|
| ||||||||||||||
Secure Computing Reports Q2 2008 Results SAN JOSE, CA--(MARKET WIRE)--Jul 28, 2008 -- Secure Computing Corporation (SCUR - News), a
leading enterprise security company, today announced second
quarter GAAP
revenue of $61.7 million. This represents a 7% increase
in revenue
compared to $57.6 million in the same quarter last year.
Second quarter
non-GAAP revenue was $69.2 million. This represents a 9%
increase compared
to the same quarter last year. On a GAAP basis, net loss
was $11.0 million
or $0.18 per share. Second quarter non-GAAP net income was
$3.9 million or
$0.05 per fully diluted share. Billings for the quarter
were $73.9
million, a 5% increase compared to the same quarter last
year. "Despite a difficult macro-economic environment, Secure delivered a solid second quarter based on good execution across the company," said Daniel Ryan, chief executive officer of Secure Computing. "In particular, I am pleased with the strong performance of our U.S. federal government business, which represented 25% of total billings." "In the quarter we made excellent progress on directing our resources and efforts to the products and markets that should fuel Secure's growth," added Ryan. Second Quarter Financial Highlights:
-- GAAP revenue for the second quarter was $61.7 million, which is a 7%
increase compared to $57.6 million in the same quarter last year. Non-GAAP
revenue for the second quarter was $69.2 million and represents a 9%
increase compared to the same quarter last year.
-- GAAP gross profit in the second quarter was 67% of revenue or $41.1
million. Non-GAAP gross profit in the second quarter was 70% of revenue or
$48.6 million. These non-GAAP results compare to 76% of non-GAAP revenue,
or $48.1 million, in the year ago quarter and 75% of non-GAAP revenue, or
$49.1 million, in the prior quarter.
-- GAAP operating expenses for the second quarter were $51.0 million, or
83% of revenue. Non-GAAP operating expenses for the second quarter were
$43.8 million or 63% of non-GAAP revenue. These non-GAAP results compare
to 63% of non-GAAP revenue in the year ago quarter and 65% in the prior
quarter.
-- GAAP operating loss for the second quarter was $9.9 million. Non-GAAP
operating income for the second quarter was $4.8 million or 7% of non-GAAP
revenue, compared to 12% in the same quarter last year and 10% in the prior
quarter.
-- GAAP net loss for the second quarter was $11.0 million or $0.18 per
share. Non-GAAP net income for the second quarter was $3.9 million or
$0.05 per fully-diluted share, compared to non-GAAP net income of $5.0
million, or $0.07 per fully-diluted share in the year ago quarter.
-- Deferred revenue increased $11.0 million, or 6%, in the second quarter
bringing the total deferred revenue balance to a record $185.4 million at
the end of June.
-- Days sales outstanding (DSOs) were 89 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 73 days.
-- Total cash and restricted cash was $21.6 million at June 30, 2008.
