Pure Storage, Inc. - FORM 8-K - EX-99.1

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8-K - 8-K - Pure Storage, Inc.	pstg-8k_20151202.htm
EX-99.2 - EX-99.2 - Pure Storage, Inc.	pstg-ex992_27.htm

Exhibit 99.1

Pure Storage Announces Third Quarter Fiscal 2016 Results

Record Revenue of $131.4 million, up 167% Y-Y

Record Gross Margin: 61.1% GAAP; 61.7% non-GAAP, up 300bps Y-Y respectively

Record Operating Margin: -42.3% GAAP, up 39pts Y-Y; -21.4% non-GAAP, up 46pts Y-Y

Mountain View, Calif. - December 2, 2015 – Pure Storage (NYSE: PSTG) today announced financial results for the third fiscal quarter ended October 31, 2015.

Pure Storage posted revenue of $131.4 million and GAAP net loss of $56.5 million for the third quarter of fiscal 2016. These results compare to revenue of $49.2 million and a GAAP net loss of $40.4 million in the year-ago quarter. GAAP gross margin for the third quarter of fiscal 2016 was 61.1% and GAAP product gross margin was 63.0%, compared to 58.3% and 61.9%, respectively, in the year-ago quarter. Non-GAAP net loss was $29.1 million for the third quarter of fiscal 2016, compared to $33.7 million in the year-ago quarter. Non-GAAP gross margin for the third quarter of fiscal 2016 was 61.7% and non-GAAP product gross margin was 63.1%, compared to 58.7% and 62.0%, respectively, in the year-ago quarter.

“We had an outstanding third quarter including record revenue, gross margin and operating margin,” said Scott Dietzen, CEO of Pure Storage. “Pure delivers customers a storage platform that transforms their businesses and their IT environments through a dramatic increase in performance with flash, and a reduction in complexity and costs through a cloud-centric model. None of our primary competitors are properly enabling customers to reap the benefits of flash and cloud, the biggest changes to the storage market in decades, as we are. We believe this is why others in the storage space are stumbling while we are growing.”

“We achieved record revenue while improving operating leverage,” said Tim Riitters, CFO of Pure Storage. “We will continue to drive growth and market share gains with a close eye on profitability over time.”

Pure Storage also grew its customer base to more than 1,350 organizations, adding more than 250 new customers in the third quarter, including Domino’s Pizza and The Boston Globe. Existing customers ConocoPhillips, LinkedIn and ServiceNow also expanded the scope of their relationships with Pure Storage, lending to a strong and continually growing customer base.

Third Quarter Fiscal 2016 Financial Highlights

The following table summarizes our consolidated financial results for the fiscal quarters ended October 31, 2014 and October 31, 2015 (in millions except per share amounts, unaudited):

GAAP Quarterly Financial Information
	Three Months Ended October 31, 2014	Three Months Ended October 31, 2015	Year-Over-Year Change
Revenue	$49.2	$131.4	167%
Gross Margin	58.3%	61.1%	2.8ppts
Product Gross Margin	61.9%	63.0%	1.1ppt
Support Gross Margin	29.6%	49.1%	19.5ppts
Operating Loss	-$39.8	-$55.6	-$15.8
Operating Margin	-80.9%	-42.3%	39ppts
Net Loss	-$40.4	-$56.5	-$16.1
Net Loss per Share	-$1.43	-$0.76	$0.67
Weighted-Average Shares	28.3	74.6	N/A

Non-GAAP Quarterly Financial Information
	Three Months Ended October 31, 2014	Three Months Ended October 31, 2015	Year-Over-Year Change
Gross Margin	58.7%	61.7%	3.0ppts
Product Gross Margin	62.0%	63.1%	1.1ppt
Support Gross Margin	32.5%	52.8%	20.3ppts
Operating Loss	-$33.1	-$28.1	$5.0
Operating Margin	-67.3%	-21.4%	46ppts
Net Loss	-$33.7	-$29.1	$4.6
Net Loss per Share	-$0.22	-$0.18	$0.04
Weighted-Average Shares	150.6	164.9	N/A
Free Cash Flow	-$38.4	-$13.0	66%

