























Net loss per share -- basic and diluted

$

(0.41)









$

(0.11)





$

(0.29)







$

(0.07)




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

245,334









245,334





223,768







223,768




(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.

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 April 30,


2019


2018

Net cash provided by operating activities

$

6,642



$

18,596


Less: purchases of property and equipment

(24,296)



(22,296)


Free cash flow (non-GAAP)

$

(17,654)



$

(3,700)


Adjust: ESPP impact

21,960



12,252


Free cash flow without ESPP impact (non-GAAP)

$

4,306



$

8,552






Free cash flow as % of revenue

-5.4

%


-1.4

%

Free cash flow without ESPP impact as % of revenue

1.3

%


3.3

%

 

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