Pure Storage(US:PSTG)2024-09-11 01:12PART I. FINANCIAL INFORMATION This section provides Pure Storage's unaudited condensed consolidated financial statements and management's discussion and analysis for the quarterly period ended August 4, 2024 Item 1. Financial Statements (unaudited) Pure Storage's unaudited Q2 fiscal 2025 financial statements show $763.8 million revenue, an 11% YoY increase, and a shift to $35.7 million net income, with total assets reaching $3.78 billion Condensed Consolidated Balance Sheets This section provides a snapshot of the company's financial position, detailing assets, liabilities, and equity at specific points in time Condensed Consolidated Balance Sheets | Balance Sheet Items | At end of Q2 Fiscal 2025 ($ thousands) | At end of Fiscal 2024 ($ thousands) | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | 965,028 | 702,536 | | Marketable securities | 855,453 | 828,557 | | Accounts receivable, net | 416,501 | 662,179 | | Total current assets | 2,553,026 | 2,498,054 | | Total assets | 3,781,273 | 3,655,760 | | Liabilities & Equity | | | | Deferred revenue, current | 869,332 | 852,247 | | Total current liabilities | 1,282,994 | 1,365,684 | | Total liabilities | 2,328,112 | 2,385,666 | | Total stockholders' equity | 1,453,161 | 1,270,094 | Condensed Consolidated Statements of Operations This section outlines the company's revenues, costs, and net income or loss over specific reporting periods Q2 Fiscal Year Statements of Operations | Metric ($ thousands, except EPS) | Q2 Fiscal 2025 | Q2 Fiscal 2024 | YoY Change | | :--- | :--- | :--- | :--- | | Product Revenue | 402,595 | 399,738 | +0.7% | | Subscription Services Revenue | 361,176 | 288,933 | +25.0% | | Total Revenue | 763,771 | 688,671 | +10.9% | | Gross Profit | 540,080 | 486,593 | +11.0% | | Income (Loss) from Operations | 24,878 | (6,228) | N/A | | Net Income (Loss) | 35,674 | (7,115) | N/A | | Diluted EPS | $0.10 | $(0.02) | N/A | First Two Quarters Fiscal Year Statements of Operations | Metric ($ thousands, except EPS) | First Two Quarters Fiscal 2025 | First Two Quarters Fiscal 2024 | YoY Change | | :--- | :--- | :--- | :--- | | Total Revenue | 1,457,250 | 1,277,978 | +14.0% | | Gross Profit | 1,035,786 | 899,940 | +15.1% | | Loss from Operations | (16,896) | (78,042) | N/A | | Net Income (Loss) | 665 | (74,516) | N/A | | Diluted EPS | $0.00 | $(0.24) | N/A | Condensed Consolidated Statements of Cash Flows This section details the cash inflows and outflows from operating, investing, and financing activities Condensed Consolidated Statements of Cash Flows | Cash Flow Activity ($ thousands) | First Two Quarters Fiscal 2025 | First Two Quarters Fiscal 2024 | | :--- | :--- | :--- | | Net cash provided by operating activities | 448,097 | 274,865 | | Net cash provided by (used in) investing activities | (132,896) | 82,305 | | Net cash used in financing activities | (47,525) | (529,708) | | Net increase (decrease) in cash | 267,676 | (172,538) | Notes to Condensed Consolidated Financial Statements This section provides additional details and explanations for the figures presented in the financial statements, including significant accounting policies and other disclosures - Total Remaining Performance Obligations (RPO) were $2.3 billion at the end of Q2 fiscal 2025, with approximately 48% expected to be recognized as revenue over the next 12 months55 - In February 2024, a workforce realignment plan impacting nearly 250 employees resulted in $27.9 million in total restructuring costs, with $9.9 million recognized in Q1 fiscal 202573 - The Board authorized an additional $250.0 million for the share repurchase program in February 2024, with $395.4 million remaining available as of Q2 fiscal 2025 and no shares repurchased during the quarter78 - A discretionary adjustment to Performance-based Restricted Stock Units (PRSUs) granted in fiscal 2024 led to an additional stock-based compensation expense of approximately $40.7 million, to be recognized over the remaining vesting period91 Revenue by Geography | Revenue by Geography ($ thousands) | Q2 Fiscal 2025 | Q2 Fiscal 2024 | YoY Change | | :--- | :--- | :--- | :--- | | United States | 537,747 | 494,650 | +8.7% | | Rest of the world | 226,024 | 194,021 | +16.5% | | Total Revenue | 763,771 | 688,671 | +10.9% | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Q2 fiscal 2025 financial performance, noting an 11% revenue increase driven by 25% subscription growth, with ARR reaching $1.51 billion and RPO at $2.3 billion Recent Developments This section highlights key strategic initiatives and product introductions, including the new AI Storage-as-a-Service offering - In June 2024, the company introduced Evergreen//One for AI, the industry's first AI Storage-as-a-Service, offering guaranteed storage performance for GPUs110 - The company expects to be a certified