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

Financial Outlook

Fourth Quarter Fiscal 2016 Guidance:

Revenue in the range of $134 million to $139 million

Non-GAAP gross margin in the range of 62% to 65%

Non-GAAP operating margin in the range of (24%) to (18%)

All forward-looking non-GAAP financial measures contained in this section titled “Financial Outlook” exclude stock-based compensation expense 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 of fiscal 2016 results at 5:30 a.m. Pacific Standard Time on December 3, 2015. Pure Storage will post its supplemental earnings presentation to our investor relations website at investor.purestorage.com following the conference call. Teleconference details are as follows:

Phone: 1-866-807-9684; ask to be joined to the Pure Storage conference call

Real-time Audio Access: (“Events and Presentations” at investor.purestorage.com)

A replay of the webcast will be available for approximately 45 days.

CEO Commentary

Pure Storage has posted a blog from its CEO discussing third quarter results at investor.purestorage.com and blog.purestorage.com.

Upcoming Investor Conference

Pure Storage will be speaking at the Raymond James Technology conference on December 7, 2015 in New York, NY with CEO Scott Dietzen keynoting at 12 p.m. Eastern Standard Time and Vice President of Products, Matthew Kixmoeller participating in a fireside chat on December 8, 2015, at 1:15 p.m. Eastern Standard Time. Live audio Webcasts of the presentations will be available on investor.purestorage.com. An audio Webcast archive of the events will be available until noon Pacific Time on December 16, 2015.

About Pure Storage

Pure Storage (NYSE: PSTG) accelerates possible, transforming businesses in ways previously unimagined. The company’s disruptive, software-driven storage technology combined with a customer-friendly business model drives business and IT transformation for customers through dramatic increases in performance and efficiency at lower costs. Pure Storage FlashArray//m is simpler, faster and more elegant than any other technology in the datacenter. FlashArray //m is ideal for the move toward big data and for performance-intensive workloads such as cloud computing, database systems, desktop virtualization, real-time analytics and server virtualization.

With Pure's industry leading NPS score of 79, Pure customers are some of the happiest in the world, and include large and mid-size organizations across a range of industries: cloud-based software and service providers, consumer web, education, energy, financial services, governments, healthcare, manufacturing, media, retail and telecommunications. With Pure Storage, companies push the boundaries of what's possible to become faster, smarter and more innovative.

Forward Looking Statements

This press release contains forward-looking statements regarding our products, business and operations, including our ability to maximize growth and market share in the short term and profitability over time and our financial outlook for the fourth quarter of fiscal 2016 and statements regarding our products, business and operations. 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 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the final Prospectus related to our initial public offering of Class A common stock filed pursuant to Rule 424(b) under the Securities Act of 1933 (Registration No. 333-206312), and other reports on file 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 will also be set forth in our Quarterly Report on Form 10-Q for the quarter ended October 31, 2015. All information provided in this release and in the attachments is as of December 2, 2015, 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, assumed preferred stock conversion, and a one-time charge for an equity grant to the Pure Good Foundation in the third quarter of fiscal 2016. 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.

Andy Connor – IR contact, Pure Storage

Tel: (650) 243-0481

ir@purestorage.com

Amy Cronk – PR contact, Pure Storage

Tel: (650) 468-4724

pr@purestorage.com

PURE STORAGE, INC.

