Pure Storage Announces Third Quarter Fiscal 2020 Financial Results
MOUNTAIN VIEW, Calif., Nov. 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 third quarter ended October 31, 2019.
"Our continued market-beating growth is a result of ever more customers realizing the superior value that our solutions offer," said Charles Giancarlo, Chairman and CEO, Pure Storage. "With one integrated data platform, Pure's Modern Data Experience frees our customers to benefit from infrastructure that enables them to better manage their applications and data to fuel their digital transformation."
Key Financial Highlights:
-- Revenue: $428.4 million, up 15% Year-over-Year
-- Gross margin: GAAP 70.2%; non-GAAP 71.7%
-- Operating margin: GAAP -6.6%; non-GAAP 6.8%
Recent Company Highlights:
Pure's third quarter yielded industry-leading growth as customers continued to select Pure's modern approach that enables organizations to better utilize their data across both their private and public cloud infrastructures. Our product innovation performance continued this quarter as we released:
-- VM Analytics Pro - a new feature bundle offered within Pure1®, allowing
customers to map out their infrastructure more efficiently and
intelligently discover and resolve issues.
-- Cloud Block Store on AWS - enterprises can migrate applications to and
from the public cloud with minimal re-architecture, and leverage public
cloud economics for any use case.
-- FlashArray//C - the industry's first capacity-optimized AFA, built to
bring consistent all-flash performance with tier one reliability at disk
economics with solid customer adoption including ServiceNow and
European-based Idealista.
-- DirectMemory Cache - a combination of Purity and Intel Optane storage
class memory providing FlashArray//X customers with a software-based
accelerant that delivers dramatic performance improvement for
applications that require the ultimate in high-performance storage.
-- Expanded FlashBlade(TM) capacity and introduced the AI Data Hub and AIRI
as-a-Service, extending traditional analytics and providing more
performance and security at a lower cost.
-- Pure as-a-Service - Full portfolio of integrated solutions, giving
customers choice of both CAPEX and OPEX business models.
Organizational Changes
Today we announced that Kevan Krysler will be joining Pure as our new CFO. Most recently, Kevan serves as the Senior Vice President of Finance and Chief Accounting Officer at VMware and brings a wealth of experience both in finance and the industry. Prior to VMware, Kevan was a partner with KPMG, where he served both multi-national and emerging software and technology companies.
Third Quarter Fiscal 2020 Financial Highlights
The following tables summarize our consolidated financial results for the fiscal quarters ended October 31, 2019 and 2018 (in millions except percentages, per share amounts and headcount, unaudited):
GAAP Quarterly Financial Information
Three Months Ended
Three Months Ended
Y/Y Change
October 31, 2019 October 31, 2018
Revenue $428.4 $372.8 15%
Gross Margin 70.2% 66.8%
3.4 ppts
Product Gross Margin 72.2% 67.7%
4.5 ppts
Support Subscription Gross
Margin 64.1% 63.4%
0.7 ppts
Operating Loss $(28.3) $(27.2) $(1.1)
Operating Margin -6.6% -7.3%
0.7 ppts
Net Loss $(30.0) $(28.2) $(1.8)
Net Loss per Share - Basic
and Diluted $(0.12) $(0.12)
Weighted-Average Shares 255.0 235.2 19.8
Headcount
>3,350
>2,650
~700
Non-GAAP Quarterly Financial Information
Three Months Ended
Three Months Ended
Y/Y Change
October 31, 2019 October 31, 2018
Gross Margin 71.7% 68.1%
3.6 ppts
Product Gross Margin 73.0% 68.1%
4.9 ppts
Support Subscription Gross
Margin 67.5% 68.1%
-0.6 ppts
Operating Income $29.1 $33.9 $(4.8)
Operating Margin 6.8% 9.1%
-2.3 ppts
Net Income $34.2 $35.4 $(1.2)
Net Income per Share $0.13 $0.13
Weighted-Average Shares 272.2 266.5 5.7
---
A reconciliation between GAAP and non-GAAP information is provided at the end of this release.
Financial Outlook
Fourth quarter fiscal 2020 guidance:
-- Revenue in the range of $484 million to $496 million, or $490 million at
the midpoint
-- Non-GAAP gross margin in the range of 67.5% to 70.5%, or 69.0% at the
midpoint
-- Non-GAAP operating margin in the range of 10.0% to 14.0%, or 12.0% at
the midpoint
Full year fiscal 2020 guidance:
-- Revenue in the range of $1.635 billion to $1.647 billion, or $1.641
billion at the midpoint
-- Non-GAAP gross margin in the range of 69.2% to 70.1%, or 69.6% at the
midpoint
-- Non-GAAP operating margin in the range of 2.6% to 3.9%, or 3.2% 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 will host a teleconference to discuss the third quarter fiscal 2020 results at 2:00 p.m. (PT) on November 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 8433329.
-- 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 November 21, 2019, through
December 5, 2019. The replay will be accessible by calling (855)
859-2056 or (404) 537-3406 (for international callers), with conference
ID 8433329.
