SOURCE: ArcSight

ArcSight

March 05, 2009 16:02 ET

ArcSight Reports 32% Year-Over-Year Growth for Fiscal Third Quarter Ended January 31, 2009

Company Posts Total Revenues of $36.4M for Fiscal Third Quarter and GAAP and Non-GAAP Earnings per Diluted Share of $0.15 and $0.21, Respectively

For the Fiscal Third Quarter:

-- Total Revenue: $36.4M, a 32% Increase Year-Over-Year

-- GAAP Net Income: $5.1M or $0.15 per Diluted Share

-- Non-GAAP Net Income: $6.9M or $0.21 per Diluted Share

-- Positive Cash Flows From Operations: $7.8M

CUPERTINO, CA--(Marketwire - March 5, 2009) - ArcSight, Inc. (NASDAQ: ARST), a leading global provider of compliance and security management solutions that protect enterprises and government agencies, today announced financial results for its fiscal third quarter ended January 31, 2009.

For the third quarter of fiscal 2009, ArcSight reported total revenues of $36.4 million compared to total revenues of $27.7 million reported in the third quarter of fiscal 2008. Net income on a GAAP basis for the third quarter of fiscal 2009 was $5.1 million, or $0.15 per diluted share, including $210,000 in amortization of intangible assets and $1.7 million in stock-based compensation expense. This compares to a GAAP net income of $2.4 million, or $0.09 per diluted share, reported in the third quarter of fiscal 2008, including $144,000 in amortization of intangible assets and $1.3 million in stock-based compensation expense.

Non-GAAP net income for the third quarter of fiscal 2009 was $6.9 million, or $0.21 per diluted share, excluding the above-mentioned amortization and stock-based compensation charges. This compares to a non-GAAP net income of $3.8 million, or $0.14 per diluted share, reported in the third quarter of fiscal 2008, excluding the above-mentioned charges.

During the third quarter of fiscal 2009, the company generated $7.8 million in cash from operations and closed the third quarter with cash and cash equivalents of $82.9 million.

"Enterprises and government agencies place great value on protecting their businesses, assets, and services whether in robust or difficult economic times. In our view, this important and resilient value proposition is supported by our continued strong growth in our first year as a public company," commented Tom Reilly, president and CEO of ArcSight. "We believe that our success this past quarter reflects how ArcSight's compliance and security management solutions can help our customers cost-effectively secure their businesses while enabling them to meet the expectations of auditors."

For the nine month period ended January 31, 2009, ArcSight reported total revenues of $96.9 million, an increase of 34% over $72.2 million reported for the same period of fiscal 2008. GAAP net income for the nine month period ended January 31, 2009 was $5.6 million, or $0.17 per diluted share, including $631,000 in amortization of intangible assets and $4.6 million in stock-based compensation expense. This compares to a net loss of $0.9 million, or $0.09 per basic and diluted share, reported in the same period in 2008, including $430,000 in amortization of intangible assets and $3.4 million in stock-based compensation expenses.

Non-GAAP net income for the nine month period of fiscal 2009 was $10.8 million, or $0.32 per diluted share, excluding the above-mentioned charges. This compares to a non-GAAP net income of $2.9 million, or $0.11 per diluted share, reported in the same period of fiscal 2008, excluding the above-mentioned charges.

Business Outlook

The following forward-looking statements reflect expectations as of March 5, 2009. Results may be materially different and could be affected by the factors detailed in this release and in recent ArcSight SEC filings.

Fourth Quarter Expectations -- Ending April 30, 2009

Based on current business trends and the visibility the company has from third quarter performance, ArcSight expects revenue for the fourth quarter of fiscal 2009 to be in the range of $34 million to $38 million, representing growth in the range of 16-29% over the same quarter of fiscal 2008.

ArcSight expects non-GAAP net income for the fourth quarter of fiscal 2009 to be in the range of $3.0 million to $5.1 million, or $0.09 to $0.15 cents per diluted share, which excludes stock-based compensation expense and amortization of intangibles.

Full Year Expectations -- Fiscal Year Ending April 30, 2009

For fiscal 2009, ArcSight expects revenue to be in the range of $130.9 million to $134.9 million and non-GAAP net income in the range of $13.8 million to $15.9 million, or $0.41 to $0.48 cents per diluted share, excluding the above-mentioned charges.

