Pure Storage Announces Fourth Quarter and Full Year Fiscal 2019 Financial Results

MOUNTAIN VIEW, Calif., Feb. 28, 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 fourth quarter and full year ended January 31, 2019.

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

“We finished a strong FY19, growing annual revenue 33% year over year, to over $1.3B, and we are excited about our ability to continue to deliver strong growth,” said Charles Giancarlo, Chairman and CEO, Pure Storage. “Looking ahead, we expect to drive industry leading growth, expand our product portfolio, and increase our lead in customer delight.”

Key Business and Financial Highlights:

  • Q4 Revenue; $422 million, up 24% year over year
  • Full-year revenue $1.36 billion, up 33% year over year

 

  • Q4 GAAP gross margin 66.5%; non-GAAP gross margin 67.6%
  • Full-year GAAP gross margin 66.4%; non-GAAP gross margin 67.6%

 

  • Q4 GAAP operating margin -5.9%; non-GAAP operating margin +7.4%
  • Full year GAAP operating margin -12.5%; non-GAAP operating margin +3.7%

While Q4 results were below the company’s guided ranges, they were directly impacted by two distinct items. First, a process breakdown at a contract manufacturer prevented a number of orders from shipping in the quarter. Second, Pure exceeded its expectations in selling the company’s ES2 subscription offering, which ultimately drives positive long-term economics for Pure, but resulted in lower revenue recognized in the quarter. Except for these two items, our revenue and profits would have been within our guided range.

Recent Company Highlights:

  • Following the quarter close, Pure signed a more than $100 million-dollar deal over approximately two years with a leading global systems integrator.
  • As part of Pure’s Cloud Data Services, the company announced ObjectEngine, redefining data protection to rapid restoration built for modern enterprises.
  • In addition, Pure launched DirectFlash™ Fabric for end-to-end NVMe and NVMe-oF support, enabling customers to improve performance of mission-critical applications and web-scale applications that traditionally have relied on direct attached storage.

“Pure delivered another strong fiscal year of growth, leverage, and scale,” said Tim Riitters, CFO, Pure Storage. “The innovative portfolio of platform, software, and cloud products Pure is bringing to market is expanding our opportunity and positioning us for long-term success.”

Fourth Quarter Fiscal 2019 Financial Highlights

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

GAAP Quarterly Financial Information

Three Months Ended
January 31, 2019

Three Months Ended
January 31, 2018

Y/Y Change

Revenue

$422.2

$339.9

24%

Gross Margin

66.5%

65.3%

1.2 ppts

Product Gross Margin

67.4%

66.2%

1.2 ppts

Support Subscription Gross Margin

62.5%

60.6%

1.9 ppts

Operating Loss

$(25.0)

$(18.8)

$(6.2)

Operating Margin

-5.9%

-5.5%

-0.4 ppts

Net Loss

$(25.8)

$(14.9)

$(10.9)

Net Loss per Share – Basic and Diluted

$(0.11)

$(0.07)

$(0.04)

Weighted-Average Shares

239.6

218.0

21.6

Headcount

>2,800

>2,100

~700

Non-GAAP Quarterly Financial Information

Three Months Ended
January 31, 2019

Three Months Ended
January 31, 2018

Y/Y Change

Gross Margin

67.6%

66.3%

1.3 ppts

Product Gross Margin

67.8%

66.5%

1.3 ppts

Support Subscription Gross Margin

66.8%

65.4%

1.4 ppts

Operating Income

$31.1

$24.9

$6.2

Operating Margin

7.4%

7.3%

0.1 ppts

Net Income

$37.0

$28.8

$8.2

Net Income per Share – Diluted

$0.14

$0.11

$0.03

Weighted-Average Shares – Diluted

263.7

250.8

12.9

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

Financial Outlook

Pure Storage’s first quarter fiscal 2020 guidance is as follows:

  • Revenue in the range of $327 million to $339 million, 30% Y/Y growth at the midpoint
  • Non-GAAP gross margin in the range of 65.0% to 68.0%
  • Non-GAAP operating margin in the range of -8.5% to -4.5%

Pure Storage’s full year fiscal 2020 guidance is as follows:

  • Revenue in the range of $1.735 billion to $1.805 billion, 30% Y/Y growth at the midpoint
  • Non-GAAP gross margin in the range of 65.0% to 68.0%
  • Non-GAAP operating margin in the range of 3.0% to 7.0%

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 asset acquired from acquisition, 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 fourth quarter and fiscal year 2019 results at 2:00 p.m. (PT) on February 28, 2019. Pure Storage will post management’s prepared remarks and supplemental earnings presentation to the investor relations website at investor.purestorage.com in advance of the conference call.

