EX-99.1 2 pstgex991q42019.htm EXHIBIT 99.1 Exhibit


Exhibit 99.1
 
Pure Storage Announces Fourth Quarter and Full Year Fiscal 2019 Financial Results
 

MOUNTAIN VIEW, Calif., February 28, 2019 -- Pure Storage (NYSE: PSTG), the data solutions leader that helps innovators build a better world with data, today announced financial results for its fourth quarter and full year ended January 31, 2019.

“We finished a strong FY19, growing annual revenue 33% year over year, to over $1.3B, and we are excited about our ability to continue to deliver strong growth,” said Charles Giancarlo, Chairman and CEO, Pure Storage. “Looking ahead, we expect to drive industry leading growth, expand our product portfolio, and increase our lead in customer delight.”

Key Business and Financial Highlights:

•
Q4 Revenue; $422 million, up 24% year over year
•
Full-year revenue $1.36 billion, up 33% year over year

•
Q4 GAAP gross margin 66.5%; non-GAAP gross margin 67.6%
•
Full-year GAAP gross margin 66.4%; non-GAAP gross margin 67.6%

•
Q4 GAAP operating margin -5.9%; non-GAAP operating margin +7.4%
•
Full year GAAP operating margin -12.5%; non-GAAP operating margin +3.7%

While Q4 results were below the company’s guided ranges, they were directly impacted by two distinct items. First, a process breakdown at a contract manufacturer prevented a number of orders from shipping in the quarter. Second, Pure exceeded its expectations in selling the company’s ES2 subscription offering, which ultimately drives positive long-term economics for Pure, but resulted in lower revenue recognized in the quarter. Except for these two items, our revenue and profits would have been within our guided range.

Recent Company Highlights:

•
Following the quarter close, Pure signed a more than $100 million-dollar deal over approximately two years with a leading global systems integrator.
•
As part of Pure’s Cloud Data Services, the company announced ObjectEngineTM, redefining data protection to rapid restoration built for modern enterprises.
•
In addition, Pure launched DirectFlash™ Fabric for end-to-end NVMe and NVMe-oF support, enabling customers to improve performance of mission-critical applications and web-scale applications that traditionally have relied on direct attached storage.

“Pure delivered another strong fiscal year of growth, leverage, and scale,” said Tim Riitters, CFO, Pure Storage. “The innovative portfolio of platform, software, and cloud products Pure is bringing to market is expanding our opportunity and positioning us for long-term success.”

Fourth Quarter Fiscal 2019 Financial Highlights

The following tables summarize our consolidated financial results for the fiscal quarters ended January 31, 2019 and 2018 (in millions except percentages, per share amounts and headcount, unaudited):

1


GAAP Quarterly Financial Information
 
 
Three Months Ended January 31, 2019
 
Three Months Ended January 31, 2018
 
Y/Y Change
Revenue
 
$422.2
 
$339.9
 
24%
Gross Margin
 
66.5%
 
65.3%
 
1.2 ppts
Product Gross Margin
 
67.4%
 
66.2%
 
1.2 ppts
Support Subscription Gross Margin
 
62.5%
 
60.6%
 
1.9 ppts
Operating Loss
 
$(25.0)
 
$(18.8)
 
$(6.2)
Operating Margin
 
-5.9%
 
-5.5%
 
-0.4 ppts
Net Loss
 
$(25.8)
 
$(14.9)
 
$(10.9)
Net Loss per Share - Basic and Diluted
 
$(0.11)
 
$(0.07)
 
$(0.04)
Weighted-Average Shares
 
239.6
 
218.0
 
21.6
Headcount
 
>2,800
 
>2,100
 
~700
Non-GAAP Quarterly Financial Information
 
 
Three Months Ended January 31, 2019
 
Three Months Ended January 31, 2018
 
Y/Y Change
Gross Margin
 
67.6%
 
66.3%
 
1.3 ppts
Product Gross Margin
 
67.8%
 
66.5%
 
1.3 ppts
Support Subscription Gross Margin
 
66.8%
 
65.4%
 
1.4 ppts
Operating Income
 
$31.1
 
$24.9
 
$6.2
Operating Margin
 
7.4%
 
7.3%
 
0.1 ppts
Net Income
 
$37.0
 
$28.8
 
$8.2
Net Income per Share - Diluted
 
$0.14
 
$0.11
 
$0.03
Weighted-Average Shares - Diluted
 
263.7
 
250.8
 
12.9
 
A reconciliation between GAAP and non-GAAP information is provided at the end of this release.

