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Proofpoint (PFPT) Q1 Loss Narrows, 2017 Guidance Revised Up

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Shares of Proofpoint Inc. (PFPT - Free Report) went up sharply in the after-hour trade and bounced back from a steep drop during the normal trading session as the computer security software firm reported better-than-expected first-quarter top-line results and raised its outlook for 2017. Moreover, although the company’s bottom-line results fell short of our estimates, it witnessed a strong year-over-year improvement.

Notably, the late-hour trading jump came after an 8.5% fall registered during the normal trading session after Jayson Noland – analyst at R.W. Baird – downgraded the company’s rating on the stock to Neutral, yesterday morning.

In the last one year, Proofpoint outperformed the Zacks categorized Computer Software industry. The stock returned approximately 34.7% in the said period, outperforming the industry’s gain of just 21.9%.

Quarter in Detail

Proofpoint reported total revenue of $113.3 million, up 43.3% year over year, mainly driven by customer additions, improved add-on-sales and strong renewal rate. The company’s revenues also surpassed the Zacks Consensus Estimate of $110 million and also came ahead of its own guidance range of $109–$111 million.

Total billings during the quarter also jumped 40% year over year to $137.4 million. Renewal rates also remain well over 90% during the first quarter.

Adjusted gross profit (excluding all one-time items but including stock-based compensation) increased 49.3% from the year-ago quarter to $84.1 million. Moreover, adjusted gross margin expanded 290 basis points (bps) to 74.2%, primarily driven by higher sales.

Furthermore, the company efficiently managed its operating expenses this quarter. As a percentage of revenues, adjusted operating expenses declined to 87.7% from 97.8% in the year-ago quarter. In dollar terms, however, the figure increased 28.5% to $99.3 million.

Owing to higher revenues and efficient cost management, Proofpoint’s operating loss for the quarter narrowed year over year to $15.3 million from $21 million in first-quarter 2016.

The company’s adjusted loss per share also narrowed year over year to 38 cents from 54 cents posted in the year-ago quarter. The year-over-year improvement was primarily stemmed by strong top-line growth and efficient cost management, which were partially offset by higher share counts. However, Proofpoint’s adjusted loss was higher than the Zacks Consensus Estimate of a loss of 35 cents.

Proofpoint, Inc. Price, Consensus and EPS Surprise


Proofpoint, Inc. Price, Consensus and EPS Surprise | Proofpoint, Inc. Quote

Balance Sheet & Cash Flow

Proofpoint exited the quarter with cash and cash equivalents, and short-term investments of approximately $412.9 million, slightly up from the previous quarter balance of $396.8 million. Accounts receivable were $62.4 million compared with $73 million at the end of fourth-quarter 2016.

During the quarter, the company generated cash flow of $40.5 million. Free cash flow for the quarter came in at $28.2 million.


Buoyed by the better-than-expected top-line result, Proofpoint provided encouraging outlook for the second quarter and raised guidance for the full year. For 2017, the company now anticipates revenues in the range of $496–$500 million, up from the earlier guidance range of $488–$492 million. Billings’ guidance for the year has also been revised upward and is now anticipated to come between $619.0 million and $623.0 million. Earlier it was projected to remain in the range of $611–$615 million.

Similarly, non-GAAP earnings per share are now expected to come between 56 cents and 59 cents, up from the previous guidance range of 49–52 cents. Free cash flow for the year is now projected to be in the range of $98–$106 million, up from the earlier projection of $95–$105 million. The company intends to incur capital expenditure in the range of $40–$42 million in 2017.

Coming to the second-quarter outlook, the company anticipates reporting revenues in the range of $118–120 million, and billings between $141 million and $143 million. Currently, the Zacks Consensus Estimate for revenues is pegged at $118.9 million.

Further, Proofpoint anticipates reporting loss in the range of 61–69 cents per share on a GAAP basis, while earnings are estimated between 11 cents and 13 cents on non-GAAP basis. Free cash flow is projected to be in the range of $11–$12 million.

Our Take

Proofpoint reported mixed results for first-quarter 2017, wherein its top line fared better than the Zacks Consensus Estimate but the bottom line didn’t. However, on a year-over-year basis, the company witnessed improvement on both the counts. Furthermore, an optimistic second-quarter outlook and upbeat full-year guidance are encouraging.

Proofpoint is a leading security-as-a-service provider that focuses on cloud-based solutions for threat protection, compliance, archiving & governance, and secure communications. The company’s sustained focus on launching products, acquisitions and partnerships have helped it to register over 40% revenue growth consistently for the last few quarters.

Nonetheless, since it continues to invest in sales and marketing, we anticipate this to remain a drag on the company’s bottom line in the near term. Intensifying competition and an uncertain macroeconomic environment add to its woes.

Currently, Proofpoint carries a Zacks Rank #3 (Hold).

Some better-ranked stocks worth considering in the Computer Software industry are DST Systems Inc. , Avid Technology Inc. (AVID - Free Report) and Imperva Inc. (IMPV - Free Report) .

Sporting a Zacks Rank #1 (Strong Buy), DST Systems witnessed an upward estimate revision in the last 30 days and has a long-term expected EPS growth rate of 10%.You can see the complete list of today’s Zacks #1 Rank stocks here.

Avid Technology carries a Zacks Rank #2 (Buy) and witnessed an upward estimate revision in the past 30 days.

Imperva also carries a Zacks Rank #2 and has a long-term expected EPS growth rate of 21.7%.

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