Teleconference details are as follows:

  • To Listen via Telephone: (866) 393-4306 or (734) 385-2616 (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, February 28, 2019, through March 14, 2019. The replay will be accessible by calling (855) 859-2056 or (404) 537-3406 (for international callers), with conference ID 5479904.

Upcoming Events

Management will participate in an upcoming financial Q&A discussion at the Eighth Annual Technology Conference in New York on March 12, 2019. Pure Storage will post a link to this event 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 Satmetrix-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 technology differentiation, and our outlook for the first 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, 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 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 February 28, 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 asset acquired from acquisition 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)

January 31, 2019

January 31, 2018

 (As Adjusted*)

Assets

Current assets:

Cash and cash equivalents

$

447,990

$

244,057

Marketable securities

749,482

353,289

Accounts receivable, net of allowance of $660 and $1,062

378,729

243,001

Inventory

44,687

34,497

Deferred commissions, current

29,244

21,088

Prepaid expenses and other current assets

51,695

47,552

Total current assets

1,701,827

943,484

Property and equipment, net

125,353

89,142

Deferred commissions, non-current

85,729

66,225

Intangible assets, net

20,118

5,057

Goodwill

10,997

Deferred income taxes, non-current

1,060

1,060

Restricted cash

15,823

14,763

Other assets, non-current

12,118

4,264

Total assets

$

1,973,025

$

1,123,995

Liabilities and stockholders’ equity

Current liabilities:

Accounts payable

$

103,462

$

84,420

Accrued compensation and benefits

99,910

59,898

Accrued expenses and other liabilities

39,860

27,149

Deferred revenue, current

266,584

191,229

Total current liabilities

509,816

362,696

Convertible senior notes, net

449,828

Deferred revenue, non-current

269,336

182,873

Other liabilities, non-current

6,265

4,025

Total liabilities

1,235,245

549,594

Stockholders’ equity:

Common stock and additional paid-in capital

1,820,067

1,479,905

Accumulated other comprehensive loss

(338)

(1,917)

Accumulated deficit

(1,081,949)

(903,587)

Total stockholders’ equity

737,780

574,401

Total liabilities and stockholders’ equity

$

1,973,025

$

1,123,995

*Prior period information has been adjusted to reflect the adoption impact of Accounting Standards Codification 606, Revenue from Contracts with Customers (ASC 606), which we adopted on February 1, 2018.

 

PURE STORAGE, INC.

Condensed Consolidated Statements of Operations

(in thousands, except per share data, unaudited)

Three Months Ended
January 31,

Twelve Months Ended
January 31,

2019

2018

2019

2018

(As Adjusted*)

(As Adjusted*)

Revenue:

Product

$

340,137

$

284,163

$

1,075,586

$

834,454

Support subscription

82,079

55,693

284,238

190,308

Total revenue

422,216

339,856

1,359,824

1,024,762

Cost of revenue:

Product (1)

110,762

95,953

352,054

275,242

Support subscription (1)

30,758

21,970

105,474

78,539

Total cost of revenue

141,520

117,923

457,528

353,781

Gross profit

280,696

221,933

902,296

670,981

Operating expenses:

Research and development (1)

96,630

75,480

349,936

279,196

Sales and marketing (1)

171,092

137,763

584,111

464,049

General and administrative (1)

37,934

27,506

137,506

95,170

Total operating expenses

305,656

240,749

1,071,553

838,415

Loss from operations

(24,960)

(18,816)

(169,257)

(167,434)

Other income (expense), net

(96)

5,046

(8,016)

11,445

Loss before provision for income taxes

(25,056)

(13,770)

(177,273)

(155,989)

Income tax provision

699

1,134

1,089

3,889

Net loss

$

(25,755)

$

(14,904)

$

(178,362)

$

(159,878)

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

$

(0.11)

$

(0.07)

$

(0.77)

$

(0.76)

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

239,571

218,009

232,042

211,609

*Prior period information has been adjusted to reflect the adoption impact of ASC 606, which we adopted on February 1, 2018.

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

Cost of revenue — product

$

761

$

732

$

2,951

$

1,630

Cost of revenue — support subscription

3,438

2,609

12,378

9,050

Research and development

24,528

19,597

92,484

71,229

Sales and marketing

16,460

13,518

66,350

47,687

General and administrative

9,520

6,297

36,482

21,077

Total stock-based compensation expense

$

54,707

$

42,753

$

210,645

$

150,673

 

PURE STORAGE, INC.

