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Pure Storage Announces Second Quarter Fiscal 2017 Financial Results
[August 25, 2016]

Pure Storage Announces Second Quarter Fiscal 2017 Financial Results


MOUNTAIN VIEW, Calif., Aug. 25, 2016 /PRNewswire/ -- Pure Storage (NYSE: PSTG) today announced financial results for its fiscal second quarter ended July 31, 2016.

www.purestorage.com

Key financial highlights include:

  • Quarterly revenue: $163.2 million, up 92.8% Y/Y, and ahead of the guidance range of $153 million to $157 million.
  • Quarterly gross margin: 65.2% GAAP; 66.3% non-GAAP, up 6.7 ppts and 7.1 ppts Y/Y, respectively, and in line with non-GAAP gross margin guidance of 65-68%.
  • Quarterly operating margin: -36.4% GAAP; -19.3% non-GAAP, up 38.5 ppts and 41.7 ppts Y/Y, respectively, and ahead of non-GAAP operating margin guidance of -30% to -26%.

"We are delighted to report another great quarter with record revenue," Pure Storage CEO Scott Dietzen said. "We are very pleased with the growth of the business in the July quarter, driven by solid repeat purchase rates, by partnering with the channel to accelerate our go-to-market, by healthy demand from cloud customers ? which accounts for more than 25% of our business ? and by growing sales to international customers, who made up 25% of revenue."

In the quarter, Pure began shipping FlashBlade, the company's second major product line.

"While we aren't planning on FlashBlade materially impacting revenue this year," Dietzen said, "we're excited about the expanded range of possibilities that FlashBlade is already offering customers in chip design, genomics and life sciences, big data analytics, software development, Internet of Things, machine learning and film production."

"We continue to execute well against our operating plan," Pure Storage CFO Tim Riitters said. "While driving rapid growth, we also significantly improved operating margin year over year. We nearly doubled our business over the last year, while at the same time cutting our operating losses almost 40%."

In the quarter, Pure Storage added more than 350 new customers, increasing the total to more than 2,300 organizations, including nearly 20% of the Fortune 500. New customer wins in the quarter include: British Airways, The University of Tokyo, NIFTY Corporation and Sally Beauty Supply, among others. Also in the second quarter, Baylor Miraca Genetics Labs purchased FlashBlade to transform its genetics research pipeline, and the Farm Bureau of Michigan purchased FlashBlade to deliver high performance infrastructure.

Additionally, for the third straight year, Pure Storage is positioned in the Gartner Magic Quadrant for Solid State Arrays (SSAs) furthest along the "Completeness of Vision" axis. More details can be found here.   

Second Quarter Fiscal 2017 Financial Highlights

The following tables summarize our consolidated financial results for the fiscal quarters ended July 31, 2015 and 2016 (in millions except per share amounts, unaudited):





GAAP Quarterly Financial Information


Three
Months
Ended July
31, 2015

Three
Months
Ended July
31, 2016

Y/Y Change

Revenue

$84.7

$163.2

92.8%

Gross Margin 

58.5%

65.2%

6.7ppts

Product Gross Margin

61.2%

67.3%

6.1 ppts

Support Gross Margin

44.3%

56.6%

12.3 ppts

Operating Loss

-$63.4

-$59.5

$3.9

Operating Margin

-74.9%

-36.4%

38.5 ppts

Net Loss

-$63.8

-$59.6

$4.2

Net Loss per Share

-$1.89

-$0.31

$1.58

Weighted-Average Shares (Basic and Diluted)

33.7

192.7

N/A


 

Non-GAAP Quarterly Financial Information


Three
Months
Ended July
31, 2015

Three
Months
Ended July
31, 2016

Y/Y Change

Gross Margin

59.2%

66.3%

7.1 ppts

Product Gross Margin

61.2%

67.4%

6.2ppts

Support Gross Margin

48.2%

62.0%

13.8ppts

Operating Loss

-$51.6

-$31.4

+$20.2

Operating Margin

-61.0%

-19.3%

41.7ppts

Net Loss

-$52.0

-$31.5

$20.5

Net Loss per Share

-$0.33

-$0.16

$0.17

Weighted-Average Shares (Basic and Diluted)

156.0

192.7

N/A

Free Cash Flow

-$45.5

-$33.3

$12.2

 

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

Financial Outlook

Third Quarter Fiscal 2017 Guidance:

  • Revenue in the range of $187 million to $195 million (consensus $190.7 million)
  • Non-GAAP gross margin in the range of 64% to 67%
  • Non-GAAP operating margin in the range of -17.5% to -13.5%

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 second quarter of fiscal 2017 results at 2:00 p.m. (PT) on August 25, 2016. 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 beginning at 4:00 p.m. (PT) on August 25, 2016, through 4:00 p.m. (PT) on October 3, 2016. The replay will be accessible by calling 855-859-2056 (international callers: 404-537-3406), with conference ID 55513477. The call runs 24 hours per day, including weekends.

