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Secure Computing Reports Q1 2008 Results SAN JOSE, CA--(MARKET WIRE)--May 1, 2008 -- Secure Computing Corporation (NasdaqGS:SCUR - News), a
leading enterprise gateway security company, today announced
first quarter
GAAP revenue of $60.7 million. This represents a 13% increase
in revenue
compared to $53.8 million in the same quarter last year.
First quarter
non-GAAP revenue was $65.7 million. This represents an 8%
increase
compared to the same quarter last year. On a GAAP basis,
net loss was
$18.4 million or $0.29 per share; excluding a litigation
charge, net loss
was $9.2 million, or $0.15 per share. First quarter non-GAAP
net income
was $5.0 million or $0.07 per fully diluted share. The company
also
generated $13.1 million of cash from operations. Billings
for the quarter
were $69.1 million, a 4% increase compared to the same quarter
last year. "We are clearly disappointed with our first quarter results and are taking the appropriate actions to improve our performance," said Dan Ryan, interim chief executive officer of Secure Computing. "These actions include reducing the company's expense plan by approximately 10 percent, while significantly increasing our focus and investments in the email and web gateway areas of our business. Going forward, we believe this plan will allow us to better capitalize on the market opportunities before us, expand our operational leverage, and ultimately provide stronger top and bottom line growth for the company." First Quarter Financial Highlights:
-- GAAP revenue for the first quarter was $60.7 million, which is a 13%
increase compared to $53.8 million in the same quarter last year. Non-GAAP
revenue for the quarter was $65.7 million and represents an 8% increase
compared to the same quarter last year.
-- GAAP gross profit in the first quarter was 71% of revenue or $43.2
million. Non-GAAP gross profit in the first quarter was 75% of revenue or
$49.1 million. These non-GAAP results compare to 75% of non-GAAP revenue,
or $45.4 million, in the year ago quarter and 73% of non-GAAP revenue, or
$51.1 million, in the prior quarter.
-- First quarter GAAP operating expenses were $59.7 million, or 98% of
revenue; excluding a litigation charge, operating expenses were $50.5
million, or 83% of revenue. Non-GAAP operating expenses for the quarter
were $42.8 million or 65% of non-GAAP revenue. These non-GAAP results
compare to 65% of non-GAAP revenue in the year ago quarter and 61% in the
prior quarter.
-- GAAP operating loss for the first quarter was $16.5 million; excluding
a litigation charge, operating loss was $7.3 million. First quarter non-
GAAP operating income was $6.3 million or 10% of non-GAAP revenue, compared
to 10% in the same quarter last year and 12% in the prior quarter.
-- GAAP net loss for the first quarter was $18.4 million or $0.29 per
share; excluding a litigation charge, net loss was $9.2 million, or $0.15
per share. First quarter non-GAAP net income was $5.0 million or $0.07 per
fully-diluted share, compared to non-GAAP net income of $3.4 million, or
$0.05 per fully-diluted share in the year ago quarter.
-- In the first quarter, deferred revenue increased $6.2 million, or 4%,
bringing the total deferred revenue balance to a record $174.4 million at
the end of March.
-- Days sales outstanding (DSOs) were 81 days. As we have experienced
in previous quarters, the change in DSOs from the prior quarter correlates
to the change in deferred revenue. Excluding the impact of the increase in
deferred revenue, DSOs were 72 days.
-- Total cash and restricted cash was $23.7 million at March 31, 2008.
Cash generated from operations in the quarter was $13.1 million.
