Proofpoint (PFPT) Up 18.8% Since Earnings Report: Can It Continue?

A month has gone by since the last earnings report for Proofpoint, Inc. (NASDAQ:PFPT) . Shares have added about 18.8% in that time frame.

Will the recent positive trend continue leading up to its next earnings release, or is PFPT due for a pullback? 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 catalysts.

Proofpoint Q4 Results

Keeping its positive surprise history alive, Proofpoint 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 on both the counts.

The company reported non-GAAP earnings of 29 cents, marking an impressive year-over-year jump of 61%. Earnings also came in ahead of the Zacks Consensus Estimate of 21 cents as well as the company’s guidance of 19-21 cents per share.

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.

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.

Outlook

The company revised its full-year 2018 projections wherein it raised the revenue expectation but lowered the earnings forecast. 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. Billings expectations have 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 of 96 cents to $1.03 (mid-point 99.5 cents).

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.

The company also initiated outlook for the first quarter. Proofpoint anticipates revenues in the range of $149-151 million, and billings between $180 million and $182 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.

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.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. There has been one revision higher for the current quarter compared to five lower.

Proofpoint, Inc. Price and Consensus

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

VGM Scores

At this time, PFPT has a great Growth Score of A, though it is lagging a lot on the momentum front with an F. Following the exact same course, the stock was allocated a grade of F on the value side, putting it in the bottom 20% quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

The company's stock is suitable solely for growth based on our styles scores.

Outlook

Estimates have been broadly trending downward for the stock and the magnitude of these revisions indicates a downward shift. Interestingly, PFPT has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.