Cash generated from operations in the quarter was $2.9 million.About Secure Computing Secure Computing (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 without updating or re-affirming the guidance contained in the 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). 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 the dates of this press release and the company's filings, as applicable, only and not subject to update by the company. 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 third 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 $5.5 to $7.5 million. On a non-GAAP basis for the third quarter of 2008, revenues are expected to be between $64 and $68 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 $7 to $8 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 Six Months Ended
June 30, June 30,
2008 2007 2008 2007
--------- --------- --------- ---------
Revenues:
Products $ 28,687 $ 30,722 $ 57,767 $ 60,893
Services 19,947 18,509 40,973 35,909
Other (See Note) 13,070 8,417 23,667 14,618
--------- --------- --------- ---------
Total revenues 61,704 57,648 122,407 111,420
Cost of revenues:
Products 11,959 8,960 21,752 18,557
Services 4,454 4,646 8,636 8,131
Other (See Note) 2,229 1,399 3,817 2,488
Amortization of purchased
intangibles 1,924 2,050 3,848 3,981
--------- --------- --------- ---------
Total cost of revenues 20,566 17,055 38,053 33,157
--------- --------- --------- ---------
Gross profit 41,138 40,593 84,354 78,263
Operating expenses:
Selling and marketing 30,981 29,635 61,363 58,102
Research and development 12,570 11,101 24,731 21,725
General and administrative 5,221 3,702 10,949 7,392
Amortization of purchased
intangibles 2,257 2,772 4,514 5,553
Litigation settlement --- --- 9,180 ---
--------- --------- --------- ---------
Total operating expenses 51,029 47,210 110,737 92,772
--------- --------- --------- ---------
Operating loss (9,891) (6,617) (26,383) (14,509)
Other expense (761) (1,727) (1,856) (4,017)
--------- --------- --------- ---------
Loss before income tax (10,652) (8,344) (28,239) (18,526)
Income tax expense (396) (2,604) (1,186) (2,997)
--------- --------- --------- ---------
Net loss (11,048) (10,948) (29,425) (21,523)
Preferred stock accretion (966) (924) (1,932) (1,838)
--------- --------- --------- ---------
Net loss applicable to common
shareholders $ (12,014) $ (11,872) $ (31,357) $ (23,361)
========= ========= ========= =========
Basic and diluted loss per
share $ (0.18) $ (0.18) $ (0.46) $ (0.36)
Weighted average shares
outstanding - basic and
diluted 67,915 65,756 67,667 65,518
NOTE: 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)
Jun. 30, Dec. 31,
2008 2007
--------- ---------
Assets
Cash and cash equivalents $ 21,312 $ 12,084
Restricted cash 327 507
Accounts receivable, net 61,101 64,056
Inventory, net 6,556 6,725
Other current assets 18,025 16,464
--------- ---------
Total current assets 107,321 99,836
Property and equipment, net 21,799 18,595
Goodwill 528,416 528,264
Intangibles, net 53,677 61,494
Other assets, net of current portion 11,268 10,560
--------- ---------
Total assets $ 722,481 $ 718,749
========= =========
Liabilities and stockholders' equity
Accounts payable 10,666 12,567
Accrued payroll 10,107 9,886
Accrued expenses 15,471 7,891
Acquisition reserves 454 1,012
Deferred revenue 125,462 98,751
--------- ---------
Total current liabilities 162,160 130,107
Acquisition reserves, net of current portion 657 721
Deferred revenue, net of current portion 59,888 69,429
Deferred tax liability 9,906 8,729
Debt, net of fees 41,641 41,461
Other liabilities 1,497 1,359
--------- ---------
Total liabilities 275,749 251,806
Convertible preferred stock 71,213 69,281
Stockholders' equity
Common stock 683 673
Additional paid-in capital 573,138 564,108
Accumulated deficit (197,385) (166,028)
Accumulated other comprehensive loss (917) (1,091)
--------- ---------
Total stockholders' equity 375,519 397,662