Conference Call and Webcast Information

ArcSight will host a conference call and live webcast to discuss these financial results for investors and analysts at 2:00 p.m. Pacific Time on March 5, 2009. To access the conference call, dial 877-852-6579 for the U.S. or Canada and 719-325-4779 for international callers. The webcast will be available live on the Investor Relations section of the company's website at www.arcsight.com. An audio replay of the call will also be available to investors by phone beginning at approximately 4:00 p.m. Pacific Time on March 5, 2009 until 11:59 p.m. Pacific Time on March 12, 2009, by dialing 888-203-1112 for the U.S. or Canada or 719-457-0820 for international callers, and entering passcode 4422355. In addition, an archived webcast will be available on the Investor Relations section of the company's website at www.arcsight.com.

Use of Non-GAAP Financial Measures

ArcSight reports all financial information required in accordance with generally accepted accounting principles (GAAP). To supplement the ArcSight unaudited condensed consolidated financial statements presented in accordance with GAAP, ArcSight uses certain non-GAAP measures of financial performance. The presentation of these non-GAAP financial measures is not intended to be considered in isolation from, as a substitute for, or superior to, the financial information prepared and presented in accordance with GAAP, and may be different from non-GAAP financial measures used by other companies. In addition, these non-GAAP measures have limitations in that they do not reflect all of the amounts associated with the results of ArcSight operations as determined in accordance with GAAP. The non-GAAP financial measures used by ArcSight include historical non-GAAP net income (loss) and non-GAAP basic and diluted earnings (loss) per share. These non-GAAP financial measures exclude amortization of intangible assets and stock-based compensation from the ArcSight statement of operations.

For a description of these items, including the reasons why management adjusts for them, and reconciliations of these non-GAAP financial measures to the most directly comparable GAAP financial measures, please see the section of the accompanying tables titled "Use of Non-GAAP Financial Information" as well as the related tables that precede it. ArcSight may consider whether other significant non-recurring items that arise in the future should also be excluded in calculating the non-GAAP financial measures it uses.

ArcSight believes that these non-GAAP financial measures, when taken together with the corresponding GAAP financial measures, provide meaningful supplemental information regarding the performance of ArcSight by excluding certain items that may not be indicative of the company's core business, operating results or future outlook. ArcSight management uses, and believes that investors benefit from referring to, these non-GAAP financial measures in assessing operating results of ArcSight, as well as when planning, forecasting and analyzing future periods. These non-GAAP financial measures also facilitate comparisons of the performance of ArcSight to prior periods.

Cautionary Statement Regarding Forward Looking Statements

This news release contains forward-looking statements, including without limitation those regarding ArcSight's "Business Outlook" ("Fourth Quarter Expectations -- Ending April 30, 2009" and "Full Year Expectations -- Fiscal Year Ending April 30, 2009"); ArcSight's belief that its continued strong growth in its first year as a public company is supported by the great value that enterprises and government agencies place on protecting their businesses, assets, and services whether in robust or difficult economic times, and ArcSight's belief that its success this past quarter reflects how ArcSight's compliance and security management solutions can help its customers cost-effectively secure their businesses while enabling them to meet the expectations of auditors. These forward-looking statements are subject to material risks and uncertainties that may cause actual results to differ substantially from expectations. Investors should consider important risk factors, which include: the risk that demand for enterprise risk compliance management solutions may not increase and may decrease; the risk that competitors may be perceived by customers to be better positioned to help handle compliance violations and security threats and protect their businesses from major risk; the risk that the growth of ArcSight may be lower than anticipated; and other risks detailed under the caption "Risk Factors" in the ArcSight Annual Report on Form 10-K filed with the Securities and Exchange Commission, or the SEC, on July 22, 2008 and the company's other filings with the SEC. You can obtain copies of the company's Annual Report on Form 10-K and its other SEC filings on the SEC's website at www.sec.gov.

The foregoing information represents the company's outlook only as of the date of this press release, and ArcSight undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information, new developments or otherwise.

About ArcSight

ArcSight (NASDAQ: ARST) is a leading global provider of compliance and security management solutions that protect enterprises and government agencies. ArcSight helps customers comply with corporate and regulatory policy, safeguard their assets and processes, and control risk. The ArcSight platform collects and correlates user activity and event data across the enterprise so that businesses can rapidly identify, prioritize, and respond to compliance violations, policy breaches, cybersecurity attacks, and insider threats. For more information, visit www.arcsight.com. (ARST-IR)

© 2009 ArcSight, Inc. All rights reserved. ArcSight and the ArcSight logo are trademarks of ArcSight, Inc.