storage solution for NVIDIA DGX SuperPOD by the end of 2024, expanding on existing NVIDIA certifications111 Results of Operations This section analyzes the company's revenue, gross margins, and operating expenses, detailing performance drivers and trends - Subscription Annual Recurring Revenue (ARR) grew 24% year-over-year, reaching $1.51 billion at the end of Q2 fiscal 2025126 - Product gross margin decreased from 70% to 68% year-over-year in Q2, influenced by strong sales of cost-sensitive solutions like FlashBlade//E and FlashArray//E, with a modest strategic decline expected in the second half of fiscal 2025131 - Subscription services gross margin increased from 72% to 74% year-over-year in Q2, mainly due to increased automation in service logistics workflows132 - Operating expenses as a percentage of revenue decreased across all categories (R&D, Sales & Marketing, G&A) for the first two quarters of fiscal 2025 compared to the prior year, indicating improved operating leverage135137140 Liquidity and Capital Resources This section assesses the company's cash position, cash flow generation, and capital allocation strategies - The company ended Q2 fiscal 2025 with $1.8 billion in cash, cash equivalents, and marketable securities146 - Net cash provided by operating activities for the first two quarters of fiscal 2025 was $448.1 million, a significant increase from $274.9 million in the prior year, driven by increased sales and improved collections153 - Net cash used in investing activities was $132.9 million in the first half of fiscal 2025, primarily due to $108.9 million in capital expenditures for test equipment and infrastructure supporting new products and the Evergreen//One offering154 Item 3. Quantitative and Qualitative Disclosures About Market Risk The company faces interest rate risk on its $1.8 billion cash and marketable securities portfolio and foreign currency exchange risk from international operating expenses - A hypothetical 1.00% (100 basis points) increase in interest rates would decrease the fair value of the company's marketable securities by approximately $9.5 million as of the end of Q2 fiscal 2025166 - A hypothetical adverse 10% change in foreign exchange rates would have resulted in an adverse impact of approximately $4.4 million on income before provision for income taxes at the end of Q2 fiscal 2025168 Item 4. Controls and Procedures Management, including the CEO and CFO, concluded that disclosure controls and procedures were effective as of August 4, 2024, with no material changes to internal control over financial reporting - The CEO and CFO concluded that as of the end of Q2 fiscal 2025, the company's disclosure controls and procedures were effective at a reasonable assurance level169 PART II. OTHER INFORMATION This section covers legal proceedings, risk factors, unregistered sales of equity securities, and exhibits filed with the Form 10-Q Item 1. Legal Proceedings The company is not currently involved in any legal proceedings expected to have a material adverse effect on its business - The company is not presently party to any legal proceedings expected to have a material adverse effect on its business173 Item 1A. Risk Factors Key risks include macroeconomic conditions, intense competition, supply chain reliance, the subscription model transition's revenue impact, security breaches, and talent retention - The business may be adversely impacted by uncertain macroeconomic conditions, long and unpredictable sales cycles, and intense competition from established companies175179186 - The company's transition to subscription offerings like Evergreen//One and Evergreen//Flex is a key risk, expected to have a near-term downward impact on product and total revenue growth as revenue is recognized over time176220 - Reliance on a limited number of contract manufacturers and single-source suppliers for key components exposes the company to risks of supply disruption, price volatility, and quality control issues190191 - Cybersecurity is a significant risk, highlighted by a June 2024 incident involving unauthorized access to a Snowflake data analytics workspace containing telemetry information for customer support225 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section details the delivery of approximately 1.1 million common shares, valued at $76.2 million, by employees for tax withholding upon equity award vesting in Q2 fiscal 2025 Shares Delivered for Tax Withholding | Period | Total Shares Delivered (thousands) | Value of Shares ($ thousands) | | :--- | :--- | :--- | | May 6 - June 2, 2024 | — | — | | June 3 - June 30, 2024 | 1,115 | 76,183 | | July 1 - Aug 4, 2024 | — | — | Item 6. Exhibits This section lists exhibits filed with Form 10-Q, including certifications by the Principal Executive Officer and Principal Financial Officer, and XBRL data files