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Pure Storage Announces Second Quarter Fiscal 2021 Financial Results

August 26, 2020 GMT
www.purestorage.com (PRNewsFoto/Pure Storage) (PRNewsfoto/Pure Storage)
www.purestorage.com (PRNewsFoto/Pure Storage) (PRNewsfoto/Pure Storage)

MOUNTAIN VIEW, Calif., Aug. 25, 2020 /PRNewswire/ -- Pure Storage (NYSE: PSTG), the IT pioneer that delivers storage as-a-service in a multi-cloud world, today announced financial results for its second quarter ended August 2, 2020.

“We had a solid quarter, reflecting Pure’s unmatched technology leadership, simplicity, performance and extraordinary reliability that makes us the right decision during this time,” said Charles Giancarlo, Chairman and CEO, Pure Storage. “Pure delivers the Modern Data Experience by providing dynamic storage, a cloud-like experience via APIs, shared services and flexible on-demand consumption. Looking forward, I am confident in our opportunity, long-term strategy and ability to reaccelerate growth upon exiting the global crisis.”

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Second Quarter Financial Highlights

  • Revenue $403.7 million, up 2% year-over-year
  • Subscription services revenue $131.4 million, up 37% year-over-year
  • GAAP gross margin 68.0%; non-GAAP gross margin 69.8%
  • GAAP operating loss $(64.1) million; non-GAAP operating income $11.2 million
  • Operating cash flow was $50.7 million, up $1.9 million year-over-year
  • Free cash flow was $25.7 million, up $5.8 million year-over-year
  • Total cash and investments of $1.3 billion
  • Deferred revenue of $724.8 million, up 2.6% quarter-over-quarter and 19.3% year-over-year
  • Remaining performance obligations (RPO) of $956.4 million, up 4.9% quarter-over-quarter and 24.2% year-over-year

“Pure, with its channel partners, continues to deliver solid results during the global economic recession caused by COVID-19,” said Kevan Krysler, CFO, Pure Storage. “We are particularly pleased with the sustained strong growth and momentum of our subscription services that offer customers a cloud-like experience with more flexibility and compelling total cost of ownership.”

Second Quarter Company Highlights

Pure’s second quarter delivered technology enhancements that support modern applications, multi-dimensional performance, differentiated consumption models and simplicity that make the Modern Data Experience a reality for customers.

  • Introducing the second generation FlashArray//C - Today we announced the second generation FlashArray//C, delivering even lower effective cost/GB, making it now substantially less expensive than competing legacy hybrid disk arrays. The industry’s only all-QLC storage array, FlashArray//C features 24TB and 49TB QLC DirectFlash Modules and fully leverages the broad suite of efficiency and reliability features in FlashArray’s Purity software. With FlashArray//C for capacity-oriented workloads, FlashArray//X for performance-centric workloads, and Cloud Block Store in the cloud, customers are able to consolidate tier 1, tier 2 and cloud workloads onto a single platform.
  • Delivering rapid recovery at scale - In Q2, Pure announced a partnership with Cohesity to deliver an integrated data recovery solution, Pure FlashRecover™, Powered by Cohesity®. The solution provides all-flash data backup and recovery capabilities that enterprises require for restoring data rapidly in the face of a disaster or ransomware attack. The companies joined forces to develop this solution based on strong demand from their customers to ensure they will always have fast access to their data.
  • Strong subscription services momentum - Pure’s subscription services saw continued strength and execution with 37% year-over-year growth from existing and new customers. In Q2, Arrow Energy, BidFX, Dizzion Managed Desktop as-a-Service, Lafayette General Hospital and Telstra joined the rapidly growing list of existing Pure as-a-Service customers such as CDK Global and Options IT.

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Additionally, the Pure Good Foundation, which has had a substantial impact on communities around the globe, celebrates its fifth anniversary this month. Through its philanthropic efforts and hands-on volunteerism, Pure employees engaged in more than 8,000 volunteer activities over the last five years.

Guidance

Through the first half of the year Pure has delivered solid results through execution, focus, and operating discipline. The core fundamentals of Pure’s business are strong, however, the significant global economic contraction caused by COVID-19 continues to create variability. Therefore, consistent with the prior quarter Pure is not providing formal guidance.

