Pure Storage Announces Second Quarter Fiscal 2018 Financial Results

MOUNTAIN VIEW, Calif., Aug. 24, 2017 /PRNewswire/ -- Pure Storage (NYSE: PSTG) today announced financial results for its second quarter ended July 31, 2017.

Key quarterly business and financial highlights include:

    --  Quarterly revenue: $224.5 million, up 38% Y/Y, 3% ahead of midpoint of
        guidance
    --  Quarterly gross margin: 65.9% GAAP; 67.1% non-GAAP
    --  Quarterly operating margin: -28.6% GAAP; -11.8% non-GAAP, up 7.8 ppts
        and 7.5 ppts Y/Y, respectively
    --  Raising full-year fiscal 2018 revenue guidance to between $985 million
        and $1.025 billion and non-GAAP operating margin guidance to between -7%
        and -3%

"Pure continues to deliver the absolute best data platform for the cloud era," said Pure Storage CEO Scott Dietzen. "We're succeeding at our core mission: helping organizations get more value from their data through a radical increase in performance and radical reduction in complexity and total cost of ownership."

"Our Q2 results highlight solid topline growth and continued improvement in operating leverage," said Pure Storage CFO Tim Riitters. "We are laser-focused on executing against our plan to achieve $1B+ in revenue this year and marching steadily to profitability in the near future."

In the quarter, more than 350 new customers joined Pure Storage, increasing the total to more than 3,700 organizations, including more than 25% of the Fortune 500. New customer wins in the quarter include: Airbus, COCC, Delta Dental of Michigan, Ford Otomotiv Turkey, Man AHL, Mentor, NASA's Kennedy Space Center, ServiceNow, SSI, and Zenuity.

Second Quarter Fiscal 2018 Financial Highlights

The following tables summarize our consolidated financial results for the fiscal quarters ended July 31, 2017 and 2016 (in millions except per share amounts, unaudited):


                              GAAP Quarterly Financial Information
                              ------------------------------------

                 Three Months Ended                                Three Months Ended                   Y/Y
                   July 31, 2017                                     July 31, 2016                     Change
                   -------------                                     -------------                     ------

    Revenue                                 $224.5                                     $163.2                   38%
    -------                                 ------                                     ------                   ---

    Gross Margin                             65.9%                                     65.2%  0.7 ppts
    ------------                              ----                                       ----   --------

    Product
     Gross
     Margin                                  67.3%                                     67.3%  0.0 ppts
    -------                                   ----                                       ----   --------

    Support
     Gross
     Margin                                  61.2%                                     56.6%  4.6 ppts
    -------                                   ----                                       ----   --------

    Operating
     Loss                                   -$64.1                                     -$59.5                 -$4.6
    ---------                               ------                                     ------                 -----

    Operating
     Margin                                 -28.6%                                    -36.4%  7.8 ppts
    ---------                                -----                                      -----   --------

    Net Loss                                -$61.7                                     -$59.6                 -$2.1
    --------                                ------                                     ------                 -----

    Net Loss per
     Share                                  -$0.29                                     -$0.31                 $0.02
    ------------                            ------                                     ------                 -----

    Weighted-
     Average
     Shares
     (Basic and
     Diluted)                                209.2                                      192.7                   N/A
    -----------                              -----                                      -----                   ---



                          Non-GAAP Quarterly Financial Information
                          ----------------------------------------

                 Three Months Ended                                Three Months Ended                   Y/Y
                   July 31, 2017                                     July 31, 2016                     Change
                   -------------                                     -------------                     ------

    Gross Margin                             67.1%                                     66.3%  0.8 ppts
    ------------                              ----                                       ----   --------

    Product
     Gross
     Margin                                  67.5%                                     67.4%  0.1 ppts
    -------                                   ----                                       ----   --------

    Support
     Gross
     Margin                                  65.9%                                     62.0%  3.9 ppts
    -------                                   ----                                       ----   --------