Other Corporate Matters Secure Computing also announced the appointment of Steve Kozachok, as senior vice president, secretary and general counsel, reporting to Dan Ryan, effective May 5, 2008. "Steve is a seasoned professional with extensive experience in securities compliance, intellectual property, litigation and corporate governance," said Ryan. "He will be an excellent addition to our senior management team." Kozachok was associate general counsel at St. Jude Medical, where he was primarily responsible for business development efforts, including the negotiation of license agreements. Prior to joining St. Jude Medical, Kozachok was a partner with the Minneapolis-based law firm of Dorsey & Whitney, were he was lead outside merger and acquisition counsel to a Fortune 50 company. Kozachok has a J.D. from George Washington University Law School and a B.S. in economics and French from University of Notre Dame. About Secure Computing Corporation Secure Computing Corporation (NasdaqGS:SCUR - News), a leading provider of enterprise gateway security, delivers a comprehensive set of solutions that help customers protect their critical Web, email and network assets. Over half of the Fortune 50 and Fortune 500 are part of our more than 22,000 global customers, supported by a worldwide network of more than 2,000 partners. The company is headquartered in San Jose, Calif., and has offices worldwide. For more information, see http://www.securecomputing.com. Secure Computing's Outlook Publication Procedures Secure Computing publishes an Outlook section in its quarterly operating results press release. The company continues its current practice of having corporate representatives meet privately during the quarter with investors, the media, investment analysts and others. At these meetings Secure Computing refers any questions regarding the current outlook back to the quarterly results press release Outlook section. The quarterly results press release, which includes the Outlook section, is available to the public on the company's Web site (www.securecomputing.com). Unless Secure Computing is in a Quiet Period (described below), the public can continue to rely on the Outlook section that is part of this quarterly operating results press release as still being the company's current expectations on matters covered, unless Secure Computing publishes a notice stating otherwise. From the close of business on June 13, 2008, until publication of a press release regarding the second quarter 2008 operating results, Secure Computing will observe a Quiet Period. During the Quiet Period, the Outlook section and other forward-looking statements contained in this operating results press release as well as in the company's filings with the SEC, should be considered to be historical, speaking as of prior to the Quiet Period only and not subject to update by the company. During the Quiet Period, Secure Computing representatives will not comment concerning the Outlook section or Secure Computing's financial results or expectations. Current Outlook The forward-looking statements in this Outlook section are based on current expectations and are subject to risks, uncertainties and assumptions described under the sub-heading "Forward-Looking Statements." Actual results may differ materially from the expectations expressed below. On a GAAP basis for the second quarter of 2008, revenues are expected to be between $60 and $64 million and GAAP net loss, before the impact of any NOL utilization on tax expense, is expected to be $6.5 to $8.5 million. On a non-GAAP basis for the second quarter of 2008, revenues are expected to be between $63 and $67 million and non-GAAP net income is expected to be between $3.5 and $5.5 million, or $0.04 and $0.07 per fully diluted share assuming a fully diluted weighted average count of approximately 75 million. We expect to generate cash from operations in the range of $3 to $4 million. Forward-Looking Statements This release contains forward-looking statements concerning revenues, aggregate margins, profitability, shares outstanding and cash flows for the current and future quarters which are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Investors are cautioned that forward-looking statements in this release involve risks and uncertainties that could cause actual results to differ materially from current expectations. In order to meet these projections, the company must continue to obtain new enterprise relationships with major clients and overall demand for its products must continue to grow at current or greater levels. The company also must be able to motivate and retain key employees and staff current and future projects in a cost-effective manner and must effectively control its marketing, research, development and administrative costs, including personnel expenses. There can be no assurance that demand for the company's products will continue at current or greater levels, or that the company will continue to grow revenues, or be profitable. There are also risks that the company's pursuit of providing network security technology might not be successful, or that if successful, it will not materially enhance the company's financial performance; that changes in customer requirements and other general economic and political uncertainties and weaknesses in geographic regions of the world could impact the company's relationship with its customers, partners and alliances; and that delays in product development, competitive pressures or technical difficulties could impact timely delivery of next-generation products; and other risks and uncertainties that are described from time to time in Secure Computing's periodic reports and registration statements filed with the Securities and Exchange Commission. The company specifically disclaims any responsibility for updating these forward-looking statements. Use of Non-GAAP Financial Measures Secure Computing provides financial statements that are prepared in accordance with GAAP. In addition, this press release also provides financial measures of results of operations that are not calculated in accordance with GAAP. Our non-GAAP results are not meant to be considered in isolation or as a substitute for comparable GAAP measures and should be read only in conjunction with our condensed consolidated financial statements prepared in accordance with GAAP. Our Management regularly uses our supplemental non-GAAP financial measures internally to understand, manage and evaluate our historical and prospective financial performance and make operating decisions. Management also believes that these non-GAAP financial measures enhance investors' ability to evaluate the company's operating results and to compare current operating results to historical operating results. A reconciliation of the GAAP to non-GAAP financial measures for the first quarter, along with the use and economic substance of each non-GAAP financial measure, are provided at the end of this press release.