--------- ---------
Total liabilities and stockholders' equity $ 722,481 $ 718,749
========= =========
Condensed Consolidated Statement of Cash Flows
(Unaudited, in thousands)
Six months ended
June 30,
2008 2007
--------- ---------
Operating activities
Net loss $ (29,425) $ (21,523)
Adjustments to reconcile net loss from continuing
operations to net cash provided by operating
activities:
Depreciation 4,962 3,422
Amortization of intangible assets 8,761 9,927
Loss on disposals of property and equipment and
intangible assets 49 175
Amortization of debt fees 180 252
Deferred income taxes 617 1,652
Share-based compensation 6,958 8,057
Changes in operating assets and liabilities,
excluding effects of acquisitions:
Accounts receivable 2,955 8,770
Inventories 169 (489)
Other operating assets (2,547) (2,027)
Accounts payable (1,683) (919)
Accrued payroll 221 (2,059)
Accrued expenses 7,704 (158)
Acquisition reserves (177) (595)
Deferred revenue 17,170 20,174
--------- ---------
Net cash provided by operating activities 15,914 24,659
Investing activities
Purchase of property and equipment, net (8,058) (6,059)
Increase in intangibles and other assets (817) (1,498)
Sale/(purchases) of investments, net 195 (16)
--------- ---------
Net cash used in investing activities (8,680) (7,573)
Financing activities
Proceeds from issuance of common stock 2,082 3,828
Repayment of term debt --- (22,000)
--------- ---------
Net cash provided by/(used in) financing
activities 2,082 (18,172)
Effect of exchange rates (88) 1,601
--------- ---------
Net increase in cash and cash equivalents 9,228 515
Cash and cash equivalents, beginning of period 12,084 8,249
--------- ---------
Cash and cash equivalents, end of period $ 21,312 $ 8,764
========= =========
Reconciliation of Consolidated GAAP Financial
Measures to Non-GAAP Financial Measures
(Unaudited, in thousands, except per share amounts)
Three Months Ended Six Months Ended
June 30, June 30,
-------------------- --------------------
2008 2007 2008 2007
--------- --------- --------- ---------
NET REVENUES:
GAAP net revenues $ 61,704 $ 57,648 $ 122,407 $ 111,420
Fair value adjustment to
acquired deferred
revenue (A) 1,090 2,894 2,358 6,741
VSOE adjustments to
bundled product revenue (B) 6,387 3,128 10,069 6,047
--------- --------- --------- ---------
Non-GAAP net revenues $ 69,181 $ 63,670 $ 134,834 $ 124,208
========= ========= ========= =========
GROSS PROFIT:
GAAP gross profit $ 41,138 $ 40,593 $ 84,354 $ 78,263
Fair value adjustment to
acquired deferred
revenue (A) 1,090 2,894 2,358 6,741
VSOE adjustments to
bundled product revenue (B) 3,968 2,239 6,501 3,939
Stock-based compensation (C) 282 316 394 604
Amortization of acquired
intangible assets (D) 1,924 2,049 3,848 3,980
Non-recurring expenses (E) 189 - 189 -
--------- --------- --------- ---------
Non-GAAP gross profit $ 48,591 $ 48,091 $ 97,644 $ 93,527
========= ========= ========= =========
OPERATING EXPENSES:
GAAP operating expenses $ 51,029 $ 47,210 $ 110,737 $ 92,772
Stock-based compensation (C) (2,906) (4,016) (6,564) (7,453)
Amortization of acquired
intangible assets (D) (2,257) (2,772) (4,514) (5,552)
Non-recurring expenses (E) (2,054) - (3,897) -
Litigation (F) - - (9,180) -
--------- --------- --------- ---------
Non-GAAP operating
expenses $ 43,812 $ 40,422 $ 86,582 $ 79,767
========= ========= ========= =========
OPERATING (LOSS)/INCOME:
GAAP operating loss $ (9,891) $ (6,617) $ (26,383) $ (14,509)
Fair value adjustment to
acquired deferred
revenue (A) 1,090 2,894 2,358 6,741
VSOE adjustments to
bundled product revenue (B) 3,968 2,239 6,501 3,939
Stock-based compensation (C) 3,188 4,332 6,958 8,057
Amortization of acquired
intangible assets (D) 4,181 4,821 8,362 9,532
Non-recurring expenses (E) 2,243 - 4,086 -
Litigation (F) - - 9,180 -
--------- --------- --------- ---------
Non-GAAP operating
income $ 4,779 $ 7,669 $ 11,062 $ 13,760
========= ========= ========= =========
NET (LOSS)/INCOME:
GAAP net loss $ (11,048) $ (10,948) $ (29,425) $ (21,523)
Fair value adjustment to
acquired deferred
revenue (A) 1,090 2,894 2,358 6,741
VSOE adjustments to
bundled product revenue (B) 3,968 2,239 6,501 3,939
Stock-based compensation (C) 3,188 4,332 6,958 8,057
Amortization of acquired
intangible assets (D) 4,181 4,821 8,362 9,532
Non-recurring expenses (E) 2,243 - 4,086 -
Litigation (F) - - 9,180 -
Non-cash tax expense (G) 280 1,686 930 1,686
--------- --------- --------- ---------
Non-GAAP net income $ 3,902 $ 5,024 $ 8,950 $ 8,432
========= ========= ========= =========
WEIGHTED AVERAGE SHARES OUTSTANDING:
Weighted average shares
outstanding - basic 67,915 65,756 67,667 65,518
Common stock equivalents (H) 576 1,139 904 1,171
Preferred stock as-if
converted to common
stock (I) 6,212 5,913 6,212 5,913
--------- --------- --------- ---------
Shares used to compute
net income per share -
diluted 74,703 72,808 74,783 72,602
========= ========= ========= =========
Non-GAAP net income per
share - diluted (I) $ 0.05 $ 0.07 $ 0.12 $ 0.12
Reconciliation of Projected Financial
Measure to Non-GAAP Financial Measures
(Unaudited, in thousands, except per share amounts)
Three Months Ended
September 30, 2008
--------------------
REVENUES:
GAAP revenue range $ 60,000 - $ 64,000
Fair value adjustment to acquired deferred
revenue (A) 900
VSOE adjustments to bundled product revenue (B) 3,100
-------- --------
Non-GAAP revenue range $ 64,000 - $ 68,000
======== ========
(LOSS)/INCOME BEFORE TAX IMPACT OF NOL UTILIZATION
GAAP loss before taxes $ (7,500) $ (5,500)
Fair value adjustment to acquired deferred
revenue (A) 900
VSOE adjustments to bundled product revenue (B) 2,400
Stock-based compensation (C) 3,500
Amortization of acquired intangibles (D) 4,200
-------- --------
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 and six months ended June 30, 2008 and 2007, share-based compensation was allocated as follows:
Three Months Ended Six Months Ended
June 30, June 30,
------------------- -------------------
2008 2007 2008 2007
--------- --------- --------- ---------
Cost of revenues $ 282 $ 316 $ 394 $ 604
Selling and marketing 1,418 2,461 3,520 4,417
Research and development 953 1,013 1,954 1,935
General and administrative 535 542 1,090 1,101
--------- --------- --------- ---------
Total stock-based compensation
expense $ 3,188 $ 4,332 $ 6,958 $ 8,057
========= ========= ========= =========(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 can be 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 and six months ended June 30, 2008 and 2007, amortization of purchased intangibles was allocated as follows:
Three Months Ended Six Months Ended
June 30, June 30,
------------------- -------------------
2008 2007 2008 2007
--------- --------- --------- ---------
Cost of revenues $ 1,924 $ 2,049 $ 3,848 $ 3,980
Operating expenses 2,257 2,772 4,514 5,552
--------- --------- --------- ---------
Total amortization of
intangible assets $ 4,181 $ 4,821 $ 8,362 $ 9,532
========= ========= ========= =========(E) Non-recurring expenses. These amounts arise from severance due to corporate 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 incurred for the three and six months ended June 30, 2007. For the three and six months ended June 30, 2008, non-recurring expenses were allocated as follows:
Three Months Ended Six Months Ended
June 30, June 30,
------------------- -------------------
2008 2007 2008 2007
--------- --------- --------- ---------
Cost of revenues $ 189 $ - $ 189 $ -
Selling and marketing 819 - 876 -
Research and development 316 - 316 -
General and administrative 919 - 2,705 -
--------- --------- --------- ---------
Total non-recurring expense $ 2,243 $ - $ 4,086 $ -
========= ========= ========= =========(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:
Ally Zwahlen
Email Contact
925-288-4175
Investor Contact:
Jane Underwood
Email Contact
408-979-6186
Source: Secure Computing
|  | |||||||||||||