    Operating
     Loss                                   -$26.4                                     -$31.4                  $5.0
    ---------                               ------                                     ------                  ----

    Operating
     Margin                                 -11.8%                                    -19.3%  7.5 ppts
    ---------                                -----                                      -----   --------

    Net Loss                                -$24.0                                     -$31.5                  $7.5
    --------                                ------                                     ------                  ----

    Net Loss per
     Share                                  -$0.11                                     -$0.16                 $0.05
    ------------                            ------                                     ------                 -----

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

Financial Outlook

Pure Storage's third quarter fiscal 2018 guidance is as follows:

    --  Revenue in the range of $267 million to $275 million
    --  Non-GAAP gross margin in the range of 63.5% to 66.5%
    --  Non-GAAP operating margin in the range of -5% to -1%

Pure Storage's full year fiscal 2018 guidance is as follows:

    --  Revenue in the range of $985 million to $1.025 billion
    --  Non-GAAP gross margin in the range of 63.5% to 66.5%
    --  Non-GAAP operating margin in the range of -7% to -3%

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 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 such 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 2018 results at 2:00 p.m. (PT) on August 24, 2017. 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 two hours after the call ends on Thursday, August 24, 2017,
        through September 7, 2017. The replay will be accessible by calling
        800-585-8367 or 416-621-4642 (for international callers), with
        conference ID 53427026. The call runs 24 hours per day, including
        weekends.

President Commentary

Pure Storage has posted a blog from its President discussing second quarter fiscal 2018 results at investor.purestorage.com and blog.purestorage.com.

About Pure Storage

Pure Storage (NYSE:PSTG) helps companies push the boundaries of what's possible. Pure's end-to-end data platform - including FlashArray, FlashBlade and our converged offering with Cisco, FlashStack - is powered by innovative software that's cloud-connected for management from anywhere on a mobile device and supported by the Evergreen business model. The Company's all-flash based technology, combined with its customer-friendly business model, drives business and IT transformation with solutions that are effortless, efficient and evergreen. With Pure's industry leading Satmetrix-certified NPS score of 83.7, Pure customers are some of the happiest in the world, and include organizations of all sizes, across an ever-expanding range of industries.

Connect with Pure Storage:
Read the blog
Converse on Twitter
Follow on LinkedIn

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 expectations regarding technology differentiation, our current and future opportunities and ability to execute for continued growth and industry leadership, and our outlook for the third quarter and full year fiscal 2018 and statements regarding our products, business, operations and results, including progress toward profitability. 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, including, 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 set forth in our Quarterly Report on Form 10-Q for the quarter ended July 31, 2017. All information provided in this release and in the attachments is as of August 24, 2017, 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 loss, non-GAAP operating margin, non-GAAP net loss, non-GAAP net loss per share, free cash flow, and free cash flow as a percentage of revenue. In computing these non-GAAP financial measures, we exclude the effects of stock-based compensation expense and payroll tax expense related to stock-based activities. The presentation of this financial information is not intended to be considered in isolation or as a substitute for, or superior to, the financial information prepared and presented in accordance with GAAP.

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 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 used in operating activities to free cash flow," included at the end of this release.


                                              PURE STORAGE, INC.

                                     Condensed Consolidated Balance Sheets

                                                (in thousands)


                                                  As of                         As of

                                              July 31, 2017                January 31, 2017
                                              -------------                ----------------

                                               (unaudited)

    Assets

    Current assets:

       Cash and cash equivalents                              $171,894                        $183,675

       Marketable securities                                   351,123                         362,986

       Accounts receivable, net of
        allowance of $2,020 and
        $2,000                                                 168,404                         168,978

       Inventory                                                33,660                          23,498

       Deferred commissions, current                            19,700                          15,787

       Prepaid expenses and other
        current assets                                          24,494                          25,157
                                                                ------                          ------

         Total current assets                                  769,275                         780,081

    Property and equipment, net                                 81,850                          81,695

    Intangible assets, net                                       5,808                           6,560

    Deferred income taxes, non-
     current                                                       877                             844