Condensed Consolidated Balance Sheets

(in thousands)

	As of			As of
	January 31, 2015			October 31, 2015
				(unaudited)
Assets
Current assets:
Cash and cash equivalents	$	192,707		$	573,307
Accounts receivable, net of allowance of $210 and $566		59,032			112,126
Inventory		21,605			25,549
Deferred commissions, current		9,431			13,612
Prepaid expenses and other current assets		11,195			14,028
Total current assets		293,970			738,622
Property and equipment, net		39,859			47,117
Intangible assets, net		8,284			7,306
Deferred income taxes, non-current		5,529			4,886
Other long-term assets		14,177			20,097
Total assets	$	361,819		$	818,028

Liabilities, convertible preferred stock, and stockholders' (deficit) equity
Current liabilities:
Accounts payable	$	11,007		$	21,684
Accrued compensation and benefits		13,811			25,030
Accrued expenses and other liabilities		6,106			14,440
Deferred revenue, current		32,199			71,481
Liability related to early exercised stock options		6,485			4,942
Deferred income taxes, current		5,829			5,186
Total current liabilities		75,437			142,763
Deferred revenue, non-current		41,470			90,175
Other long-term liabilities		802			1,136
Total liabilities		117,709			234,074

Convertible preferred stock		543,940			-

Stockholders' (deficit) equity:
Common stock and additional paid-in capital		41,753			1,094,995
Accumulated deficit		(341,583	)		(511,041	)
Total stockholders' (deficit) equity		(299,830	)		583,954

Total liabilities, convertible preferred stock, and stockholders' (deficit) equity	$	361,819		$	818,028

PURE STORAGE, INC.

Condensed Consolidated Statements of Operations

(in thousands, except per share data)

	Three Months Ended October 31,						Nine Months Ended October 31,
	2014			2015			2014			2015
	(unaudited)
Revenue:
Product	$	43,753		$	113,573		$	97,006		$	248,383
Support		5,436			17,791			11,595			41,719
Total revenue		49,189			131,364			108,601			290,102

Cost of revenue:
Product (1)		16,676			41,995			39,284			92,348
Support (1)		3,827			9,058			8,751			23,479
Total cost of revenue		20,503			51,053			48,035			115,827

Gross profit		28,686			80,311			60,566			174,275

Operating expenses:
Research and development (1)		22,863			43,065			63,396			112,935
Sales and marketing (1)		38,224			63,803			109,787			171,647
General and administrative (1) (2)		7,415			29,022			21,834			56,941
Total operating expenses		68,502			135,890			195,017			341,523

Loss from operations		(39,816	)		(55,579	)		(134,451	)		(167,248	)
Other income (expense), net		(410	)		(171	)		(717	)		(1,245	)
Loss before provision for income taxes		(40,226	)		(55,750	)		(135,168	)		(168,493	)
Provision for income taxes		171			751			428			965
Net loss	$	(40,397	)	$	(56,501	)	$	(135,596	)	$	(169,458	)

Net loss per share attributable to common stockholders, basic and diluted	$	(1.43	)	$	(0.76	)	$	(5.07	)	$	(3.60	)

Weighted-average shares used in computing net loss per share attributable to common stockholders, basic and diluted		28,280			74,565			26,769			47,109

(1) Includes stock based compensation expense as follows:

Cost of revenue -- product	$	35		$	43		$	264		$	139
Cost of revenue -- support		159			657			1,057			1,511
Research and development		3,399			8,195			18,546			18,624
Sales and marketing		2,315			4,559			19,676			10,539
General and administrative		823			2,085			5,331			5,385
Total stock-based compensation expense	$	6,731		$	15,539		$	44,874		$	36,198

(2) Includes a one-time charge of $11.9 million for an equity grant to the Pure Good Foundation.

PURE STORAGE, INC.

Condensed Consolidated Statements of Cash Flows

(in thousands)

	Three Months Ended October 31,						Nine Months Ended October 31,
	2014			2015			2014			2015
	(unaudited)
Cash flows from operating activities
Net loss	$	(40,397	)	$	(56,501	)	$	(135,596	)	$	(169,458	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		4,368			8,850			9,751			23,118
Stock-based compensation expense		6,731			15,539			17,241			36,198
Contribution of common stock to Pure Good Foundation		-			11,900			-			11,900
Other	-			-				3		-
Changes in operating assets and liabilities:
Accounts receivable, net		(11,265	)		(32,077	)		(30,735	)		(53,094	)
Inventory		(3,745	)		(1,767	)		(13,072	)		(3,420	)
Deferred commissions		(2,008	)		(3,607	)		(4,063	)		(8,472	)
Prepaid expenses and other assets		(978	)		569			(2,368	)		(2,065	)
Accounts payable		3,350			7,807			4,575			10,224
Accrued compensation and other liabilities		1,514			5,737			7,670			17,216
Deferred revenue		15,713			38,174			36,918			87,987
Net cash used in operating activities		(26,717	)		(5,376	)		(109,676	)		(49,866	)