Condensed Consolidated Statement of Operations
(Unaudited, in thousands, except for per share amounts)
Three Months Ended
March 31,
2008 2007
----------- -----------
Revenues:
Products $ 29,080 $ 30,171
Services 21,026 17,400
Other (See Note) 10,597 6,201
----------- -----------
Total revenues 60,703 53,772
Cost of revenues:
Products 9,793 9,597
Services 4,182 3,485
Other (See Note) 1,588 1,089
Amortization of purchased intangibles 1,924 1,931
----------- -----------
Total cost of revenues 17,487 16,102
----------- -----------
Gross profit 43,216 37,670
Operating expenses:
Selling and marketing 30,382 28,467
Research and development 12,161 10,624
General and administrative 5,728 3,690
Amortization of purchased intangibles 2,257 2,781
Litigation 9,180 -
----------- -----------
Total operating expenses 59,708 45,562
----------- -----------
Operating loss (16,492) (7,892)
Other expense (1,095) (2,290)
----------- -----------
Loss before income tax (17,587) (10,182)
Income tax expense (790) (393)
----------- -----------
Net loss (18,377) (10,575)
Preferred stock accretion (966) (914)
----------- -----------
Net loss applicable to common shareholders $ (19,343) $ (11,489)
=========== ===========
Basic and diluted loss per share $ (0.29) $ (0.18)
Weighted average shares outstanding - basic and
diluted 67,418 65,272NOTE: For certain multiple-element arrangements we are unable to establish vendor specific objective evidence (VSOE) of fair value for the undelivered bundled elements and are therefore unable to allocate the value of the arrangement between Products and Services Revenue and have reported these revenues and corresponding cost of revenues as 'Other.'
Condensed Consolidated Balance Sheets
(In thousands)
Mar. 31, Dec. 31,
2008 2007
----------- -----------
Assets
Cash and cash equivalents $ 23,161 $ 12,084
Restricted cash 550 507
Accounts receivable, net 54,916 64,056
Inventory, net 8,344 6,725
Other current assets 18,228 16,464
----------- -----------
Total current assets 105,199 99,836
Property and equipment, net 20,752 18,595
Goodwill 528,580 528,264
Intangibles, net 57,554 61,494
Other assets, net of current portion 10,510 10,560
----------- -----------
Total assets $ 722,595 $ 718,749
=========== ===========
Liabilities and stockholders' equity
Accounts payable 13,604 12,567
Accrued payroll 10,415 9,886
Accrued expenses 16,217 7,891
Acquisition reserves 476 1,012
Deferred revenue 118,891 98,751
----------- -----------
Total current liabilities 159,603 130,107
Acquisition reserves, net of current portion 735 721
Deferred revenue, net of current portion 55,501 69,429
Deferred tax liability 9,855 8,729
Debt, net of fees 41,547 41,461
Other liabilities 1,515 1,359
----------- -----------
Total liabilities 268,756 251,806
Convertible preferred stock 70,247 69,281
Stockholders' equity
Common stock 679 673
Additional paid-in capital 569,140 564,108
Accumulated deficit (185,371) (166,028)
Accumulated other comprehensive loss (856) (1,091)
----------- -----------
Total stockholders' equity 383,592 397,662
----------- -----------
Total liabilities and stockholders' equity $ 722,595 $ 718,749
=========== ===========
Condensed Consolidated Statement of Cash Flows
(Unaudited, in thousands)
Three months ended
March 31,
2008 2007
----------- -----------
Operating activities
Net loss $ (18,377) $ (10,575)
Adjustments to reconcile net loss from
continuing operations to net cash provided by
operating activities:
Depreciation 2,391 1,556
Amortization of intangible assets 4,357 4,886
Loss on disposals of property and equipment
and intangible assets 46 28
Amortization of debt fees 86 146
Deferred income taxes 428 42
Share-based compensation 3,770 3,725
Changes in operating assets and liabilities,
excluding effects of acquisitions:
Accounts receivable 9,140 8,793
Inventories (1,619) (1,075)
Other operating assets (1,792) (473)
Accounts payable (463) (1,114)
Accrued payroll 529 (2,394)
Accrued expenses 8,450 216
Acquisition reserves (104) (362)
Deferred revenue 6,212 8,605
----------- -----------
