Proofpoint Inc. PFPT reported solid results for second-quarter 2018 wherein both the top and the bottom lines came in better than expected. This apart, Proofpoint witnessed significant year-over-year improvement on both counts.

The company reported non-GAAP earnings of 26 cents, marking an impressive year-over-year jump of 52.9%. Earnings also outpaced the Zacks Consensus Estimate of 17 cents.

Proofpoint reported total revenues of $171.9 million, up 40.5% 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 $169.8 million.

Shares of Proofpoint have returned 41% year to date, outperforming the industry’s 36.7% rally.

Top-Line Details

Total billings during the quarter climbed 35% year over year to $197.9 million. Also, renewal rates remained well more than 90% during the reported quarter.

Subscription revenues (98.3% of total revenues) during the quarter came in at $238.8 million, up 1.6% from the year-ago quarter. Hardware and services revenues (1.7%) declined 1.4% year over year to $2.9 million.

On the basis of solutions, revenues from Advanced Threat (75.2%), which includes Targeted Attack Protection or TAP offering, grew 45.7% from the year-ago quarter to $129.2 million. Compliance revenues (24.8%) rose 26.4% year over year to $42.7 million.

Management notes that robust demand for the company’s next-generation SaaS-based security and compliance platform, ongoing transition to the cloud, particularly to Microsoft’s MSFT Office 365 and the rapidly growing threat landscape to be the key growth drivers.

The company recently launched Cloud Account Defense service, in association with FireLayers, to help organizations prevent Office 365 account compromises. This is expected to expand its market further.

Management mentioned that the new offerings have expanded the total addressable market by more than $5 billion and are proving to be a key growth catalyst. Emerging products, which contributed more than 20% of the total new and add-on businesses closed during the quarter, continues to surpass the rest of its product portfolio.

Moreover, Proofpoint’s Archiving solution also demonstrated strong growth this quarter, driven by customer interest and new features such as supervision and e-discovery analytics, in sectors particularly financial services and healthcare.

Additionally, partnerships with Palo Alto Networks PANW, CyberArk CYBR, Imperva and Splunk are driving several key wins for the company.

The company is also expanding rapidly in the global market. Revenues from international business, representing 18% of total revenues, grew 57% year over year.

Proofpoint, Inc. Price, Consensus and EPS Surprise

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

Operating Details

Non-GAAP gross profit advanced 40.1% from the year-ago quarter to $132.4 million, primarily driven by higher sales. However, non-GAAP gross margin declined 10 basis points (bps) year over year to 77% but came in above management’s expectation of 76%.

Total non-GAAP operating expenses flared up 42% year over year to $117.4 million, mainly due to increased spending on hiring sales personnel and acquisition of Wombat. As a percentage of revenues, it increased to 80 bps to 68.3%.

Proofpoint’s non-GAAP operating income for the quarter increased 29.4% to $14.9 million. However, non-GAAP operating margin contracted 70 bps to 8.7%.

Balance Sheet & Cash Flow

Proofpoint exited the quarter with cash and cash equivalents, and short-term investments of approximately $134.1 million, compared with the previous-quarter balance of $117.2 million.

During the reported quarter, the company generated operating cash flow of $30.06 million. Free cash flow for the quarter came in at nearly $22 million.

Guidance

The company revised its full-year 2018 projections, wherein it raised the revenue and non-GAAP earnings expectations. Proofpoint now expects revenues of $705-$709 million, up from $702-$704 million predicted earlier.

Billings expectations have also been raised to $870-$874 million from $866-$870 million projected earlier.

Similarly, non-GAAP earnings per share are now anticipated in the band of $1.12-$1.19, up from the previous guidance of $1.00-$1.09.

The company continues to expect non-GAAP gross margin of 77% for 2018.

Free cash flow for the year is now expected in the range of $148–$150 million, up from $141-$143 million predicted earlier. Capital expenditure is likely to be approximately $40 million.

For the third quarter, Proofpoint anticipates revenues of $180-182 million and billings between $218 million and $220 million.

Non-GAAP gross margin is estimated to be 77.5%, driven by cost synergies from the shift toward new generation SaaS cloud system and operating discipline. The company expects non-GAAP earnings in the range of 25-29 cents.

Free cash flow is forecast in the range of $45-$47 million while capital expenditure will likely be $10 million in the third quarter.

Proofpoint currently carries a Zacks Rank #4 (Sell).

You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.

5 Medical Stocks to Buy Now

Zacks names 5 companies poised to ride a medical breakthrough that is targeting cures for leukemia, AIDS, muscular dystrophy, hemophilia, and other conditions.

New products in this field are already generating substantial revenue and even more wondrous treatments are in the pipeline. Early investors could realize exceptional profits.

Click here to see the 5 stocks >>

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
Palo Alto Networks, Inc. (PANW): Free Stock Analysis Report
 
CyberArk Software Ltd. (CYBR): Free Stock Analysis Report
 
Microsoft Corporation (MSFT): Free Stock Analysis Report
 
Proofpoint, Inc. (PFPT): Free Stock Analysis Report
 
To read this article on Zacks.com click here.
 
Zacks Investment Research