Pure’s current view of fiscal Q3 outcomes, which should not be viewed as guidance, is that total revenue will be approximately flat sequentially. In Q3, we expect recurring revenue and sales of our Evergreen and unified subscription services will continue to show strong growth. The company continues to exercise solid operating discipline throughout the organization and estimates that operating margin during Q3 will be slightly below break even, near negative 2%.

Conference Call Information

Pure will host a teleconference to discuss the second quarter fiscal 2021 results at 2:00 p.m. PT on August 25, 2020. A live audio broadcast of the conference call will be available at the Pure Storage Investor Relations website at investor.purestorage.com. Pure will also post its supplemental earnings presentation and prepared conference call remarks to the Investor Relations website in advance of the call for reference. A replay will be available following the call on the Pure Storage Investor Relations website or for two weeks at (800) 585-8367 or (416) 621-4642 for international callers with passcode 6089753.

About Pure Storage

Pure Storage (NYSE: PSTG) gives technologists their time back. Pure delivers a modern data experience that empowers organizations to run their operations as a true, automated, storage as-a-service model seamlessly across multiple clouds. One of the fastest-growing enterprise IT companies in history, Pure helps customers put data to use while reducing the complexity and expense of managing the infrastructure behind it. And with a certified 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.

Analyst Recognition: Pure Storage has been named a Leader in the 2019 Gartner Magic Quadrant for Primary Storage.

Upcoming Event:

  • Pure will be presenting at the Deutsche Bank Virtual Technology Conference on September 15th, at 9:30 a.m. PT. The presentation from the event will be webcast live and all information will be available on the Investor Relations website at investor.purestorage.com.

Forward Looking Statements

This press release contains forward-looking statements regarding our products, business and operations, including but not limited to our views relating to future period outcomes, the scope and duration of the COVID-19 pandemic and its impact on our business operations, liquidity and capital resources, employees, customers, supply chain, financial results and the economy, our expectations regarding product and technology differentiation, including our new offerings, strategy and adoption of subscription services, and other 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 February 2, 2020. All information provided in this release and in the attachments is as of August 25, 2020, and we undertake no duty to update this information unless required by law.

Non-GAAP Financial Measures

To supplement our unaudited 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 and free cash flow 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, payments to former shareholders of acquired company, payroll tax expense related to stock-based activities, amortization of debt discount and debt issuance costs, amortization of intangible assets acquired from acquisitions, restructuring activities, and expenses directly related to the COVID-19 pandemic 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,” included at the end of this release.

PURE STORAGE, INC.

Condensed Consolidated Balance Sheets

(in thousands, unaudited)




At the End of



Second Quarter of
Fiscal 2021


Fiscal 2020






Assets





Current assets:





Cash and cash equivalents


$

355,601



$

362,635


Marketable securities


937,514



936,518


Accounts receivable, net of allowance of $587 and $542


366,698



458,643


Inventory


36,363



38,518


Deferred commissions, current


39,507



37,148


Prepaid expenses and other current assets


76,701



56,930


Total current assets


1,812,384



1,890,392


Property and equipment, net


145,126



122,740


Operating lease right-of-use-assets


121,576



112,854


Deferred commissions, non-current


105,180



102,056


Intangible assets, net


52,855



58,257


Goodwill


37,584



37,584


Restricted cash


15,287



15,287


Other assets, non-current


31,620



25,034


Total assets


$

2,321,612



$

2,364,204


Liabilities and stockholders' equity





Current liabilities:





Accounts payable


$

56,366



$

77,651


Accrued compensation and benefits


96,438



106,592


Accrued expenses and other liabilities


46,818



47,223


Operating lease liabilities, current


29,517



27,264


Deferred revenue, current


378,072



356,011


Total current liabilities


607,211



614,741


Convertible senior notes, net


491,132



477,007


Operating lease liabilities, non-current


109,606



92,977


Deferred revenue, non-current


346,679



341,277


Other liabilities, non-current


20,878



8,084


Total liabilities


1,575,506



1,534,086


Stockholders' equity:





Common stock and additional paid-in capital


2,172,418



2,107,605


Accumulated other comprehensive income


12,185



5,449


Accumulated deficit


(1,438,497)



(1,282,936)


Total stockholders' equity


746,106



830,118


Total liabilities and stockholders' equity


$

2,321,612



$

2,364,204


PURE STORAGE, INC.