Financial Outlook

Pure Storage’s first quarter fiscal 2020 guidance is as follows:

•
Revenue in the range of $327 million to $339 million, 30% Y/Y growth at the midpoint
•
Non-GAAP gross margin in the range of 65.0% to 68.0%
•
Non-GAAP operating margin in the range of -8.5% to -4.5%

Pure Storage’s full year fiscal 2020 guidance is as follows:

•
Revenue in the range of $1.735 billion to $1.805 billion, 30% Y/Y growth at the midpoint
•
Non-GAAP gross margin in the range of 65.0% to 68.0%
•
Non-GAAP operating margin in the range of 3.0% to 7.0%

All forward-looking non-GAAP financial measures contained in this section titled “Financial Outlook” exclude stock-based compensation expense, payroll tax expense related to stock-based activities, amortization of debt discount and debt issuance costs, amortization of intangible asset acquired from acquisition, any applicable anti-dilutive share count impact of our convertible debt hedge agreements and, as applicable, other special items. We have not reconciled guidance for non-GAAP gross margin and non-GAAP operating margin to their most directly comparable GAAP measures because the items that impact these measures are not within our control and/or cannot be reasonably predicted. Accordingly, a reconciliation of the non-GAAP financial measure guidance to the corresponding GAAP measures is not available without unreasonable effort.


2


Conference Call Information

Pure Storage will host a teleconference to discuss the fourth quarter and fiscal year 2019 results at 2:00 p.m. (PT) on February 28, 2019. Pure Storage will post management’s prepared remarks and supplemental earnings presentation to the investor relations website at investor.purestorage.com in advance of the conference call.

Teleconference details are as follows:

•
To Listen via Telephone: (866) 393-4306 or (734) 385-2616 (for international callers).
•
To Listen via the Internet: A live and replay audio broadcast of the conference call with corresponding slides will be available at investor.purestorage.com.
•
Replay: A telephone playback of this conference call is scheduled to be available two hours after the call ends on Thursday, February 28, 2019, through March 14, 2019. The replay will be accessible by calling (855) 859-2056 or (404) 537-3406 (for international callers), with conference ID 5479904.

Upcoming Events

Management will participate in an upcoming financial Q&A discussion at the Eighth Annual Technology Conference in New York on March 12, 2019. Pure Storage will post a link to this event on the investor relations website at investor.purestorage.com for both live and archived events.

About Pure Storage

Pure Storage (NYSE: PSTG) helps innovators build a better world with data. Pure's data solutions enable SaaS companies, cloud service providers, and enterprise and public sector customers to deliver real-time, secure data to power their mission-critical production, DevOps, and modern analytics environments in a multi-cloud environment. One of the fastest growing enterprise IT companies in history, Pure Storage enables customers to quickly adopt next-generation technologies, including artificial intelligence and machine learning, to help maximize the value of their data for competitive advantage. And with a Satmetrix-certified NPS customer satisfaction score in the top one percent of B2B companies, Pure's ever-expanding list of customers are among the happiest in the world.

Pure Storage, DirectFlash, Evergreen, FlashBlade, FlashStack, ObjectEngine and the "P" Logo mark are trademarks of Pure Storage, Inc. All other trademarks or names referenced in this document are the property of their respective owners.

Forward Looking Statements
This press release contains forward-looking statements regarding our products, business and operations, including our growth prospects and expectations regarding technology differentiation, and our outlook for the first quarter and full year fiscal 2020, and statements regarding our products, business, operations and results. Forward-looking statements are subject to known and unknown risks and uncertainties and are based on potentially inaccurate assumptions that could cause actual results to differ materially from those expected or implied by the forward-looking statements. Actual results may differ materially from the results predicted, and reported results should not be considered as an indication of future performance. The potential risks and uncertainties that could cause actual results to differ from the results predicted include, among others, those risks and uncertainties included under the captions "Risk Factors" and elsewhere in our filings and reports with the U.S. Securities and Exchange Commission, including, which are available on our investor relations website at investor.purestorage.com and on the SEC website at www.sec.gov. Additional information will also be set forth in our Annual Report on Form 10-K for the year ended January 31, 2019. All information provided in this release and in the attachments is as of February 28, 2019, and we undertake no duty to update this information unless required by law.