    Other assets, non-current                                   32,322                          30,565

              Total assets                                    $890,132                        $899,745
                                                              ========                        ========


    Liabilities and stockholders'
     equity

    Current liabilities:

       Accounts payable                                        $52,092                         $52,719

       Accrued compensation and
        benefits                                                42,537                          39,252

       Accrued expenses and other
        liabilities                                             18,309                          21,697

       Deferred revenue, current                               169,638                         158,095

       Liability related to early
        exercised stock options                                    816                           1,362
                                                                   ---                           -----

         Total current liabilities                             283,392                         273,125

    Deferred revenue, non-current                              157,961                         145,031

    Other liabilities, non-current                               3,373                           3,159

         Total liabilities                                     444,726                         421,315
                                                               -------                         -------


    Stockholders' equity:

    Common stock and additional
     paid-in capital                                         1,372,241                       1,281,472

    Accumulated other
     comprehensive loss                                          (280)                          (562)

    Accumulated deficit                                      (926,555)                      (802,480)

    Total stockholders' equity                                 445,406                         478,430
                                                               -------                         -------


             Total liabilities and
              stockholders' equity                            $890,132                        $899,745
                                                              ========                        ========


                                                             PURE STORAGE, INC.

                                               Condensed Consolidated Statements of Operations

                                                    (in thousands, except per share data)


                                                                 Three Months Ended July 31,                  Six Months Ended July 31,
                                                                 ---------------------------                  -------------------------

                                                                           2017                          2016                       2017          2016
                                                                           ----                          ----                       ----          ----

                                                                                           (unaudited)

    Revenue:

      Product                                                          $175,013                      $130,920                   $313,438      $242,658

      Support                                                            49,448                        32,294                     93,654        60,503


    Total revenue                                                       224,461                       163,214                    407,092       303,161
                                                                        -------                       -------                    -------       -------


    Cost of revenue:

      Product (1)                                                        57,252                        42,847                    103,897        76,893

      Support (1)                                                        19,199                        14,000                     36,102        26,934


    Total cost of revenue                                                76,451                        56,847                    139,999       103,827


    Gross profit                                                        148,010                       106,367                    267,093       199,334
                                                                        -------                       -------                    -------       -------


    Operating expenses:

      Research and
       development (1)                                                   69,361                        58,635                    134,789       111,573

      Sales and marketing
       (1)                                                             120,633                        87,583                    217,597       170,681

      General and
       administrative (1)                                                22,162                        19,630                     42,258        41,211


    Total operating
     expenses                                                           212,156                       165,848                    394,644       323,465
                                                                        -------                       -------                    -------       -------


    Loss from operations                                               (64,146)                     (59,481)                 (127,551)    (124,131)

    Other income, net                                                     3,266                            37                      5,261         1,319
                                                                          -----                           ---                      -----         -----

    Loss before provision
     for income taxes                                                  (60,880)                     (59,444)                 (122,290)    (122,812)

    Provision for income
     taxes                                                                  821                           106                      1,785           526
                                                                            ---                           ---                      -----           ---

    Net loss                                                          $(61,701)                    $(59,550)                $(124,075)   $(123,338)
                                                                       ========                      ========                  =========     =========


    Net loss per share
     attributable to
     common stockholders,
     basic and diluted                                                  $(0.29)                      $(0.31)                   $(0.60)      $(0.65)
                                                                         ======                        ======                     ======        ======


    Weighted-average
     shares used in
     computing net loss
     per share
     attributable                                                       209,193                       192,730                    207,515       191,026

    to common stockholders, basic and
     diluted
                                                                                                                                                ===


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


    Cost of revenue --
     product                                                               $358                          $181                       $755          $287

    Cost of revenue --
     support                                                              2,245                         1,712                      4,019         2,804

    Research and
     development                                                         17,971                        13,976                     33,559        25,634

    Sales and marketing                                                  11,439                         8,732                     22,065        16,251

    General and
     administrative                                                       4,825                         3,295                      8,659         5,918

    Total stock-based
     compensation expense                                               $36,838                       $27,896                    $69,057       $50,894
                                                                        =======                       =======                    =======       =======



                                                             PURE STORAGE, INC.