Condensed Consolidated Statements of Cash Flows

(in thousands, unaudited)

Three Months Ended
January 31,

Twelve Months Ended
January 31,

2019

2018

2019

2018

(As Adjusted*)

(As Adjusted*)

Cash flows from operating activities

Net loss

$

(25,755)

$

(14,904)

$

(178,362)

$

(159,878)

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

Depreciation and amortization

19,497

16,219

70,878

61,744

Amortization of debt discount and debt issuance costs

6,617

21,031

Stock-based compensation expense

54,707

42,753

210,645

150,673

Other

(2)

1,175

(5,039)

2,054

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

Accounts receivable, net

(73,026)

(40,875)

(135,649)

(74,505)

Inventory

4,814

1,719

(12,289)

(12,595)

Deferred commissions

(18,533)

(14,009)

(27,660)

(27,978)

Prepaid expenses and other assets

(8,968)

(23,687)

(6,972)

(23,799)

Accounts payable

2,493

17,470

14,293

29,278

Accrued compensation and other liabilities

44,218

26,263

51,810

26,622

Deferred revenue

74,732

46,876

161,737

101,140

Net cash provided by operating activities

80,794

59,000

164,423

72,756

Cash flows from investing activities

Purchases of property and equipment

(29,439)

(20,709)

(100,246)

(65,060)

Acquisition, net of cash acquired

(13,899)

Purchase of other investment

(5,000)

(5,000)

Purchases of marketable securities

(107,109)

(50,658)

(665,357)

(202,656)

Sales of marketable securities

1,076

20,422

19,878

66,489

Maturities of marketable securities

97,231

45,047

253,280

144,068

Net cash used in investing activities

(43,241)

(5,898)

(511,344)

(57,159)

Cash flows from financing activities

Net proceeds from exercise of stock options

4,429

8,916

47,771

24,677

Proceeds from issuance of common stock under employee stock purchase plan

33,444

22,137

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)

Tax withholding on vesting of restricted stock

(632)

(632)

Repurchase of common stock

(20,000)

Net cash provided by financing activities

3,797

8,916

551,914

46,814

Net increase in cash and cash equivalents and restricted cash

41,350

62,018

204,993

62,411

Cash, cash equivalents and restricted cash, beginning of period

422,463

196,802

258,820

196,409

Cash, cash equivalents and restricted cash, end of period

$

463,813

$

258,820

$

463,813

$

258,820

*Prior period information has been adjusted to reflect the adoption impact of ASC 606 and ASU No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash, which we adopted on February 1, 2018.

 

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 January 31, 2019

Three Months Ended January 31, 2018 (As Adjusted*)

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)

$

761

(c)

$

732

(c)

10

(d)

8

(d)

632

(e)

Gross profit — product

$

229,375

67.4

%

$

1,403

$

230,778

67.8

%

$

188,210

66.2

%

$

740

$

188,950

66.5

%

$

3,438

(c)

$

2,609

(c)

63

(d)

82

(d)

Gross profit — support subscription

$

51,321

62.5

%

$

3,501

$

54,822

66.8

%

$

33,723

60.6

%

$

2,691

$

36,414

65.4

%

$

4,199

(c)

$

3,341

(c)

73

(d)

90

(d)

632

(e)

Total gross profit

$

280,696

66.5

%

$

4,904

$

285,600

67.6

%

$

221,933

65.3

%

$

3,431

$

225,364

66.3

%

*Prior period information has been adjusted to reflect the adoption impact of ASC 606, which we adopted on February 1, 2018.

(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 January 31, 2019

Three Months Ended January 31, 2018 (As Adjusted*)

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)

$

54,707

(c)

$

42,753

(c)

763

(d)

973

(d)

632

(e)

Operating income (loss)

$

(24,960)

-5.9

%

$

56,102

$

31,142

7.4

%

$

(18,816)

-5.5

%

$

43,726

$

24,910

7.3

%

$

54,707

(c)

$

42,753

(c)

763

(d)

973

(d)

632

(e)

6,616

(f)

Net income (loss)

$

(25,755)

$

62,718

$

36,963

$

(14,904)

$

43,726

$

28,822

Net income (loss) per share — diluted

$

(0.11)

$

0.14

$

(0.07)

$

0.11

Weighted-average shares used in per share calculation — diluted

239,571

24,097

(g)

263,668

218,009

32,752

(g)

250,761

*Prior period information has been adjusted to reflect the adoption impact of ASC 606, which we adopted on February 1, 2018.

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

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

(c) To eliminate stock-based compensation expense.

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

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

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

(g) To include effect of dilutive securities (employee stock options, restricted stock, and shares from employee stock purchase 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 January 31,

2019

2018

Net cash provided by operating activities

$

80,794

$

59,000

Less: purchases of property and equipment

(29,439)

(20,709)

Free cash flow (non-GAAP)

$

51,355

$

38,291

Adjust: ESPP Impact

(17,027)

(11,495)

Free cash flow without ESPP impact (non-GAAP)

$

34,328

$

26,796

Free cash flow as % of revenue

12.2

%

11.3

%

Free cash flow without ESPP Impact as % of revenue

8.1

%

7.9

%

 

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