Net cash provided by operating activities 13,054 12,004
Investing activities
Purchase of property and equipment, net (2,940) (2,884)
Increase in intangibles and other assets (351) (917)
Purchases of investments, net (26) (16)
----------- -----------
Net cash used for investing activities (3,317) (3,817)
Financing activities
Proceeds from issuance of common stock 1,268 2,837
Repayment of term debt --- (12,000)
----------- -----------
Net cash provided by/(used for) financing
activities 1,268 (9,163)
Effect of exchange rates 72 1,565
----------- -----------
Net increase in cash and cash equivalents 11,077 589
Cash and cash equivalents, beginning of period 12,084 8,249
----------- -----------
Cash and cash equivalents, end of period $ 23,161 $ 8,838
=========== ===========
Supplemental Cash Flow Disclosure
Interest paid $ 871 $ 1,916
Reconciliation of Consolidated GAAP Financial
Measures to Non-GAAP Financial Measures
(Unaudited, in thousands, except per share amounts)
Three Months Ended
March 31,
--------------------
2008 2007
--------- ---------
NET REVENUES:
GAAP net revenues $ 60,703 $ 53,772
Fair value adjustment to acquired deferred
revenue (A) 1,268 3,847
VSOE adjustments to bundled product revenue (B) 3,682 2,919
--------- ---------
Non-GAAP net revenues $ 65,653 $ 60,538
========= =========
GROSS PROFIT:
GAAP gross profit $ 43,216 $ 37,670
Fair value adjustment to acquired deferred
revenue (A) 1,268 3,847
VSOE adjustments to bundled product revenue (B) 2,533 1,700
Stock-based compensation (C) 112 288
Amortization of acquired intangible assets (D) 1,924 1,931
--------- ---------
Non-GAAP gross profit $ 49,053 $ 45,436
========= =========
OPERATING EXPENSES:
GAAP operating expenses $ 59,708 $ 45,562
Stock-based compensation (C) (3,658) (3,437)
Amortization of acquired intangible assets (D) (2,257) (2,781)
Non-recurring expenses (E) (1,843) -
Litigation (F) (9,180) -
--------- ---------
Non-GAAP operating expenses $ 42,770 $ 39,344
========= =========
OPERATING (LOSS)/INCOME:
GAAP operating loss $ (16,492) $ (7,892)
Fair value adjustment to acquired deferred
revenue (A) 1,268 3,847
VSOE adjustments to bundled product revenue (B) 2,533 1,700
Stock-based compensation (C) 3,770 3,725
Amortization of acquired intangible assets (D) 4,181 4,712
Non-recurring expenses (E) 1,843 -
Litigation (F) 9,180 -
--------- ---------
Non-GAAP operating income $ 6,283 $ 6,092
========= =========
NET (LOSS)/INCOME:
GAAP net loss $ (18,377) $ (10,575)
Fair value adjustment to acquired deferred
revenue (A) 1,268 3,847
VSOE adjustments to bundled product revenue (B) 2,533 1,700
Stock-based compensation (C) 3,770 3,725
Amortization of acquired intangible assets (D) 4,181 4,712
Non-recurring expenses (E) 1,843 -
Litigation (F) 9,180 -
Non-cash tax expense (G) 650 -
--------- ---------
Non-GAAP net income $ 5,048 $ 3,409
========= =========
WEIGHTED AVERAGE SHARES OUTSTANDING:
Weighted average shares outstanding - basic 67,418 65,272
Common stock equivalents (H) 1,233 1,202
Preferred stock as-if converted to common
stock (I) 6,136 5,840
--------- ---------
Shares used to compute net income per share -
diluted 74,787 72,314
========= =========
Non-GAAP net income per share - diluted (J) $ 0.07 $ 0.05
Reconciliation of Projected Financial
Measure to Non-GAAP Financial Measures
(Unaudited, in thousands, except per share amounts)
Three Months Ended
June 30, 2008
--------------------
REVENUES:
GAAP revenue range $ 60,000 - $ 64,000
Fair value adjustment to acquired deferred
revenue (A) 1,000
VSOE adjustments to bundled product revenue (B) 2,000
--------- ---------
Non-GAAP revenue range $ 63,000 - $ 67,000
========= =========
(LOSS)/INCOME BEFORE TAX IMPACT OF NOL
UTILIZATION
GAAP loss before taxes $ (8,500)- $ (6,500)
Fair value adjustment to acquired deferred
revenue (A) 1,000
VSOE adjustments to bundled product revenue (B) 2,500
Stock-based compensation (C) 4,000
Amortization of acquired intangibles (D) 4,500
--------- ---------
Non-GAAP income before tax impact of NOL
utilization $ 3,500 - $ 5,500