                              ARCSIGHT, INC.
                  Condensed Consolidated Balance Sheets
                              (In thousands)


                                                     As of        As of
                                                  January 31,   April 30,
                                                      2009         2008
                                                  -----------  -----------
                                                  (Unaudited)
                                                  -----------
Assets
Current assets:
    Cash and cash equivalents                     $    82,891  $    71,946
    Accounts receivable, net                           22,223       26,658
    Other prepaid expenses and current assets           3,176        5,565
                                                  -----------  -----------
Total current assets                                  108,290      104,169

Property and equipment, net                             4,749        4,834
Goodwill                                                5,746        5,746
Acquired intangibles assets, net                        1,530        2,161
Other long-term assets                                  1,391        1,669
                                                  -----------  -----------
Total assets                                      $   121,706  $   118,579
                                                  ===========  ===========

Liabilities and stockholders' equity
Current liabilities:
    Accounts payable                              $     1,230  $     3,115
    Accrued compensation and benefits                   7,757       11,864
    Other accrued liabilities                           6,485        5,967
    Deferred revenues, current                         33,524       36,512
                                                  -----------  -----------
                 Total current liabilities             48,996       57,458

Deferred revenues, non-current                          3,970        4,754
Other long-term liabilities                             1,687        1,598
                                                  -----------  -----------
                 Total liabilities                     54,653       63,810

Stockholders' equity:
    Additional paid-in capital                        108,531      101,574
    Deferred stock-based compensation                       -          (53)
    Accumulated other comprehensive loss                 (349)         (45)
    Accumulated deficit                               (41,129)     (46,707)
                                                  -----------  -----------
Total stockholders' equity                             67,053       54,769
                                                  -----------  -----------
Total liabilities and stockholders' equity        $   121,706  $   118,579
                                                  ===========  ===========




                              ARCSIGHT, INC.
              Condensed Consolidated Statement of Operations
                            (On a GAAP basis)
                 (In thousands, except per share amounts)
                                (Unaudited)



                                      For the Three        For the Nine
                                       Months Ended        Months Ended
                                    ------------------- ------------------
                                    January   January   January   January
                                       31,       31,       31,       31,
                                      2009      2008      2009      2008
                                    --------- --------  --------  --------

Revenues:
   Products                         $  21,775 $ 17,698  $ 56,746  $ 45,573
   Maintenance                         10,004    7,380    28,102    19,627
   Services                             4,613    2,593    12,042     6,969
                                    --------- --------  --------  --------
     Total revenues                    36,392   27,671    96,890    72,169
Cost of revenues:
   Products                             2,637    1,487     6,136     3,301
   Maintenance(1)                       1,637    1,456     4,931     4,083
   Services(1)                          2,587    1,454     7,017     3,894
                                    --------- --------  --------  --------
     Total cost of revenues             6,861    4,397    18,084    11,278
                                    --------- --------  --------  --------
Gross profit                           29,531   23,274    78,806    60,891
Operating expenses(1):
  Research and development              5,201    5,063    15,939    14,170
  Sales and marketing                  12,298   12,760    41,521    37,367
  General and administrative            4,943    2,939    14,155     9,927
                                    --------- --------  --------  --------
     Total operating expenses          22,442   20,762    71,615    61,464
                                    --------- --------  --------  --------
           Income (loss) from
            operations                  7,089    2,512     7,191      (573)
Interest income                           154      158       909       422
Other income and expense, net               3      (60)     (107)     (284)
                                    --------- --------  --------  --------
Income (loss) before provision for
 income taxes                           7,246    2,610     7,993      (435)
Provision for income taxes              2,183      257     2,415       514
                                    --------- --------  --------  --------
Net income (loss)                   $   5,063 $  2,353  $  5,578  $   (949)
                                    ========= ========  ========  ========

Net income (loss) per common share,
 basic                              $    0.16 $   0.22  $   0.18  $  (0.09)
                                    ========= ========  ========  ========
Net income (loss) per common share,
 diluted                            $    0.15 $   0.09  $   0.17  $  (0.09)
                                    ========= ========  ========  ========

Shares used in computing basic net
 income (loss) per common share        31,499   10,829    31,115    10,609
                                    ========= ========  ========  ========
Shares used in computing diluted
 net income (loss) per common share    33,494   27,458    33,324    10,609
                                    ========= ========  ========  ========