Condensed Consolidated Statements of Operations

(in thousands, except per share data, unaudited)



Second Quarter of Fiscal


First Two Quarters of Fiscal


2021


2020


2021


2020









Revenue:








Product

$

272,309



$

300,128



$

519,248



$

538,869


Subscription services

131,414



96,199



251,594



184,158


Total revenue

403,723



396,327



770,842



723,027


Cost of revenue:








Product (1)

84,731



92,870



154,016



169,462


Subscription services(1)

44,266



35,138



85,275



68,859


Total cost of revenue

128,997



128,008



239,291



238,321


Gross profit

274,726



268,319



531,551



484,706


Operating expenses:








Research and development (1)

114,652



107,020



227,098



212,095


Sales and marketing (1)

171,434



186,188



344,867



352,814


General and administrative (1)

44,471



40,016



85,596



82,126


Restructuring and other (2)

8,288





22,990




Total operating expenses

338,845



333,224



680,551



647,035


Loss from operations

(64,119)



(64,905)



(149,000)



(162,329)


Other income (expense), net

1,603



(652)



(1,813)



(2,468)


Loss before provision for income taxes

(62,516)



(65,557)



(150,813)



(164,797)


Income tax provision

2,451



461



4,748



1,557


Net loss

$

(64,967)



$

(66,018)



$

(155,561)



$

(166,354)










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

$

(0.25)



$

(0.26)



$

(0.59)



$

(0.67)


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

264,799



251,298



263,867



248,336





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



















Cost of revenue -- product

$

990



$

954



$

1,986



$

1,931


Cost of revenue -- subscription services

3,686



3,633



7,078



7,584


Research and development

29,839



29,108



58,550



57,353


Sales and marketing

16,848



16,055



33,120



34,369


General and administrative

10,089



8,654



19,412



19,324


Total stock-based compensation expense

$

61,452



$

58,404



$

120,146



$

120,561



(2) Includes expenses related to restructuring and incremental expenses directly related to COVID-19

PURE STORAGE, INC.

Condensed Consolidated Statements of Cash Flows

(in thousands, unaudited)



Second Quarter of Fiscal


First Two Quarters of Fiscal


2021


2020


2021


2020









Cash flows from operating activities








Net loss

$

(64,967)



$

(66,018)



$

(155,561)



$

(166,354)


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








Depreciation and amortization

16,464



22,531



31,597



43,591


Amortization of debt discount and debt issuance costs

7,189



6,800



14,125



13,290


Stock-based compensation expense

61,452



58,404



120,146



120,561


Impairment of long-lived assets

7,505





7,505




Other

267



1,138



1,972



327


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








Accounts receivable, net

(17,545)



(40,746)



91,896



26,553


Inventory

3,105



8,875



1,735



6,852


Deferred commissions

(2,324)



(5,311)



(5,483)



(3,595)


Prepaid expenses and other assets

(20,091)



6,663



(26,389)



(635)


Operating lease right-of-use assets

7,475



7,229



14,181



13,438


Accounts payable

(6,796)



(5,020)



(21,090)



(30,827)


Accrued compensation and other liabilities

46,426



18,289



(3,217)



(25,704)


Operating lease liabilities

(6,145)



(7,049)



(13,071)



(13,083)


Deferred revenue

18,691



43,032



27,463



71,045


Net cash provided by operating activities

50,706



48,817



85,809



55,459


Cash flows from investing activities








Purchases of property and equipment

(24,994)



(28,933)



(48,776)



(53,229)


Acquisition, net of cash acquired







(47,881)


Purchase of intangible assets



(9,000)





(9,000)


Purchases of marketable securities

(193,076)



(175,638)



(291,237)



(488,497)