                                               Condensed Consolidated Statements of Cash Flows

                                                               (in thousands)


                                                                 Three Months Ended July 31,                  Six Months Ended July 31,
                                                                 ---------------------------                  -------------------------

                                                                           2017                          2016                       2017          2016
                                                                           ----                          ----                       ----          ----

                                                                                           (unaudited)

    Cash flows from operating activities

    Net loss                                                          $(61,701)                    $(59,550)                $(124,075)   $(123,338)

    Adjustments to reconcile net loss to net cash used in
     operating activities:

        Depreciation and
         amortization                                                    15,175                        11,904                     30,000        22,336

        Stock-based
         compensation expense                                            36,838                        27,896                     69,057        50,894

        Other                                                               346                           312                        797           494

    Changes in operating assets and liabilities:

        Accounts receivable,
         net                                                           (36,546)                     (22,004)                        25         6,589

        Inventory                                                         5,618                           231                   (10,487)      (2,392)

        Deferred commissions                                            (4,245)                      (2,254)                   (4,607)        1,887

        Prepaid expenses and
         other current assets                                             3,758                         1,935                      (186)        (809)

        Accounts payable                                                  4,183                      (10,173)                       201      (10,007)

        Accrued compensation
         and other
         liabilities                                                     20,308                        19,704                        310         8,687

        Deferred revenue                                                 16,075                        20,449                     24,473        41,102

    Net cash used in
     operating activities                                                 (191)                     (11,550)                  (14,492)      (4,557)
                                                                           ----                       -------                    -------        ------


    Cash flows from investing activities

        Purchases of property
         and equipment                                                 (17,331)                     (21,742)                  (30,100)     (46,118)

        Purchase of
         intangible assets                                                    -                      (1,000)                         -      (1,000)

        Purchases of
         marketable
         securities                                                    (39,382)                     (84,502)                  (95,358)    (427,968)

        Sales of marketable
         securities                                                      28,145                        35,744                     33,529        59,071

        Maturities of
         marketable
         securities                                                      27,360                         5,800                     73,681         5,800

        Net increase in
         restricted cash                                                      -                      (6,306)                         -      (5,600)

    Net cash used in
     investing activities                                               (1,208)                     (72,006)                  (18,248)    (415,815)
                                                                         ------                       -------                    -------      --------


    Cash flows from financing activities

        Net proceeds from
         exercise of stock
         options                                                          4,536                         3,278                      6,793         6,369

        Proceeds from
         issuance of common
         stock under employee
         stock purchase plan                                                  -                            -                    14,166        15,079

    Net cash provided by
     financing activities                                                 4,536                         3,278                     20,959        21,448
                                                                          -----                         -----                     ------        ------


    Net increase
     (decrease) in cash
     and cash equivalents                                                 3,137                      (80,278)                  (11,781)    (398,924)

    Cash and cash
     equivalents,
     beginning of period                                                168,757                       286,096                    183,675       604,742

    Cash and cash
     equivalents, end of
     period                                                            $171,894                      $205,818                   $171,894      $205,818
                                                                       ========                      ========                   ========      ========


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


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


                                                     Three Months Ended July 31, 2017                                                          Three Months Ended July 31, 2016
                                                     --------------------------------                                                          --------------------------------

                                                   GAAP                            GAAP                         Adjustment                                       Non-GAAP                 Non-              GAAP                    GAAP              Adjustment                Non-GAAP                   Non-
                                                  results                         gross                                                                           results                 GAAP             results                  gross                                        results                   GAAP
                                                                                margin                                                                                                  gross                                  margin (a)                                                               gross
                                                                                 (a)                                                                                                   margin                                                                                                           margin
                                                                                                                                                                                         (b)                                                                                                             (b)
                                                                                                                                                                                 ---                                                                                                         ---           ---