Cash flows from investing activities
Purchases and property and equipment		(11,667	)		(7,672	)		(30,902	)		(29,495	)
Purchases of intangible assets		(1,100	)	-				(9,125	)	-
Increase in restricted cash	-				(2,484	)		(1,613	)		(2,484	)
Net cash used in investing activities		(12,767	)		(10,156	)		(41,640	)		(31,979	)

Cash flows from financing activities
Proceeds from initial public offering, net	-				459,425		-				459,425
Proceeds from issuance of convertible preferred, stock		150		-				280,820		-
Net proceeds from exercise of stock options		2,217			1,706			7,167			4,710
Repurchase of common stock in connection with tender offers	-			-				(30,120	)	-
Payments of deferred offering costs	-				(574	)	-				(1,690	)
Net cash provided by financing activities		2,367			460,557			257,867			462,445

Net increase (decrease) in cash and cash equivalents		(37,117	)		445,025			106,551			380,600
Cash and cash equivalents, beginning of period		274,553			128,282			130,885			192,707
Cash and cash equivalents, end of period	$	237,436		$	573,307		$	237,436		$	573,307

Reconciliations of non-GAAP gross margins 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 October 31, 2014													Three Months Ended October 31, 2015
	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)

						$	35	(c)											$	43	(c)
Gross profit -- product	$	27,077		61.9	%	$	35		$	27,112		62.0	%	$	71,578		63.0	%	$	43		$	71,621		63.1	%


						$	159	(c)											$	657	(c)
Gross profit -- support	$	1,609		29.6	%	$	159		$	1,768		32.5	%	$	8,733		49.1	%	$	657		$	9,390		52.8	%


						$	194	(c)											$	700	(c)
Total gross profit	$	28,686		58.3	%	$	194		$	28,880		58.7	%	$	80,311		61.1	%	$	700		$	81,011		61.7	%

(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.

Reconciliations of non-GAAP results of operations to the nearest comparable GAAP measures

The following table presents certain non-GAAP consolidated results before certain items (in thousands, except per share amounts, unaudited):

	Three Months Ended October 31, 2014															Three Months Ended October 31, 2015
	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)
							$	6,731	(c)													$	15,539	(c)
																						$	11,900	(d)
Loss from operations	$	(39,816	)		-80.9	%	$	6,731		$	(33,085	)		-67.3	%	$	(55,579	)		-42.3	%	$	27,439		$	(28,140	)		-21.4	%

							$	6,731	(c)													$	15,539	(c)
																						$	11,900	(d)
Net loss	$	(40,397	)				$	6,731		$	(33,666	)				$	(56,501	)				$	27,439		$	(29,062	)

Net loss per share -- basic and diluted	$	(1.43	)							$	(0.22	)				$	(0.76	)							$	(0.18	)

Shared used in per share calculation -- basic and diluted		28,280						122,281	(e)		150,561						74,565						90,381	(e)		164,946

(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.

(d) To eliminate one-time charge $11.9 million for an equity grant to the Pure Good Foundation.

(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 October 31, 2014			Three Months Ended October 31, 2015
Net cash used in operating activities	$	(26,717	)	$	(5,376	)
Less: purchases of property and equipment		(11,667	)		(7,672	)
Free cash flow	$	(38,384	)	$	(13,048	)
Free cash flow as % of revenue		-78	%		-10	%

Pure Storage, Inc. - FORM 8-K - EX-99.1 - December 2, 2015

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