Sales of marketable securities

73,694



38,024



91,351



60,368


Maturities of marketable securities

110,799



106,617



206,174



270,756


Net cash used in investing activities

(33,577)



(68,930)



(42,488)



(267,483)


Cash flows from financing activities








Net proceeds from exercise of stock options

12,383



2,499



21,658



19,260


Proceeds from issuance of common stock under employee stock purchase plan





16,021



32,042


Proceeds from borrowing





4,950




Repayment of debt assumed from acquisition







(11,555)


Tax withholding on vesting of restricted stock

(1,467)



(1,501)



(2,841)



(7,173)


Repurchases of common stock

(20,024)





(90,143)




Net cash (used in) provided by financing activities

(9,108)



998



(50,355)



32,574


Net increase (decrease) in cash, cash equivalents and restricted cash

8,021



(19,115)



(7,034)



(179,450)


Cash, cash equivalents and restricted cash, beginning of period

362,867



303,478



377,922



463,813


Cash, cash equivalents and restricted cash, end of period

$

370,888



$

284,363



$

370,888



$

284,363


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):




Second Quarter of Fiscal 2021


Second Quarter of Fiscal 2020



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)
































$

990



(c)










$

954



(c)











15



(d)










27



(d)











297



(e)























2,003



(f)










1,971



(f)





Gross profit --
product


$

187,578



68.9

%


$

3,305





$

190,883



70.1

%


$

207,258



69.1

%


$

2,952





$

210,210



70.0

%
































$

3,686



(c)










$

3,633



(c)











47



(d)










98



(d)





Gross profit --
subscription
services


$

87,148



66.3

%


$

3,733





$

90,881



69.2

%


$

61,061



63.5

%


$

3,731





$

64,792



67.4

%
































$

4,676



(c)










$

4,587



(c)











62



(d)










125



(d)











297



(e)























2,003



(f)










1,971



(f)





Total gross profit


$

274,726



68.0

%


$

7,038





$

281,764



69.8

%


$

268,319



67.7

%


$

6,683





$

275,002



69.4

%


(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 hazard pay premiums directly related to COVID-19 pandemic.
(f) 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):



Second Quarter of Fiscal 2021


Second Quarter of Fiscal 2020


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)




























$

61,452



(c)










$

56,460


(c)









2,009



(d)










1,944


(d)









1,259



(e)










1,355


(e)









306



(f)




















8,279



(g)




















2,003



(h)










1,971


(h)




Operating Income (loss)

$

(64,119)



-15.9

%


$

75,308





$

11,189



2.8

%


$

(64,905)



-16.4

%


$

61,730



$

(3,175)



-0.8

%




























$

61,452



(c)










$

56,460


(c)









2,009



(d)










1,944


(d)









1,259



(e)










1,355


(e)









306



(f)




















8,279



(g)




















2,003



(h)










1,971


(h)









7,189



(i)










6,801


(i)




Net income (loss)

$

(64,967)





$

82,497





$

17,530





$

(66,018)





$

68,531



$

2,513


























Net income (loss) per share -- basic and diluted

$

(0.25)









$

0.06





$

(0.26)







$

0.01































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

264,799





17,698



(j)


282,497





251,298





19,550


(j)

270,848









































(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 payments to former shareholders of acquired company.
(e) To eliminate payroll tax expense related to stock-based activities.
(f) To eliminate hazard pay premiums directly related to COVID-19 pandemic.
(g) To eliminate restructuring expenses related to (1) impairment of long-lived assets associated with the cease-use of certain facilities and (2) workforce reduction.
(h) To eliminate amortization expense of acquired intangible assets.
(i) To eliminate amortization expense of debt discount and debt issuance costs related to our convertible debt.
(j) To include effect of dilutive securities (employee stock options, restricted stock, and shares from employee stock purchase plan).

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



Second Quarter of Fiscal


Change


2021


2020


$

Net cash provided by operating activities

$

50,706



$

48,817



$

1,889


Less: purchases of property and equipment

(24,994)



(28,933)



3,939


Free cash flow (non-GAAP)

$

25,712



$

19,884



$

5,828








Free cash flow as % of revenue

6.4

%


5.0

%



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SOURCE Pure Storage