A month has gone by since the last earnings report for Proofpoint . Shares have lost about 11.8% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Proofpoint due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
Proofpoint Q1 Results Surpass Estimates
Proofpoint reported first-quarter 2019 non-GAAP earnings of 40 cents per share (34 cents as calculated under SEC C&DI 102.11), which outpaced the Zacks Consensus Estimate of 34 cents (meeting the estimate per the new accounting standards). The bottom line also came ahead of the year-ago quarter figure of 30 cents.
Proofpoint reported total revenues of $203 million, up 25% year over year. The top line also surpassed the consensus estimate of $200 million.
The strong top-line growth can be attributed to the sturdy enterprise cloud adoption and a solid progress in the emerging products. High renewal rates were another tailwind.
Top-Line Details
Total billings during the quarter under review jumped 15% year over year to $215 million. Also, renewal rates again soared above 90%.
Subscription revenues (98.3% of total revenues) during the quarter came in at $199.6 million, up 26%. Hardware and services revenues (1.7%), however, decreased 8.7% year over year to $3.4 million.
On the basis of solutions, revenues from Advanced Threat (75%), which includes Targeted Attack Protection or TAP offering, rose 22% from the year-earlier quarter to $151.3 million, and Compliance revenues (25%) of $51.6 million surged 33%.
Management mentioned that the new offerings have expanded the total addressable market by more than $6 billion and are proving to be a key growth catalyst. Emerging products, which contributed to more than 33% of total new and add-on businesses closed during the quarter under discussion, steadily surpassed the company’s remaining product portfolio. This upside was led by robust demand for Email Fraud Defense and Threat Response.
Proofpoint continues to expand abroad by dint of its international business performance, which grew 37% year over year and accounted for 19% of its total revenues in the first quarter.
Notably, the pipeline in the company’s digital risk products area remained strong with large deals, including two Fortune 500 investment and wealth management banks that added Proofpoint’s social and digital risk for 15,000 and 9,000 users, respectively.
Moreover, a large multinational company added PSAT for 140,000 users; a big European bank added PSAT for 20,000 users; a Japanese financial holding company added Threat Response and PSAT for 15,000 users; and the state hospital system bought archiving for 13,000 users. These contributed meaningfully to the overall results of the company.
Further, the constantly changing threat landscape and the ongoing transition to the cloud, especially the ongoing shift to Microsoft’s Office 365 continued to drive demand for Proofpoint’s full suite of security and compliance solutions.
Operating Details
Non-GAAP gross profit advanced 27.2% from the year-ago quarter to $159.2 million. Non-GAAP gross margin improved 100 basis points (bps) to 78%, driven by a strong revenue performance.
Proofpoint’s non-GAAP operating income for the reported quarter jumped37.1% to $22.9 million. Non-GAAP operating margin expanded 110 bps to 11.3%.
Balance Sheet & Cash Flow
Proofpoint exited the quarter with cash and cash equivalents and short-term investments of approximately $216.6 million compared with the previous quarter’s balance of $231.7 million.
During the reported period, the company generated operating cash flow of $54.1 million. Free cash flow for the same period summed $48.6 million.
Guidance
Encouraged by its strong first-quarter performance, Proofpoint raised full-year 2019 guidance. For 2019, the company expects revenues of $874-$878 million, up from the previous projection of $870-$874 million. Billings are now expected in the range of $1.062-$1.066 billion compared with $1.058-$1.062 billion guided earlier. Non-GAAP gross margin is projected to be 78%.
Non-GAAP earnings per share are now anticipated in the band of $1.43-$1.49, as calculated per C&DI 102.11 standards. Previously, the company had projected this metric at $1.60-$1.67. Free cash flow is envisioned in the range of $200-$204 million, up from $196-$200 million expected previously.
Management is confident about retaining an annual revenue growth of 20% or more while maintaining free cash flow margins in the mid-20s.
For the second quarter of 2019, Proofpoint anticipates revenues of $210-$212 million and billings of $228-$230 million.
Non-GAAP gross margin is estimated to be 78%. Non-GAAP earnings per share are anticipated in the band of 34-37 cents. Free cash flow is estimated in the range of $25-$27 million.
Management states that the full impact of the wind down of Cloudmark OEM business will be realized throughout the year.
Capital expenditures of $9 million and depreciation of $8 million are expected to remain overhangs on the margins in the second quarter.
How Have Estimates Been Moving Since Then?
Fresh estimates followed a downward path over the past two months. The consensus estimate has shifted 40.83% due to these changes.
VGM Scores
Currently, Proofpoint has a strong Growth Score of A, a grade with the same score on the momentum front. However, the stock was allocated a grade of F on the value side, putting it in the lowest quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Proofpoint has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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Proofpoint (PFPT) Down 11.8% Since Last Earnings Report: Can It Rebound?