Non-GAAP Financial Measures

3


To supplement our condensed consolidated financial statements, which are prepared and presented in accordance with GAAP, we use the following non-GAAP financial measures: non-GAAP gross profit, non-GAAP gross margin, non-GAAP operating income (loss), non-GAAP operating margin, non-GAAP net income (loss), non-GAAP net income (loss) per share, free cash flow, free cash flow as a percentage of revenue, free cash flow without ESPP impact, and free cash flow without ESPP impact as a percentage of revenue.

We use these non-GAAP financial measures for financial and operational decision-making and as a means to evaluate period-to-period comparisons. Our management believes that these non-GAAP financial measures provide meaningful supplemental information regarding our performance and liquidity by excluding certain expenses and expenditures such as stock-based compensation expense, amortization of debt discount and debt issuance costs, and amortization of intangible asset acquired from acquisition that may not be indicative of our ongoing core business operating results. We believe that both management and investors benefit from referring to these non-GAAP financial measures in assessing our performance and when analyzing historical performance and liquidity and planning, forecasting, and analyzing future periods. The presentation of these non-GAAP financial measures is not meant to be considered in isolation or as a substitute for our financial results prepared in accordance with GAAP, and our non-GAAP measures may be different from non-GAAP measures used by other companies.

For a reconciliation of these non-GAAP financial measures to GAAP measures, please see the tables captioned "Reconciliations of non-GAAP results of operations to the nearest comparable GAAP measures" and "Reconciliation from net cash provided by operating activities to free cash flow and free cash flow without ESPP impact," included at the end of this release.

Matthew Danziger - Investor Relations, Pure Storage
ir@purestorage.com
 
Rena Fallstrom - Public relations, Pure Storage
pr@purestorage.com



4


PURE STORAGE, INC.
Condensed Consolidated Balance Sheets
(in thousands, unaudited)
 
 
 
January 31, 2019
 
January 31, 2018
 
 
 
 
 (As Adjusted*)
Assets
 
 

 
 

Current assets:
 
 

 
 

Cash and cash equivalents
 
$
447,990

 
$
244,057

Marketable securities
 
749,482

 
353,289

Accounts receivable, net of allowance of $660 and $1,062
 
378,729

 
243,001

Inventory
 
44,687

 
34,497

Deferred commissions, current
 
29,244

 
21,088

Prepaid expenses and other current assets
 
51,695

 
47,552

Total current assets
 
1,701,827

 
943,484

Property and equipment, net
 
125,353

 
89,142

Deferred commissions, non-current
 
85,729

 
66,225

Intangible assets, net
 
20,118

 
5,057

Goodwill
 
10,997

 
—

Deferred income taxes, non-current
 
1,060

 
1,060

Restricted cash
 
15,823

 
14,763

Other assets, non-current
 
12,118

 
4,264

Total assets
 
$
1,973,025

 
$
1,123,995

 
 
 
 
 
Liabilities and stockholders' equity
 
 

 
 

Current liabilities:
 
 

 
 

Accounts payable
 
$
103,462

 
$
84,420

Accrued compensation and benefits
 
99,910

 
59,898

Accrued expenses and other liabilities
 
39,860

 
27,149

Deferred revenue, current
 
266,584

 
191,229

Total current liabilities
 
509,816

 
362,696

Convertible senior notes, net
 
449,828

 
—

Deferred revenue, non-current
 
269,336

 
182,873

Other liabilities, non-current
 
6,265

 
4,025

Total liabilities
 
1,235,245

 
549,594

 
 
 
 
 
Stockholders’ equity:
 
 

 
 

Common stock and additional paid-in capital
 
1,820,067

 
1,479,905

Accumulated other comprehensive loss
 
(338
)
 
(1,917
)
Accumulated deficit
 
(1,081,949
)
 
(903,587
)
Total stockholders' equity
 
737,780

 
574,401

Total liabilities and stockholders' equity
 
$
1,973,025

 
$
1,123,995


*Prior period information has been adjusted to reflect the adoption impact of Accounting Standards Codification 606, Revenue from Contracts with Customers (ASC 606), which we adopted on February 1, 2018.

