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Pure Storage Announces Third Quarter Fiscal 2018 Financial Results

MOUNTAIN VIEW, Calif., Nov. 28, 2017 /PRNewswire/ -- Pure Storage (NYSE: PSTG) today announced financial results for its third quarter ended October 31, 2017.

Key quarterly business and financial highlights include:

  • Record quarterly revenue: $278 million, up 41% Y/Y, 2% ahead of midpoint of guidance
  • Quarterly gross margin: 65.5% GAAP; 66.4% non-GAAP
  • Quarterly operating margin: -15.1% GAAP; -0.7% non-GAAP, up 24.6 ppts and 9.1 ppts Y/Y, respectively
  • Raising full-year fiscal 2018 revenue guidance to between $1.012 billion and $1.020 billion and non-GAAP operating margin guidance to between -4.9% and -3.5%

"Pure has built a platform that allows customers to build a better world with data," said Pure Storage CEO Charlie Giancarlo. "Pure offers a simpler, more effective, and agile solution for data-rich applications like artificial intelligence."

In the quarter, more than 300 new customers joined Pure Storage, increasing the total to more than 4,000 organizations, including more than 25% of the Fortune 500. A few new customer wins in the quarter include: NASA Goddard, Krispy Kreme, John Lewis PLC, Movado Group, Weave Communications, Comodo Group, and Pronto Software.

"We had an excellent quarter, highlighted by strong revenue growth, positive free cash flow, and a continued march toward profitability," said Pure Storage CFO Tim Riitters. "We are excited to be fast approaching the $1 billion annual revenue mark and our first profitable quarter on a non-GAAP basis."

Third Quarter Fiscal 2018 Financial Highlights

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

GAAP Quarterly Financial Information



Three Months Ended
October 31, 2017


Three Months Ended
October 31, 2016


Y/Y Change

Revenue


$277.7


$197.0


41%

Gross Margin


65.5%


64.8%


0.7 ppts

Product Gross Margin


66.2%


65.9%


0.3 ppts

Support Gross Margin


62.4%


59.9%


2.5 ppts

Operating Loss


-$41.8


-$78.2


$36.4

Operating Margin


-15.1%


-39.7%


24.6 ppts

Net Loss


-$41.6


-$78.8


$37.2

Net Loss per Share


-$0.20


-$0.40


$0.20

Weighted-Average Shares (Basic and Diluted)


213.3


195.8


N/A



Non-GAAP Quarterly Financial Information



Three Months Ended
October 31, 2017


Three Months Ended
October 31, 2016


Y/Y Change

Gross Margin


66.4%


65.5%


0.9 ppts

Product Gross Margin


66.3%


66.0%


0.3 ppts

Support Gross Margin


67.0%


63.2%


3.8 ppts

Operating Loss


-$2.1


-$19.4


$17.3

Operating Margin


-0.7%


-9.8%


9.1 ppts

Net Loss


-$1.9


-$20.0


$18.1

Net Loss per Share


-$0.01


-$0.10


$0.09

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

Financial Outlook

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

  • Revenue in the range of $327 million to $335 million
  • Non-GAAP gross margin in the range of 63.5% to 66.5%
  • Non-GAAP operating margin in the range of 3.0% to 7.0%

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

  • Revenue in the range of $1.012 billion to $1.020 billion
  • Non-GAAP gross margin in the range of 65.6% to 66.6%
  • Non-GAAP operating margin in the range of -4.9% to -3.5%

All forward-looking non-GAAP financial measures contained in this section titled "Financial Outlook" exclude stock-based compensation expense, payroll tax expense related to stock-based activities 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 third quarter fiscal 2018 results at 2:00 p.m. (PT) on November 28, 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: (833) 245-9656 or (647) 689-4543 (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 Tuesday, November 28, 2017, through December 12, 2017. The replay will be accessible by calling (800) 585-8367 or (416) 621-4642 (for international callers), with conference ID 2498308. The call runs 24 hours per day, including weekends.