Upcoming Events
Pure will be presenting in the Credit Suisse 23rd Annual Tech Conference on December 3rd at 1:45 p.m. (MT), and the Raymond James Technology conference on December 9th at 3:00 p.m. (PT). The presentations from these events will be webcast and all information will be available on the investor relation website at investor.purestorage.com
About Pure Storage
Pure Storage (NYSE: PSTG) helps modern organizations turn data into business advantage. Pure solutions enable a unified data experience that can adapt as customer needs evolve. One of the fastest-growing enterprise IT companies in history, Pure Storage helps customers put data to use while reducing the complexity and expense of managing the infrastructure behind it. Pure Storage provides a modern data experience that creates a common operating environment across multiple data centers and clouds, easing operations via APIs and intelligent AI-driven automation. 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, Evergreen, FlashArray, FlashBlade, Pure1, 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 fourth 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. 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 November 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 October 31, As of January 31,
2019 2019
Assets
Current assets:
Cash and cash equivalents $
304,346 $
447,990
Marketable securities 936,969 749,482
Accounts receivable, net of
allowance of $589 and $660 362,115 378,729
Inventory 39,851 44,687
Deferred commissions, current 32,360 29,244
Prepaid expenses and other current
assets 46,539 51,695
Total current assets 1,722,180 1,701,827
Property and equipment, net 130,236 125,353
Operating lease right-of-use-
assets 119,403
Deferred commissions, non-current 90,771 85,729
Intangible assets, net 61,028 20,118
Goodwill 36,420 10,997
Deferred income taxes, non-current 1,239 1,060
Restricted cash 15,287 15,823
Other assets, non-current 16,215 12,118
Total assets $
2,192,779 $
1,973,025
Liabilities and stockholders'
equity
Current liabilities:
Accounts payable $
59,650 $
103,462
Accrued compensation and benefits 59,901 99,910
Accrued expenses and other
liabilities 48,223 39,860
Operating lease liabilities,
current 26,574
Deferred revenue, current 325,947 266,584
Total current liabilities 520,295 509,816
Convertible senior notes, net 470,014 449,828
Operating lease liabilities, non-
current 100,023
Deferred revenue, non-current 317,251 269,336
Deferred tax liabilities, non-
current 5,658
Other liabilities, non-current 1,588 6,265
Total liabilities 1,414,829 1,235,245
Stockholders' equity:
Common stock and additional paid-
in capital 2,051,119 1,820,067
Accumulated other comprehensive
income (loss) 5,116 (338)
Accumulated deficit (1,278,285) (1,081,949)
Total stockholders' equity 777,950 737,780
Total liabilities and stockholders'
equity $
2,192,779 $
1,973,025
PURE STORAGE, INC.
Condensed Consolidated Statements of Operations
(in thousands, except per share data, unaudited)
Three Months Ended October 31, Nine Months Ended October 31,
2019 2018 2019 2018
Revenue:
Product $
323,268 $
298,863 $
862,137 $
735,449
Support subscription 105,141 73,916 289,299 202,159
Total revenue 428,409 372,779 1,151,436 937,608
Cost of revenue:
Product (1) 89,998 96,610 259,460 241,292
Support subscription(1) 37,773 27,049 106,632 74,716
Total cost of revenue 127,771 123,659 366,092 316,008
Gross profit 300,638 249,120 785,344 621,600
Operating expenses:
Research and development
(1) 106,663 90,783 318,758 253,306
Sales and marketing (1) 184,819 146,903 537,633 413,019
General and administrative
(1) 37,416 38,651 119,542 99,572
Total operating expenses 328,898 276,337 975,933 765,897
Loss from operations (28,260) (27,217) (190,589) (144,297)
Other income (expense),
net 9 (2,889) (2,459) (7,920)
Loss before provision for
income taxes (28,251) (30,106) (193,048) (152,217)
Income tax provision
(benefit) 1,731 (1,926) 3,288 390
Net loss $
(29,982) $
(28,180) $
(196,336) $
(152,607)
Net loss per share
attributable to common $
(0.12) $
(0.12) $
(0.78) $
(0.66)
stockholders, basic and diluted
Weighted-average shares
used in computing net
loss per share
attributable to common
stockholders, basic and
diluted 255,047 235,205 250,618 229,505
===
(1) Includes stock-based compensation expense as follows:
Cost of revenue --product $
912 $
862 $
2,843 $
2,190
Cost of revenue --support
subscription 3,517 3,327 11,101 8,940
Research and development 27,827 24,634 85,180 67,956
Sales and marketing 16,802 18,681 51,171 49,890
General and administrative 5,171 10,825 24,495 26,962
Total stock-based
compensation expense $
54,229 $
58,329 $
174,790 $
155,938
===
PURE STORAGE, INC.
