Proofpoint's (PFPT) Q1 Earnings Top Estimates, View Slashed

Proofpoint Inc. PFPT reported first-quarter 2020 non-GAAP earnings of 38 cents per share, which beat the Zacks Consensus Estimate by 40.74%. However, the figure decreased 5% year over year.

Revenues came in at $249.8 million, which beat the consensus mark by 1.27% and increased 23% year over year.

The top-line growth can be attributed to strong demand for its next-generation cloud security and compliance platform, ongoing migration to the cloud, solid international growth, and high renewal rates.

However, the company faced contraction in the deal pipeline due to certain projects being postponed by enterprises, particularly those belonging to industries most affected by the coronavirus pandemic, such as energy, travel, hospitality, retail and certain segments of healthcare.

Moreover, existing and new customers shortened the duration of contracts in an attempt to conserve cash during these uncertain times. This resulted in an 11% sequential decline in billed contract duration, partially compensated by pricing gains stemming from the elimination of the customary 10% discount for three-year prepaid transactions.

Additionally, Proofpoint recently concluded a small acquisition of security awareness startup, Defense Works, for less than $5 million. The financial impact of the acquisition is expected to be negligible.

Proofpoint Inc Price, Consensus and EPS Surprise

Proofpoint Inc Price, Consensus and EPS Surprise

Proofpoint Inc price-consensus-eps-surprise-chart | Proofpoint Inc Quote

Top-Line Details

Total billings during the quarter grew 23% year over year to $238 million.

Subscription revenues came in at $244.1 million, up 22.3% from the year-ago quarter. Hardware and services revenues jumped 67.6% year over year to $5.7 million.

The company has stopped reporting results for its advanced threat and compliance-oriented products as it believes that the data are not informative in terms of measuring business performance.

Proofpoint continues to expand abroad. Its international business grew 29% year over year and accounted for 20% of total revenues in the first quarter. However, the coronavirus-induced downturn in Europe was an overhang.

Operating Details

Non-GAAP gross profit advanced 24% from the year-ago quarter to $197.7 million. Non-GAAP gross margin improved 100 basis points (bps) to 79%, driven by a strong revenue performance.

Proofpoint’s non-GAAP operating income rose 10.9% to $25.4 million.

Balance Sheet & Cash Flow

As of Mar 31, 2020, the company’s cash, cash equivalents and short-term investments were $946 million compared with $890.9 million as of Dec 31, 2019.

The company generated operating cash flow of $92.2 million compared with $76.4 million in the previous quarter. Free cash flow was $79.8 million compared with $65.1 million in the prior quarter.

Guidance

Proofpoint updated its 2020 revenue guidance to reflect uncertainties related to coronavirus impacts. The company now expects revenues of $1.005-$1.030 billion, down from the previous projection of $1.060-$1.067 billion.

Non-GAAP gross margin is projected to be 79%.

Non-GAAP earnings per share are anticipated in a band of $1.41-$1.46, lower than its previous guidance.

Free cash flow is envisioned in the range of $85-$135 million, down from $178-$182 million expected previously, due to an estimated expense of $25 million for the construction of the new company headquarters.

The guidance includes $20 million of payment to the repatriation of ObserveIT’s intellectual property and $35 million in net cash operating costs from the acquisition of ObserveIT.
Capital expenditures are expected to be approximately $94 million for 2020.

For the second quarter of 2020, Proofpoint anticipates revenues of $251-$255 million.

Non-GAAP gross margin is estimated to be 79%. Non-GAAP earnings per share are anticipated in a band of 38-41 cents.

Free cash flow is estimated in the range of break-even to $10 million.

Capital expenditures are expected to be approximately $12 million for second-quarter 2020, including $5 million for the building of Proofpoint’s new headquarters.

Zacks Rank and Stocks to Consider

Proofpoint currently carries a Zacks Rank #3 (Hold).

A few better-ranked stocks in the broader technology sector are Advanced Semiconductor Engineering Inc ASX, NeoPhotonics Corporation NPTN and Avid Technology, Inc. AVID, all sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Long-term earnings growth rate for Advanced Semiconductor, NeoPhotonics and Avid is currently pegged at 26.63%, 15% and 20%, respectively.

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