(1) Stock-based compensation
    expense as included in above
Cost of maintenance revenues               56       24       156        62
Cost of services revenues                  34       23       106        69
Research and development                  322      293       995       940
Sales and marketing                       466      771     1,969     1,912
General and administrative                786      171     1,366       432




                              ARCSIGHT, INC.
                   Consolidated Statement of Operations
                    (GAAP to Non-GAAP Reconciliation)
                 (In thousands, except per share amounts)
                                (Unaudited)




                                          For the Three     For the Nine
                                          Months Ended      Months Ended
                                        ----------------- -----------------
                                        January  January  January  January
                                           31,      31,      31,      31,
                                          2009     2008     2009     2008
                                        -------- -------- -------- -------

GAAP net income (loss)                  $  5,063 $  2,353 $  5,578 $  (949)
Plus:
      a) Stock-based compensation
          expenses                         1,664    1,282    4,592   3,415
      b) Amortization of intangibles         210      144      631     430
                                        -------- -------- -------- -------
Non-GAAP net income                     $  6,937 $  3,779 $ 10,801 $ 2,896
                                        ======== ======== ======== =======


GAAP net income (loss) per common
 share, basic                           $   0.16 $   0.22 $   0.18 $ (0.09)
Plus:
      a) Stock-based compensation
          expenses                          0.05     0.12     0.15    0.32
      b) Amortization of intangibles        0.01     0.01     0.02    0.04

                                        -------- -------- -------- -------
Non-GAAP net income (loss), basic       $   0.22 $   0.35 $   0.35 $  0.27
                                        ======== ======== ======== =======
Non-GAAP net income (loss), diluted     $   0.21 $   0.14 $   0.32 $  0.11
                                        ======== ======== ======== =======

Shares used in computing basic net
 income (loss) per common share           31,499   10,829   31,115  10,609
                                        ======== ======== ======== =======
Shares used in computing diluted net
 income (loss) per common share           33,494   27,458   33,324  27,409
                                        ======== ======== ======== =======


Use of Non-GAAP Financial Information

In addition to the reasons stated above, which are generally applicable to each of the items ArcSight excludes from its non-GAAP financial measures, ArcSight believes it is appropriate to exclude certain items for the following reasons:

Amortization of Intangibles. When analyzing the operating performance of an acquired entity, ArcSight management focuses on the total return provided by the investment (i.e., operating profit generated from the acquired entity as compared to the purchase price paid) without taking into consideration any allocations made for accounting purposes. Because the purchase price for an acquisition necessarily reflects the accounting value assigned to intangible assets (including acquired in-process technology and goodwill), when analyzing the operating performance of an acquisition in subsequent periods, ArcSight management excludes the GAAP impact of the amortization of acquired intangible assets to its financial results. ArcSight believes that such an approach is useful in understanding the long-term return provided by an acquisition and that investors benefit from a supplemental non-GAAP financial measure that excludes the accounting amortization expense associated with acquired intangible assets.

In addition, in accordance with GAAP, ArcSight generally recognizes expenses for internally-developed intangible assets as they are incurred until technological feasibility is reached, notwithstanding the potential future benefit such assets may provide. Unlike internally developed intangible assets, however, and also in accordance with GAAP, ArcSight generally capitalizes the cost of acquired intangible assets and recognizes that cost as an expense over the useful lives of the assets acquired (other than goodwill, which is not amortized, and acquired in-process technology, which is expensed immediately, as required under GAAP). As a result of their GAAP treatment, there is an inherent lack of comparability between the financial performance of internally developed intangible assets and acquired intangible assets. Accordingly, ArcSight believes it is useful to provide, as a supplement to its GAAP operating results, a non-GAAP financial measure that excludes the amortization of acquired intangibles.

Stock-Based Compensation. When evaluating the performance of its consolidated results, ArcSight does not consider stock-based compensation charges. Likewise, the ArcSight management team excludes stock-based compensation expense from its operating plans. In contrast, the ArcSight management team is held accountable for cash-based compensation and such amounts are included in its operating plans. Further, when considering the impact of equity award grants, ArcSight places a greater emphasis on overall stockholder dilution rather than the accounting charges associated with such grants.

ArcSight believes it is useful to provide a non-GAAP financial measure that excludes stock-based compensation in order to better understand the long-term performance of its business.