5


PURE STORAGE, INC.
Condensed Consolidated Statements of Operations
(in thousands, except per share data, unaudited)
 
 
 
Three Months Ended January 31,
 
Twelve Months Ended January 31,
 
 
2019
 
2018
 
2019
 
2018
 
 
 
 
(As Adjusted*)
 
 
 
(As Adjusted*)
Revenue:
 
 

 
 

 
 

 
 

Product
 
$
340,137

 
$
284,163

 
$
1,075,586

 
$
834,454

Support subscription
 
82,079

 
55,693

 
284,238

 
190,308

Total revenue
 
422,216

 
339,856

 
1,359,824

 
1,024,762

 
 
 
 
 
 
 
 
 
Cost of revenue:
 
 
 
 
 
 
 
 
Product (1)
 
110,762

 
95,953

 
352,054

 
275,242

Support subscription (1)
 
30,758

 
21,970

 
105,474

 
78,539

Total cost of revenue
 
141,520

 
117,923

 
457,528

 
353,781

 
 
 
 
 
 
 
 
 
Gross profit
 
280,696

 
221,933

 
902,296

 
670,981

 
 
 
 
 
 
 
 
 
Operating expenses:
 
 
 
 
 
 
 
 
Research and development (1)
 
96,630

 
75,480

 
349,936

 
279,196

Sales and marketing (1)
 
171,092

 
137,763

 
584,111

 
464,049

General and administrative (1)
 
37,934

 
27,506

 
137,506

 
95,170

Total operating expenses
 
305,656

 
240,749

 
1,071,553

 
838,415

 
 
 
 
 
 
 
 
 
Loss from operations
 
(24,960
)
 
(18,816
)
 
(169,257
)
 
(167,434
)
Other income (expense), net
 
(96
)
 
5,046

 
(8,016
)
 
11,445

Loss before provision for income taxes
 
(25,056
)
 
(13,770
)
 
(177,273
)
 
(155,989
)
Income tax provision
 
699

 
1,134

 
1,089

 
3,889

Net loss
 
$
(25,755
)
 
$
(14,904
)
 
$
(178,362
)
 
$
(159,878
)
 
 
 
 
 
 
 
 
 
Net loss per share attributable to common
   stockholders, basic and diluted
 
$
(0.11
)
 
$
(0.07
)
 
$
(0.77
)
 
$
(0.76
)
Weighted-average shares used in computing net
   loss per share attributable to common
   stockholders, basic and diluted
 
239,571

 
218,009

 
232,042

 
211,609


*Prior period information has been adjusted to reflect the adoption impact of ASC 606, which we adopted on February 1, 2018.
 
(1) Includes stock-based compensation expense as follows:
 
Cost of revenue -- product
 
$
761

 
$
732

 
$
2,951

 
$
1,630

Cost of revenue -- support subscription
 
3,438

 
2,609

 
12,378

 
9,050

Research and development
 
24,528

 
19,597

 
92,484

 
71,229

Sales and marketing
 
16,460

 
13,518

 
66,350

 
47,687

General and administrative
 
9,520

 
6,297

 
36,482

 
21,077

Total stock-based compensation expense
 
$
54,707

 
$
42,753

 
$
210,645

 
$
150,673

 


6


PURE STORAGE, INC.
Condensed Consolidated Statements of Cash Flows
(in thousands, unaudited)
 
 
 
Three Months Ended January 31,
 
Twelve Months Ended January 31,
 
 
2019
 
2018
 
2019
 
2018
 
 
 
 
(As Adjusted*)
 
 
 
(As Adjusted*)
Cash flows from operating activities
 
 

 
 

 
 

 
 

Net loss
 
$
(25,755
)
 
$
(14,904
)
 
$
(178,362
)
 
$
(159,878
)
Adjustments to reconcile net loss to net cash provided by operating activities:
 
 
 
 
 
 
 
 
Depreciation and amortization
 
19,497

 
16,219

 
70,878

 
61,744

Amortization of debt discount and debt issuance costs
 
6,617

 
—

 
21,031

 
—

Stock-based compensation expense
 
54,707

 
42,753

 
210,645

 
150,673

Other
 
(2
)
 
1,175

 
(5,039
)
 
2,054

Changes in operating assets and liabilities, net of effects of acquisition:
 
 
 
 
 
 
 
 
Accounts receivable, net
 
(73,026
)
 
(40,875
)
 
(135,649
)
 
(74,505
)
Inventory
 
4,814

 
1,719

 
(12,289
)
 
(12,595
)
Deferred commissions
 
(18,533
)
 
(14,009
)
 
(27,660
)
 
(27,978
)
Prepaid expenses and other assets
 
(8,968
)
 
(23,687
)
 
(6,972
)
 