Condensed Consolidated Statements of Cash Flows
(in thousands, unaudited)
Three Months Ended October 31, Nine Months Ended October 31,
2019 2018 2019 2018
Cash flows from operating activities
Net loss $
(29,982) $
(28,180) $
(196,336) $
(152,607)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation and
amortization 23,194 17,791 66,785 51,381
Amortization of debt
discount and debt
issuance costs 6,896 6,525 20,186 14,414
Stock-based compensation
expense 54,229 58,329 174,790 155,938
Other (810) (5,119) (483) (5,037)
Changes in operating assets and
liabilities, net of effects of
acquisition:
Accounts receivable, net (9,474) (63,330) 17,079 (62,623)
Inventory (4,130) (8,203) 2,722 (17,103)
Deferred commissions (4,563) (4,972) (8,158) (9,127)
Prepaid expenses and other
assets 2,099 (9,138) 1,464 1,996
Operating lease right-of-
use assets 6,524 19,962
Accounts payable (4,417) 29,935 (35,244) 11,800
Accrued compensation and
other liabilities (5,307) 15,050 (31,011) 7,592
Operating lease
liabilities (5,937) (19,020)
Deferred revenue 35,935 47,861 106,980 87,005
Net cash provided by
operating activities 64,257 56,549 119,716 83,629
Cash flows from investing activities
Purchases of property and
equipment (20,977) (28,074) (74,206) (70,807)
Acquisition, net of cash
acquired (3,713) (13,899) (51,594) (13,899)
Purchase of intangible
assets - (9,000)
Purchases of marketable
securities (151,527) (63,741) (640,024) (558,248)
Sales of marketable
securities 56,150 5,217 116,518 18,802
Maturities of marketable
securities 74,901 58,256 345,657 156,049
Net cash used in investing
activities (45,166) (42,241) (312,649) (468,103)
Cash flows from financing activities
Net proceeds from exercise
of stock options 6,544 14,275 25,804 43,342
Proceeds from issuance of
common stock under
employee stock purchase
plan 11,249 13,746 43,291 33,444
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 - (6,101) (11,555) (6,101)
Tax withholding on vesting
of restricted stock (1,614) (8,787)
Repurchase of common stock - (20,000)
Net cash provided by
financing activities 16,179 21,920 48,753 548,117
Net increase (decrease) in
cash, cash equivalents
and restricted cash 35,270 36,228 (144,180) 163,643
Cash, cash equivalents and
restricted cash,
beginning of period 284,363 386,235 463,813 258,820
Cash, cash equivalents and
restricted cash, end of
period $
319,633 $
422,463 $
319,633 $
422,463
===
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 October 31, 2019
Three Months Ended October 31, 2018
GAAP GAAP Adjustment Non- Non- GAAP GAAP Adjustment Non- Non-
results gross GAAP GAAP results gross GAAP GAAP
margin (a) results gross margin (a) results gross
margin (b) margin (b)
$
912 (c) $
862 (c)
21 (d) 29 (d)
1,933 (e) 503 (e)
72.2 73.0 67.7 68.1
Gross profit -- $
233,270 % $
2,866 $
236,136 % $
202,253 % $
1,394 $
203,647 %
product
$
3,517 (c) $
3,327 (c)
96 (d) 155 (d)
64.1 67.5 63.4 68.1
Gross profit -- $
67,368 % $
3,613 $
70,981 % $
46,867 % $
3,482 $
50,349 %
support
subscription
$
4,429 (c) $
4,189 (c)
117 (d) 184 (d)
1,933 (e) 503 (e)
70.2 71.7 66.8 68.1
Total gross profit $
300,638 % $
6,479 $
307,117 % $
249,120 % $
4,876 $
253,996 %
(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 October 31, 2019
Three Months Ended October 31, 2018
GAAP GAAP Adjustment Non- Non- GAAP GAAP Adjustment Non- Non-
results operating GAAP GAAP results operating GAAP GAAP
margin (a) results operating margin (a) results operating
margin (b) margin (b)
$
54,229 (c) $
58,329 (c)
1,160 (d) 2,282 (d)
1,933 (e) 503 (e)
Operating income -6.6 6.8 -7.3
(loss)
% %
$
(28,260) % $
57,322 $
29,062 $
(27,217) % $
61,114 $
33,897 9.1
$
54,229 (c) $
58,329 (c)
1,160 (d) 2,282 (d)
1,933 (e) 503 (e)
6,896 (f) 6,525 (f)
(4,083) (g)
Net Income
(loss) $
(29,982) $
64,218 $
34,236 $
(28,180) $
63,556 $
35,376
Net Income
(loss) per
share --basic
and diluted $
(0.12) $
0.13 $
(0.12) $
0.13
Weighted-
average shares
used in per
share
calculation --
basic and
diluted 255,047 17,161 (h) 272,208 235,205 31,328 (h) 266,533
(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) Release of valuation allowance
due to StorReduce acquisition.
(h) To include effect of dilutive
securities (employee stock
options, restricted stock, and
shares from employee stock
purchase plan (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 October 31,
2019 2018
Net cash
provided
by
operating
activities $
64,257 $
56,549
Less:
purchases
of
property
and
equipment (20,977) (28,074)
Free cash
flow (non-
GAAP) $
43,280 $
28,475
Adjust:
ESPP
impact 2,321 2,104
Free cash
flow
without
ESPP
impact
(non-
GAAP) $
45,601 $
30,579
Free cash
flow as % % %
of revenue 10.1 7.6
Free cash
flow % %
without
ESPP
impact as
% of
revenue 10.6 8.2
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