Upcoming Investor Events

Pure Storage will be participating in upcoming financial Q&A discussions at industry events on December 5th at 1:15 p.m. MST in Deer Valley, UT and December 7th at 2:30 p.m. PST in San Francisco, CA. Pure Storage will post a link to the live webcast on the investor relations website at investor.purestorage.com for both live and archived events.

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:
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Analyst Recognition:
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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, and our outlook for the fourth quarter and full year fiscal 2018 and statements regarding our products, business, operations and results, including fourth quarter 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 October 31, 2017. All information provided in this release and in the attachments is as of November 28, 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. For the three months ended October 31, 2016, non-GAAP loss from operations, 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 also exclude a one time cash charge related to a legal settlement. 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 provided by (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
October 31, 2017


As of
January 31, 2017



(unaudited)



Assets





Current assets:





Cash and cash equivalents


$

182,039



$

183,675


Marketable securities


369,337



362,986


Accounts receivable, net of allowance of $2,073 and $2,000


202,006



168,978


Inventory


37,208



23,498


Deferred commissions, current


20,187



15,787


Prepaid expenses and other current assets


24,522



25,157


Total current assets


835,299



780,081


Property and equipment, net


84,264



81,695


Intangible assets, net


5,432



6,560


Deferred income taxes, non-current


965



844


Other assets, non-current


36,596



30,565


Total assets


$

962,556



$

899,745







Liabilities and stockholders' equity





Current liabilities:





Accounts payable


$

66,664



$

52,719


Accrued compensation and benefits


50,077



39,252


Accrued expenses and other liabilities


24,945



21,697


Deferred revenue, current


183,889



158,095


Liability related to early exercised stock options


568



1,362


Total current liabilities


326,143



273,125


Deferred revenue, non-current


173,641



145,031


Other liabilities, non-current


3,651



3,159


Total liabilities


503,435



421,315







Stockholders' equity:





Common stock and additional paid-in capital


1,428,044



1,281,472


Accumulated other comprehensive loss


(719)



(562)


Accumulated deficit


(968,204)



(802,480)


Total stockholders' equity


459,121



478,430


Total liabilities and stockholders' equity


$

962,556



$

899,745


PURE STORAGE, INC.

Condensed Consolidated Statements of Operations

(in thousands, except per share data)



Three Months Ended October 31,


Nine Months Ended October 31,


2017


2016


2017


2016


(unaudited)

Revenue:








Product

$

223,196



$

160,523



$

536,634



$

403,181


Support

54,478



36,433



148,132



96,936


Total revenue

277,674



196,956



684,766



500,117










Cost of revenue:








Product (1)

75,392



54,725



179,289



131,618


Support (1)

20,467



14,597



56,569



41,531


Total cost of revenue

95,859



69,322



235,858



173,149










Gross profit

181,815



127,634



448,908



326,968










Operating expenses:








Research and development (1)

68,927



61,612



203,716



173,185


Sales and marketing (1)

129,299



91,392



346,896



262,073


General and administrative (1)

25,406



22,810



67,664



64,021


Legal settlement (2)



30,000





30,000


Total operating expenses

223,632



205,814



618,276



529,279










Loss from operations

(41,817)



(78,180)



(169,368)



(202,311)


Other income (expense), net

1,138



(192)



6,399



1,127


Loss before provision for income taxes

(40,679)



(78,372)



(162,969)



(201,184)


Provision for income taxes

970



441



2,755



967


Net loss

$

(41,649)



$

(78,813)



$

(165,724)



$

(202,151)










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

$

(0.20)



$

(0.40)



$

(0.79)



$

(1.05)


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

213,274



195,807



209,456



192,637



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


Cost of revenue -- product

$

143



$

138



$

898



$

425


Cost of revenue -- support

2,422



1,178



6,441



3,982


Research and development

18,073



15,241



51,632



40,875


Sales and marketing

12,104



8,468



34,169



24,719


General and administrative

6,121



3,210



14,780



9,128


Total stock-based compensation expense

$

38,863



$

28,235



$

107,920



$

79,129



(2) One-time charge for our legal settlement with Dell Inc.

PURE STORAGE, INC.