========= =========
Shares used to compute income per share 75,000 75,000
Non-GAAP income per share $ 0.04 $ 0.07Our management regularly uses these non-GAAP financial measures internally to understand, manage and evaluate our historical and prospective financial performance and make operating decisions. We believe that presentation of the non-GAAP financial measures presented above is useful to an investors' ability to evaluate the company's operating results from management's perspective and to compare current operating results to historical operating results. Disclosure of these non-GAAP financial measures also facilitates comparisons of our operating performance with the performance of other companies in our industry that supplement their GAAP results with non-GAAP financial measures that are calculated in a similar manner. Our management adjusts for each of the items noted above for the reasons described below. (A) Fair value adjustment to acquired deferred revenue. Non-GAAP revenues and gross profit include revenues associated with acquired deferred revenue that were excluded from GAAP revenue and gross profit as a result of purchase accounting adjustments to fair value. In our non-GAAP measures we have included these revenues and costs because we believe they are most reflective of our ongoing operating results and are useful for comparisons to historical operating performance. We further believe the impact of these purchase accounting adjustments will become immaterial in the near-term. (B) VSOE adjustment to bundled product revenue. GAAP revenue and gross profit is negatively impacted by product billings that were deferred because we were unable to establish VSOE of fair value of the undelivered elements that were sold with the product. Non-GAAP revenues and gross profit presented above have been adjusted to include revenues and gross profits that would have been reported had we been able to establish VSOE of fair value of the undelivered elements that were sold with those product billings. We believe these adjustments are most reflective of our ongoing operations in the current period and are useful for comparisons to historical operating performance. We further believe the impact of this item on our GAAP revenues and gross profit will become immaterial in the future. (C) Share-based compensation. Consists of expenses for employee stock options, restricted stock awards, and employee stock purchase plan determined in accordance with SFAS 123(R). We exclude these share-based compensation expenses when we review our operating performance because they represent compensation expense in the form of equity, rather than cash, and are not indicative of how we view our historical and prospective operational performance. Further, we believe it is useful to investors to understand the impact of the application of SFAS 123(R) to our results of operations. For the three months ended March 31, 2008 and 2007, share-based compensation was allocated as follows:
Three Months Ended March 31,
2008 2007
------------ ------------
Cost of revenues $ 112 $ 288
Selling and marketing 2,102 1,956
Research and development 1,001 922
General and administrative 555 559
------------ ------------
Total stock-based compensation expense $ 3,770 $ 3,725
============ ============(D) Amortization of purchased intangible assets. The amounts recorded as amortization of purchased intangible assets arise from prior acquisitions and are non-cash in nature. We exclude these expenses when we review our operating performance because we believe that although these assets contribute to our revenue generating activities, they are inconsistent in amount and frequency and are impacted by the timing and magnitude of our acquisitions. Further, they are not indicative of how we view our operating performance in the period incurred and in comparison to historical and prospective periods. For the three months ended March 31, 2008 and 2007, amortization of purchased intangibles was allocated as follows:
Three Months Ended March 31,
2008 2007
------------ ------------
Cost of revenues $ 1,924 $ 1,931
Operating expenses 2,257 2,781
------------ ------------
Total amortization of intangible assets $ 4,181 $ 4,712
============ ============(E) Non-recurring expenses. These amounts arise from severance due to sales and legal organization restructurings and legal fees incurred defending a patent lawsuit. We exclude these expenses because we believe they are not reflective of how we view our operating performance in the period incurred, are not recurring in nature and are not meaningful in evaluating our operating performance in comparison to historical operating performance. There were no non-recurring expenses for the three months ended March 31, 2007. For the three months ended March 31, 2008, non-recurring expenses were allocated as follows:
Three Months Ended March 31,
2008 2007
------------ ------------
Selling and marketing $ 57 $ -
Research and development - -
General and administrative 1,786 -
------------ ------------
Total one-time expenses and write-offs $ 1,843 $ -
============ ============(F) Litigation. This amount represents the estimated royalty damages approved in the jury's verdict for the Finjan patent lawsuit. We exclude this expense in our non-GAAP operating results because we believe it is not reflective of how we view our operating performance in the period incurred and is not recurring in nature. (G) Non-cash tax expense. These amounts represent the impact from the utilization of purchased net operating loss carry forwards and an increase in the valuation allowance that has been established against our net deferred tax asset. We exclude these expenses because they are non-cash expenses that we believe are not reflective of how we view our operating performance. (H) Common stock equivalents. Represents the common stock equivalents for stock options and restricted stock outstanding at the end of the reported period. (I) Preferred stock as-if converted to common stock. Represents the as-if conversion of outstanding preferred shares to common shares at the end of the reported period. (J) Non-GAAP net income per share. Excludes the impact of preferred stock accretion. Material Limitations Associated with Use of Non-GAAP Financial Measures The non-GAAP financial measures provided in this press release may have limitations as analytical tools, and these measures should not be considered in isolation or as a substitute for analysis of our results as reported under GAAP. Some of the limitations in relying on these non-GAAP measures are:
-- Items such as fair value adjustments to acquired deferred revenue and
VSOE adjustments to our product revenue, do not generate additional cash
and therefore should not be considered in analyzing cash flows.
-- Items such as non-recurring expenses, litigation expenses, and non-
recurring tax expenses that are excluded from non-GAAP operating results
can have a material impact on cash flows and earnings per share.
-- The adjustments for items such as stock-based compensation,
amortization of acquired intangible assets, and tax impact of NOL
utilization, though not directly affecting our cash position, do affect
earnings per share.
-- Other companies may calculate these non-GAAP measures differently than
we do, limiting the usefulness of those measures for comparative purposes.Compensation for Limitations Associated with Use of Non-GAAP Financial Measures We compensate for the limitations on our use of non-GAAP financial measures by primarily relying on our GAAP results and using non-GAAP financial measures only supplementally. We also provide detailed reconciliations of each non-GAAP financial measure to its most directly comparable GAAP measure within this press release and we encourage investors to carefully review those reconciliations. Contact: Editorial Contact:
Sarah Tolle
Email Contact
408-979-6164
Investor Contact:
Jane Underwood
Email Contact
408-979-6186
Source: Secure Computing
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