CEO Commentary

Pure Storage has posted a blog from its CEO discussing second quarter 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. The company's all-flash based technology, combined with its customer-friendly business model, drives business and IT transformation with Smart Storage that is effortless, efficient and evergreen. Pure Storage offers two flagship products: FlashArray//m, optimized for structured workloads, and FlashBlade, ideal for unstructured data. With Pure's industry leading Satmetrix-certified NPS score of 83, 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 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, customer adoption and business model advantages, our ability to maintain growth and take market share, and our financial outlook for the third quarter of fiscal 2017 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, but not limited to, our Annual Report on Form 10-K for the fiscal year ended January 31, 2016, which is 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, 2016. All information provided in this release and in the attachments is as of August 25, 2016, 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 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. In computing these non-GAAP financial measures, we exclude the effects of stock-based compensation expense, payroll tax expense related to stock-based activities and assumed preferred stock conversion. 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.

PSTG-IR

PURE STORAGE, INC.

Condensed Consolidated Balance Sheets

(in thousands)








As of


As of



January 31, 2016


July 31, 2016





(unaudited)

Assets





Current assets:





   Cash and cash equivalents


$                604,742


$        205,818

   Marketable securities


-


364,356

   Accounts receivable, net of allowance of $944 and $2,146


126,324


118,532

   Inventory


20,649


22,630

   Deferred commissions, current


15,703


14,023

   Prepaid expenses and other current assets


20,652


20,933

     Total current assets


788,070


746,292

Property and equipment, net


52,629


78,523

Intangible assets, net


6,980


7,312

Deferred income taxes, non-current


536


815

Other long-term assets


22,568


29,262

          Total assets


$                870,783


$        862,204






Liabilities and stockholders' equity





Current liabilities:





   Accounts payable


$                  38,187


$          30,526

   Accrued compensation and benefits


32,995


33,369

   Accrued expenses and other liabilities


14,076


20,464

   Deferred revenue, current


94,514


127,430

   Liability related to early exercised stock options


4,760


4,274

     Total current liabilities   


184,532


216,063

Deferred revenue, non-current


121,690


129,876

Other long-term liabilities


1,207


2,209

     Total liabilities


307,429


348,148






Stockholders' equity:





Common stock and additional paid-in capital


1,118,689


1,193,956

Accumulated other comprehensive income


-


852

Accumulated deficit (1)


(555,335)


(680,752)

Total stockholders' equity


563,354


514,056






         Total liabilities and stockholders' equity


$                870,783


$        862,204






(1) In March 2016, the Financial Accounting Standards Board issued Accounting Standard Update No. 2016-09 ("ASU 2016-09"), which allows a company to make a policy election to account for forfeitures as they occur. We early adopted this standard and elected to account for forfeitures as they occur using the modified retrospective transition method. The adoption of this standard resulted in an increase of $2.1 million in our accumulated deficit on February 1, 2016. The adjustment was reflected in our condensed consolidated balance sheets.

 

PURE STORAGE, INC.

Condensed Consolidated Statements of Operations

(in thousands, except per share data)












Three Months Ended July 31,


Six Months Ended July 31,



2015


2016


2015


2016



(unaudited)

Revenue:









  Product 


$  71,192


$ 130,920


$  134,810


$  242,658

  Support


13,469


32,294


23,928


60,503

Total revenue


84,661


163,214


158,738


303,161










Cost of revenue:









  Product (1) 


27,641


42,847


50,353


76,893

  Support (1)


7,497


14,000


14,421


26,934

Total cost of revenue


35,138


56,847


64,774


103,827










Gross profit


49,523


106,367


93,964


199,334










Operating expenses:









  Research and development (1) 


38,188


58,635


69,870


111,573

  Sales and marketing (1)


59,517


87,583


107,844


170,681

  General and administrative (1) 


15,227


19,630


27,919


41,211

Total operating expenses


112,932


165,848


205,633


323,465










Loss from operations


(63,409)


(59,481)


(111,669)


(124,131)

Other income (expense), net


(371)


37


(1,074)


1,319

Loss before provision for income taxes (2)


(63,780)


(59,444)


(112,743)


(122,812)

Provision for income taxes


57


106


214


526

Net loss


$ (63,837)


$ (59,550)


$ (112,957)


$ (123,338)










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


$     (1.89)


$     (0.31)


$       (3.41)


$       (0.65)










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


33,688


192,730


33,154


191,026










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


















Cost of revenue -- product


$         40


$        181


$           96


$         287

Cost of revenue -- support


521


1,712


854


2,804

Research and development


6,804


13,976


10,429


25,634

Sales and marketing


2,536


8,732


5,980


16,251

General and administrative 


1,899


3,295


3,300


5,918

Total stock-based compensation expense


$  11,800


$   27,896


$    20,659


$    50,894










(1) The adoption of ASU 2016-09 resulted in an increase of $864,000 in our stock-based compensation expense during the three months ended April 30, 2016. The adjustment was reflected in our condensed consolidated statements of operations for the six months ended July 31, 2016.