A month has gone by since the last earnings report for Proofpoint . Shares have lost about 11.8% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Proofpoint due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
Proofpoint Q1 Results Surpass Estimates
Proofpoint reported first-quarter 2019 non-GAAP earnings of 40 cents per share (34 cents as calculated under SEC C&DI 102.11), which outpaced the Zacks Consensus Estimate of 34 cents (meeting the estimate per the new accounting standards). The bottom line also came ahead of the year-ago quarter figure of 30 cents.
Proofpoint reported total revenues of $203 million, up 25% year over year. The top line also surpassed the consensus estimate of $200 million.
The strong top-line growth can be attributed to the sturdy enterprise cloud adoption and a solid progress in the emerging products. High renewal rates were another tailwind.
Top-Line Details
Total billings during the quarter under review jumped 15% year over year to $215 million. Also, renewal rates again soared above 90%.
Subscription revenues (98.3% of total revenues) during the quarter came in at $199.6 million, up 26%. Hardware and services revenues (1.7%), however, decreased 8.7% year over year to $3.4 million.
On the basis of solutions, revenues from Advanced Threat (75%), which includes Targeted Attack Protection or TAP offering, rose 22% from the year-earlier quarter to $151.3 million, and Compliance revenues (25%) of $51.6 million surged 33%.
Management mentioned that the new offerings have expanded the total addressable market by more than $6 billion and are proving to be a key growth catalyst. Emerging products, which contributed to more than 33% of total new and add-on businesses closed during the quarter under discussion, steadily surpassed the company’s remaining product portfolio. This upside was led by robust demand for Email Fraud Defense and Threat Response.
Proofpoint continues to expand abroad by dint of its international business performance, which grew 37% year over year and accounted for 19% of its total revenues in the first quarter.
Notably, the pipeline in the company’s digital risk products area remained strong with large deals, including two Fortune 500 investment and wealth management banks that added Proofpoint’s social and digital risk for 15,000 and 9,000 users, respectively.
Moreover, a large multinational company added PSAT for 140,000 users; a big European bank added PSAT for 20,000 users; a Japanese financial holding company added Threat Response and PSAT for 15,000 users; and the state hospital system bought archiving for 13,000 users. These contributed meaningfully to the overall results of the company.
Further, the constantly changing threat landscape and the ongoing transition to the cloud, especially the ongoing shift to Microsoft’s Office 365 continued to drive demand for Proofpoint’s full suite of security and compliance solutions.
Operating Details
Non-GAAP gross profit advanced 27.2% from the year-ago quarter to $159.2 million. Non-GAAP gross margin improved 100 basis points (bps) to 78%, driven by a strong revenue performance.
Proofpoint’s non-GAAP operating income for the reported quarter jumped37.1% to $22.9 million. Non-GAAP operating margin expanded 110 bps to 11.3%.
Balance Sheet & Cash Flow
Proofpoint exited the quarter with cash and cash equivalents and short-term investments of approximately $216.6 million compared with the previous quarter’s balance of $231.7 million.
During the reported period, the company generated operating cash flow of $54.1 million. Free cash flow for the same period summed $48.6 million.
Guidance
Encouraged by its strong first-quarter performance, Proofpoint raised full-year 2019 guidance. For 2019, the company expects revenues of $874-$878 million, up from the previous projection of $870-$874 million. Billings are now expected in the range of $1.062-$1.066 billion compared with $1.058-$1.062 billion guided earlier. Non-GAAP gross margin is projected to be 78%.
Non-GAAP earnings per share are now anticipated in the band of $1.43-$1.49, as calculated per C&DI 102.11 standards. Previously, the company had projected this metric at $1.60-$1.67. Free cash flow is envisioned in the range of $200-$204 million, up from $196-$200 million expected previously.
Management is confident about retaining an annual revenue growth of 20% or more while maintaining free cash flow margins in the mid-20s.
For the second quarter of 2019, Proofpoint anticipates revenues of $210-$212 million and billings of $228-$230 million.
Non-GAAP gross margin is estimated to be 78%. Non-GAAP earnings per share are anticipated in the band of 34-37 cents. Free cash flow is estimated in the range of $25-$27 million.
Management states that the full impact of the wind down of Cloudmark OEM business will be realized throughout the year.
Capital expenditures of $9 million and depreciation of $8 million are expected to remain overhangs on the margins in the second quarter.
How Have Estimates Been Moving Since Then?
Fresh estimates followed a downward path over the past two months. The consensus estimate has shifted 40.83% due to these changes.
VGM Scores
Currently, Proofpoint has a strong Growth Score of A, a grade with the same score on the momentum front. However, the stock was allocated a grade of F on the value side, putting it in the lowest quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Proofpoint has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.