(23,799
)
Accounts payable
 
2,493

 
17,470

 
14,293

 
29,278

Accrued compensation and other liabilities
 
44,218

 
26,263

 
51,810

 
26,622

Deferred revenue
 
74,732

 
46,876

 
161,737

 
101,140

Net cash provided by operating activities
 
80,794

 
59,000

 
164,423

 
72,756

 
 
 
 
 
 
 
 
 
Cash flows from investing activities
 
 
 
 
 
 
 
 
Purchases of property and equipment
 
(29,439
)
 
(20,709
)
 
(100,246
)
 
(65,060
)
Acquisition, net of cash acquired
 
—

 
—

 
(13,899
)
 
—

Purchase of other investment
 
(5,000
)
 
—

 
(5,000
)
 
—

Purchases of marketable securities
 
(107,109
)
 
(50,658
)
 
(665,357
)
 
(202,656
)
Sales of marketable securities
 
1,076

 
20,422

 
19,878

 
66,489

Maturities of marketable securities
 
97,231

 
45,047

 
253,280

 
144,068

Net cash used in investing activities
 
(43,241
)
 
(5,898
)
 
(511,344
)
 
(57,159
)
 
 
 
 
 
 
 
 
 
Cash flows from financing activities
 
 
 
 
 
 
 
 
Net proceeds from exercise of stock options
 
4,429

 
8,916

 
47,771

 
24,677

Proceeds from issuance of common stock under employee stock purchase plan
 
—

 
—

 
33,444

 
22,137

Proceeds from issuance of convertible senior notes, net of issuance costs
 
—

 
—

 
562,062

 
—

Payment for purchase of capped calls
 
—

 
—

 
(64,630
)
 
—

Repayment of debt acquired from acquisition
 
—

 
—

 
(6,101
)
 
—

Tax withholding on vesting of restricted stock
 
(632
)
 
—

 
(632
)
 
—

Repurchase of common stock
 
—

 
—

 
(20,000
)
 
—

Net cash provided by financing activities
 
3,797

 
8,916

 
551,914

 
46,814

Net increase in cash and cash equivalents and restricted cash
 
41,350

 
62,018

 
204,993

 
62,411

Cash, cash equivalents and restricted cash, beginning of period
 
422,463

 
196,802

 
258,820

 
196,409

Cash, cash equivalents and restricted cash, end of period
 
$
463,813

 
$
258,820

 
$
463,813

 
$
258,820


*Prior period information has been adjusted to reflect the adoption impact of ASC 606 and ASU No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash, which we adopted on February 1, 2018.

7


Reconciliations of non-GAAP results of operations to the nearest comparable GAAP measures

The following table presents non-GAAP gross margins by revenue source before certain items (in thousands except percentages, unaudited):

 
Three Months Ended January 31, 2019
 
Three Months Ended January 31, 2018 (As Adjusted*)
 
GAAP
results
 
GAAP
gross
margin (a)
 
Adjustment
 
Non-
GAAP
results
 
Non-
GAAP
gross
margin (b)
 
GAAP
results
 
GAAP
gross
margin (a)
 
Adjustment
 
Non-
GAAP
results
 
Non-
GAAP
gross
margin (b)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
$
761

(c)
 
 
 
 
 
 
 
 
$
732

(c)
 
 
 
 
 
 
 
 
10

(d)
 
 
 
 
 
 
 
 
8

(d)
 
 
 
 
 
 
 
 
632

(e)
 
 
 
 
 
 
 
 
—

 
 
 
 
Gross profit --
   product
$
229,375

 
67.4
%
 
$
1,403

 
$
230,778

 
67.8
%
 
$
188,210

 
66.2
%
 
$
740

 
$
188,950

 
66.5
%
 
 

 
 

 
 
 
 
 
 

 
 

 
 

 
 
 
 

 
 

 
 
 
 
 
$
3,438

(c)
 
 
 
 
 
 
 
 
$
2,609

(c)
 
 
 
 
 
 
 
 
63

(d)
 
 
 
 
 
 
 
 
82

(d)
 
 
 
Gross profit --
   support subscription
$
51,321

 
62.5
%
 
$
3,501

 
$
54,822

 
66.8
%
 
$
33,723

 
60.6
%
 
$
2,691

 
$
36,414

 
65.4
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

 
 

 
$
4,199

(c)
 
 
 

 
 

 
 

 
$
3,341

(c)
 

 
 
 
 
 
 
 
73

(d)
 
 
 
 
 
 
 
 
90

(d)
 
 
 
 
 
 
 
 
632

(e)
 
 
 
 
 
 
 
 
—

 
 
 
 
Total gross profit
$
280,696

 
66.5
%
 
$
4,904

 
$
285,600

 
67.6
%
 
$
221,933

 
65.3
%
 
$
3,431

 
$
225,364

 
66.3
%

*Prior period information has been adjusted to reflect the adoption impact of ASC 606, which we adopted on February 1, 2018.
 