(2) The adoption of ASU 2016-09 resulted in a decrease of $535,000 in our provision for income taxes during the three months ended April 30, 2016. The adjustment was reflected in our condensed consolidated statements of operations for the six months ended July 31, 2016.

 

PURE STORAGE, INC.

Condensed Consolidated Statements of Cash Flows

(in thousands)












Three Months Ended July 31,


Six Months Ended July 31,



2015


2016


2015


2016



(unaudited)

Cash flows from operating activities









Net loss


$ (63,837)


$ (59,550)


$ (112,957)


$ (123,338)

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









    Depreciation and amortization


7,789


11,904


14,268


22,336

    Stock-based compensation expense


11,800


27,896


20,659


50,894

    Other


-


312


-


494

Changes in operating assets and liabilities:









    Accounts receivable, net


(25,087)


(22,004)


(21,017)


6,589

    Inventory


(183)


231


(1,653)


(2,392)

    Deferred commissions


(6,628)


(2,254)


(4,865)


1,887

    Prepaid expenses and other assets


351


1,935


(2,634)


(809)

    Accounts payable


2,702


(10,173)


2,417


(10,007)

    Accrued compensation and other liabilities


15,105


19,704


11,479


8,687

    Deferred revenue


27,615


20,449


49,813


41,102

Net cash used in operating activities


(30,373)


(11,550)


(44,490)


(4,557)










Cash flows from investing activities









    Purchases of property and equipment


(15,081)


(21,742)


(21,823)


(46,118)

    Purchases of intangible assets


-


(1,000)


-


(1,000)

    Purchases of marketable securities


-


(84,502)


-


(427,968)

    Sales of marketable securities


-


35,744


-


59,071

    Maturities of marketable securities


-


5,800


-


5,800

    Net increase in restricted cash


-


(6,306)


-


(5,600)

Net cash used in investing activities


(15,081)


(72,006)


(21,823)


(415,815)










Cash flows from financing activities









    Net proceeds from exercise of stock options


1,313


3,278


3,004


6,369

Proceeds from issuance of common stock under
employee stock purchase plan


-


-


-


15,079

    Payments of deferred offering costs


(803)


-


(1,116)


-

Net cash provided by financing activities


510


3,278


1,888


21,448










Net decrease in cash and cash equivalents


(44,944)


(80,278)


(64,425)


(398,924)

Cash and cash equivalents, beginning of period


173,226


286,096


192,707


604,742

Cash and cash equivalents, end of period


$ 128,282


$ 205,818


$  128,282


$  205,818

 

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, unaudited):



Three Months Ended July 31, 2015


Three Months Ended July 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)


















$        40

(c)






$181

(c)













3

(d)



Gross profit -- product

$     43,551

61.2%

$        40


$     43,591

61.2%


$       88,073

67.3%

$184


$       88,257

67.4%
































$      521

(c)






$1,712

(c)













7

(d)



Gross profit -- support

$       5,972

44.3%

$      521


$       6,493

48.2%


$       18,294

56.6%

$1,719


$       20,013

62.0%
































$      561

(c)






$1,893

(c)













10

(d)



Total gross profit

$     49,523

58.5%

$      561


$      50,084

59.2%


$     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, 2015


Three Months Ended July 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)


















$  11,800

(c)






$27,896

(c)













158

(d)

















Loss from operations

$   (63,409)

-74.9%

$  11,800


$      (51,609)

-61.0%


$     (59,481)

-36.4%

$28,054


$     (31,427)

-19.3%


















$  11,800

(c)






$27,896

(c)













158

(d)

















Net loss

$   (63,837)


$  11,800


$       (52,037)



$     (59,550)


$28,054


$      (31,496)
















Net loss per share -- basic and diluted

$       (1.89)




$            (0.33)



$         (0.31)




$           (0.16)
















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

33,688


122,281

(e)

155,969



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.

(e) To assume preferred stock conversion as of the beginning of the period.

 

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






Three Months Ended July 31,


2015


2016

Net cash used in operating activities 

$ (30,373)


$ (11,550)

Less: purchases of property and equipment 

(15,081)


(21,742)

Free cash flow 

$ (45,454)


$ (33,292)

Free cash flow as % of revenue

-53.7%


-20.4%

 

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SOURCE Pure Storage


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