Condensed Consolidated Statements of Cash Flows

(in thousands)



Three Months Ended October 31,


Nine Months Ended October 31,


2017


2016


2017


2016


(unaudited)

Cash flows from operating activities








Net loss

$

(41,649)



$

(78,813)



$

(165,724)



$

(202,151)


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








Depreciation and amortization

15,525



13,642



45,525



35,978


Stock-based compensation expense

38,863



28,235



107,920



79,129


Other

82



557



879



1,051


Changes in operating assets and liabilities:








Accounts receivable, net

(33,655)



(44,775)



(33,630)



(38,186)


Inventory

(3,827)



2,203



(14,314)



(189)


Deferred commissions

(3,022)



(43)



(7,629)



1,844


Prepaid expenses and other assets

74



848



(112)



39


Accounts payable

11,607



13,646



11,808



3,639


Accrued compensation and other liabilities

14,319



(1,901)



14,629



6,786


Deferred revenue

29,931



19,078



54,404



60,180


Net cash provided by (used in) operating activities

28,248



(47,323)



13,756



(51,880)










Cash flows from investing activities








Purchases of property and equipment

(14,251)



(18,484)



(44,351)



(64,602)


Purchase of intangible assets







(1,000)


Purchases of marketable securities

(56,640)



(55,590)



(151,998)



(483,558)


Sales of marketable securities

12,538



20,744



46,067



79,815


Maturities of marketable securities

25,340



32,413



99,021



38,213


Net increase in restricted cash

(2,029)





(2,029)



(5,600)


Net cash used in investing activities

(35,042)



(20,917)



(53,290)



(436,732)










Cash flows from financing activities








Net proceeds from exercise of stock options

8,968



4,356



15,761



10,725


Proceeds from issuance of common stock under employee stock purchase plan

7,971



10,527



22,137



25,606


Net cash provided by financing activities

16,939



14,883



37,898



36,331










Net increase (decrease) in cash and cash equivalents

10,145



(53,357)



(1,636)



(452,281)


Cash and cash equivalents, beginning of period

171,894



205,818



183,675



604,742


Cash and cash equivalents, end of period

$

182,039



$

152,461



$

182,039



$

152,461


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, 2017


Three Months Ended October 31, 2016



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)
































$

143



(c)










$

138



(c)











5



(d)










2



(d)





Gross profit --
product


$

147,804



66.2

%


$

148





$

147,952



66.3

%


$

105,798



65.9

%


$

140





$

105,938



66.0

%
































$

2,422



(c)










$

1,178



(c)











71



(d)










9



(d)





Gross profit -- support


$

34,011



62.4

%


$

2,493





$

36,504



67.0

%


$

21,836



59.9

%


$

1,187





$

23,023



63.2

%
































$

2,565



(c)










$

1,316



(c)











76



(d)










11



(d)





Total gross
profit


$

181,815



65.5

%


$

2,641





$

184,456



66.4

%


$

127,634



64.8

%


$

1,327





$

128,961



65.5

%


(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 and percentages, unaudited):






Three Months Ended October 31, 2017


Three Months Ended October 31, 2016


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)




























$

38,863



(c)










$

28,235


(c)









902



(d)










548


(d)





















$

30,000


(e)




Loss from

operations

$

(41,817)



-15.1

%


$

39,765





$

(2,052)



-0.7

%


$

(78,180)



-39.7

%


$

58,783



$

(19,397)



-9.8

%




























$

38,863



(c)










$

28,235


(c)









902



(d)










548


(d)





















$

30,000


(e)




Net loss

$

(41,649)





$

39,765





$

(1,884)





$

(78,813)





$

58,783



$

(20,030)


























Net loss per share
--basic and diluted

$

(0.20)









$

(0.01)





$

(0.40)







$

(0.10)




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

213,274









213,274





195,807







195,807










































(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.

(e) To eliminate one-time charge for our legal settlement with Dell Inc.

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



Three Months Ended October 31,


2017


2016

Net cash provided by (used in) operating activities

$

28,248



$

(47,323)


Less: purchases of property and equipment

(14,251)



(18,484)


Add: cash paid for legal settlement

$



30,000


Free cash flow

$

13,997



$

(35,807)


Free cash flow as % of revenue


5.0%




(18.2)%


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