(a) GAAP gross margin is defined as GAAP gross profit divided by revenue.
(b) Non-GAAP gross margin is defined as non-GAAP gross profit divided by revenue.
(c) To eliminate stock-based compensation expense.
(d) To eliminate payroll tax expense related to stock-based activities.
(e) To eliminate amortization expense of acquired intangible assets.


8



The following table presents certain non-GAAP consolidated results before certain items (in thousands, except per share amounts and percentages, unaudited):

 
Three Months Ended January 31, 2019
 
Three Months Ended January 31, 2018 (As Adjusted*)
 
GAAP
results
 
GAAP
operating
margin (a)
 
Adjustment
 
Non-
GAAP
results
 
Non-
GAAP
operating
margin (b)
 
GAAP
results
 
GAAP
operating
margin (a)
 
Adjustment
 
Non-
GAAP
results
 
Non-
GAAP
operating
margin (b)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
$
54,707

(c)
 
 
 
 
 
 
 
 
$
42,753

(c)
 
 
 
 
 
 
 
 
763

(d)
 
 
 
 
 
 
 
 
973

(d)
 
 
 
 
 
 
 
 
632

(e)
 
 
 
 
 
 
 
 
—

 
 
 
 
Operating income (loss)
$
(24,960
)
 
-5.9
 %
 
$
56,102

 
$
31,142

 
7.4
%
 
$
(18,816
)
 
-5.5
 %
 
$
43,726

 
$
24,910

 
7.3
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

 
 

 
$
54,707

(c)
 

 
 

 
 

 
 

 
$
42,753

(c)
 
 
 

 
 
 
 
 
763

(d)
 
 
 
 
 
 
 
 
973

(d)
 
 
 
 
 
 
 
 
632

(e)
 
 
 
 
 
 
 
 
—

 
 
 
 
 
 
 
 
 
6,616

(f)
 
 
 
 
 
 
 
 
—

 
 
 
 
Net income (loss)
$
(25,755
)
 
 

 
$
62,718

 
$
36,963

 
 

 
$
(14,904
)
 
 

 
$
43,726

 
$
28,822

 
 

Net income (loss) per share -- diluted
$
(0.11
)
 
 

 
 

 
$
0.14

 
 

 
$
(0.07
)
 
 

 
 

 
$
0.11

 
 

Weighted-average shares used in per share calculation -- diluted
239,571

 
 

 
24,097

(g)
263,668

 
 

 
218,009

 
 

 
32,752

(g)
250,761

 
 


*Prior period information has been adjusted to reflect the adoption impact of ASC 606, which we adopted on February 1, 2018.
  
(a) GAAP operating margin is defined as GAAP operating loss divided by revenue.
(b) Non-GAAP operating margin is defined as non-GAAP operating income divided by revenue.
(c) To eliminate stock-based compensation expense.
(d) To eliminate payroll tax expense related to stock-based activities.
(e) To eliminate amortization expense of acquired intangible assets.
(f) To eliminate amortization expense of debt discount and debt issuance costs related to our convertible debt.
(g) To include effect of dilutive securities (employee stock options, restricted stock, and shares from employee stock purchase plan (ESPP)).


















9


Reconciliation from net cash provided by operating activities to free cash flow and free cash flow without ESPP impact (in thousands except percentages, unaudited):

 
 
Three Months Ended January 31,
 
 
2019
 
2018
Net cash provided by operating activities
 
$
80,794

 
$
59,000

Less: purchases of property and equipment
 
(29,439
)
 
(20,709
)
Free cash flow (non-GAAP)
 
$
51,355

 
$
38,291

Adjust: ESPP Impact
 
(17,027
)
 
(11,495
)
Free cash flow without ESPP impact (non-GAAP)
 
$
34,328

 
$
26,796

 
 
 
 
 
Free cash flow as % of revenue
 
12.2
%
 
11.3
%
Free cash flow without ESPP Impact as % of revenue
 
8.1
%
 
7.9
%

10