                                                                                                                              $358    (c)                                                                                                                           $181    (c)

                                                                                                                                 8    (d)                                                                                                                              3    (d)
                                                                                                                               ---                                                                                                                                   ---

    Gross profit --
     product                                                $117,761                          67.3%                              $366                                         $118,127               67.5%             $88,073                  67.3%                    $184                 $88,257                67.4%
                                                            --------                                                                                                         --------                                 -------                                                               -------



                                                                                                                            $2,245    (c)                                                                                                                         $1,712    (c)

                                                                                                                                87    (d)                                                                                                                              7    (d)
                                                                                                                               ---                                                                                                                                   ---

    Gross profit --
     support                                                 $30,249                          61.2%                            $2,332                                          $32,581               65.9%             $18,294                  56.6%                  $1,719                 $20,013                62.0%
                                                             -------                                                                                                          -------                                 -------                                                               -------



                                                                                                                            $2,603    (c)                                                                                                                         $1,893    (c)

                                                                                                                                95    (d)                                                                                                                             10    (d)
                                                                                                                               ---

    Total gross
     profit                                                 $148,010                          65.9%                            $2,698                                         $150,708               67.1%            $106,367                  65.2%                  $1,903                $108,270                66.3%
                                                            ========                                                           ======                                         ========                                ========                                         ======                ========



    (a) GAAP gross margin is defined as 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, unaudited):


                                                   Three Months Ended July 31, 2017                                                       Three Months Ended July 31, 2016
                                                   --------------------------------                                                       --------------------------------

                                                   GAAP                            GAAP                         Adjustment                                       Non-GAAP               Non-GAAP            GAAP                    GAAP              Adjustment                Non-GAAP                   Non-
                                                  results                       operating                                                                         results               operating          results                operating                                      results                   GAAP
                                                                                margin                                                                                                 margin                                  margin (a)                                                             operating
                                                                                 (a)                                                                                                     (b)                                                                                                            margin
                                                                                                                                                                                                                                                                                                         (b)
                                                                                                                                                                                                                                                                                             ---           ---


                                                                                                                           $36,838    (c)                                                                                                                        $27,896    (c)

                                                                                                                               906    (d)                                                                                                                            158    (d)


    Loss from
     operations                                            $(64,146)                        -28.6%                           $37,744                                        $(26,402)             -11.8%           $(59,481)                -36.4%                 $28,054               $(31,427)              -19.3%
                                                            --------                                                                                                         --------                                --------                                                              --------


                                                                                                                           $36,838    (c)                                                                                                                        $27,896    (c)

                                                                                                                               906    (d)                                                                                                                            158    (d)


    Net loss                                               $(61,701)                                                         $37,744                                        $(23,957)                              $(59,550)                                       $28,054               $(31,496)
                                                            ========                                                                                                         ========                                ========                                                              ========


    Net loss per
     share --basic
     and diluted                                             $(0.29)                                                                                                         $(0.11)                                $(0.31)                                                              $(0.16)
                                                              ======                                                                                                           ======                                  ======                                                                ======


    Weighted-
     average shares
     used in per
     share
     calculation -
     - basic and
     diluted                                                 209,193                                                                                                          209,193                                 192,730                                                               192,730


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

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

    (c) To eliminate stock-based compensation expense.

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


    Reconciliation from net cash used in operating activities to free cash flow (in thousands, unaudited):


                                        Three Months Ended July
                                                  31,
                                       ------------------------

                                                             2017                                         2016
                                                             ----                                         ----

    Net cash used
     in operating
     activities                                            $(191)                                   $(11,550)

    Less:
     purchases of
     property and
     equipment                                           (17,331)                                    (21,742)
                                                          -------                                      -------

    Free cash flow                                      $(17,522)                                   $(33,292)
                                                         --------                                     --------

    Free cash flow
     as % of
     revenue                                                -7.8%                                      -20.4%

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SOURCE Pure Storage