Keeping its positive surprise history alive, Proofpoint Inc. (PFPT - Free Report) , yesterday, reported solid results for fourth-quarter 2017, marking the eighth consecutive quarter of better-than-expected performance for both, the top as well as the bottom line. Also, revenues and earnings came in ahead of the company’s guidance ranges. Apart from this, Proofpoint witnessed significant year-over-year improvement in revenues and earnings.
However, the company’s outlook for the current quarter and full-year 2018 is somewhat disappointing as its revenues and non-GAAP earnings per share guidance ranges at the mid-point are pegged below analysts’ estimates. This made investors a little cautious over Proofpoint’s long-term prospects, resulting in a plunge of approximately 2.4% in the company’s shares price during after-hour trade.
Nonetheless, the company has outperformed the industry to which it belongs to over the past year. The stock has rallied 26.1% in the said period, while the industry registered 7.9% growth.
Let’s now discuss quarter results in detail.
Quarter in Detail
Proofpoint reported total revenues of $145.4 million, up 36.1% 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 $140 million as well as came in ahead of the guidance range of $138-$140 million.
Total billings during the quarter also jumped 36% year over year to $188.6 million. Also, renewal rates remained well more than 90% during the reported quarter.
Non-GAAP gross profit advanced 37.1% from the year-ago quarter to $112.9 million. Moreover, non-GAAP gross margin expanded 50 basis points (bps) to 77.6%, primarily driven by higher sales and efficiency improvements across the company’s cloud operations.
Total non-GAAP operating expenses flared up 32.9% year over year to $96.2 million mainly due to increased spending on hiring sales personnel. However, as a percentage of revenues, it decreased to 66.2% from 67.8% in the year-ago quarter.
Proofpoint’s non-GAAP operating income for the quarter increased to $16.6 million from $9.9 million reported in the year-ago quarter. In addition, non-GAAP operating margin expanded 210 basis points to 11.4%, mainly benefiting from higher revenues, improved gross margin and decreased operating expenses as a percentage of sales.
Non-GAAP net income increased to $16.4 million from $9.6 million reported in the prior-year quarter. It also came in ahead of the company’s guidance of $9.5-$10.5 million.
On a per share basis, the company reported non-GAAP earnings of 29 cents, marking an impressive year-over-year jump of 61%. Quarterly earnings also came in ahead of the Zacks Consensus Estimate of 21 cents as well as the company’s guidance range of 19-21 cents per share.
Balance Sheet & Cash Flow
Proofpoint exited the quarter with cash and cash equivalents, and short-term investments of approximately $331.6 million, up from the previous-quarter balance of $459.6 million. Accounts receivable were $109.3 million compared with $91.5 million reported at the end of third-quarter 2017.
During 2017, the company generated operating cash flow of $153.7 million. Free cash flow for the year came in at $106.7 million.
Despite a stellar fourth-quarter performance, Proofpoint’s guidance for first-quarter and full-year 2018 is not so encouraging.
For 2018, the company raised its outlook for revenues but lowered the same for non-GAAP earnings. Proofpoint now expects revenues in the range of $660-$665 million (mid-point $662.5 million), up from $644-$648 million (mid-point $646 million) predicted earlier. However, guidance range at the mid-point is below the Zacks Consensus Estimate of $663.5 million. Billings expectations has also been raised to $828-$833 million from $798-$802 million projected earlier.
Non-GAAP earnings per share are now anticipated in the band of 95 cents to $1.02 (mid-point 98.5 cents), down from the previous guidance range of 96 cents to $1.03 (mid-point 99.5 cents). Earnings expectation at the mid-point is lower than the Zacks Consensus Estimate of $1.02.
GAAP and non-GAAP gross margins are estimated to be 71% and 77%, respectively. Non-GAAP net income is projected in the range of $52-$56 million.
Free cash flow for the year is expected in the range of $138-$140 million, while capital expenditure will likely be approximately $45 million.
Coming to the first-quarter outlook, the company anticipates reporting revenues in the range of $138-140 million, and billings between $149 million and $151 million. Currently, the Zacks Consensus Estimate for revenues is pegged at approximately $147 million.
GAAP and non-GAAP gross margins are estimated to be 70% and 76%, respectively. Non-GAAP net income is projected in the range of $8-$9 million, or 15-17 cents per share. Currently, the Zacks Consensus Estimate is pegged at 18 cents.
Free cash flow is projected in the range of $22-$24 million, while capital expenditure will likely be approximately $10 million during the first quarter.
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 continued focus on launching products, acquisitions and partnerships have helped it register more than 35% revenue growth consistently for the last eight quarters.
However, a pessimistic outlook for the first quarter and full year makes us slightly cautious about its near-term prospects. Additionally, 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 #4 (Sell).
Some better-ranked stocks in the broader technology sector are NVIDIA (NVDA - Free Report) , Intel (INTC - Free Report) and Texas Instruments (TXN - Free Report) , all carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Long-term expected EPS growth rates for NVIDIA, Intel and Texas Instruments are 10.3%, 8.4% and 9.6%, respectively.
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