SOURCE: Blue Coat Systems, Inc.

Blue Coat Systems, Inc.

November 17, 2011 16:05 ET

Blue Coat Reports Results for Second Quarter Fiscal 2012

SUNNYVALE, CA--(Marketwire - Nov 17, 2011) - Blue Coat Systems, Inc. (NASDAQ: BCSI), a leading provider of Web security and WAN optimization solutions, today reported financial results for its second fiscal quarter ended October 31, 2011. Total net revenue for the second quarter of fiscal 2012 was $114.1 million compared with net revenue of $109.5 million in the first quarter of fiscal 2012 and $121.0 million in the second quarter of fiscal 2011.

"In the second quarter, we delivered better revenue results than we anticipated, which drove improved bottom line performance," said Gregory S. Clark, president and chief executive officer of Blue Coat Systems. "During the quarter we also made progress on refining our strategy and improving execution in specific areas of the Company. Importantly, we implemented initiatives to extend our leadership in Web security and to better leverage our differentiated WAN optimization capabilities."

On a GAAP basis, the Company reported net income of $4.6 million, or $0.10 per diluted share, for the second quarter of fiscal 2012, compared with net income of $2.7 million, or $0.06 per diluted share, in the first quarter of fiscal 2012 and $12.0 million, or $0.25 per diluted share, in the second quarter of fiscal 2011.

The Company reported non-GAAP net income of $9.3 million, or $0.20 per diluted share, for the second quarter of fiscal 2012, compared with non-GAAP net income of $8.4 million, or $0.18 per diluted share, in the first quarter of fiscal 2012 and $18.1 million, or $0.38 per diluted share, in the second quarter of fiscal 2011.

Cash flow provided by operations in the second quarter of fiscal 2012 was $18.1 million compared with $9.5 million in the first quarter of fiscal 2012 and $22.9 million in the second quarter of fiscal 2011. The Company ended the quarter with cash, cash equivalents, and restricted cash of $362.5 million.

Financial Outlook

For the third fiscal quarter ending January 31, 2012, the Company currently expects net revenue in the range of $113 to $120 million. On a GAAP basis, the Company currently expects net income of $0.05 to $0.13 per diluted share. On a non-GAAP basis, the Company currently expects net income of $0.19 to $0.26 per diluted share. For the third quarter of fiscal 2012, the Company is assuming a diluted share count of approximately 47.3 million shares, an expected annual effective GAAP tax rate of 38% and an expected annual effective non-GAAP tax rate of 30%.

About Non-GAAP Financial Measures

The Company uses non-GAAP financial measures for internal evaluation and to report the results of its business. These non-GAAP financial measures include non-GAAP gross profit, non-GAAP operating income, non-GAAP net income, and non-GAAP diluted net income per share. These measures are not in accordance with, nor an alternative to, U.S. generally accepted accounting principles or GAAP. These measures are intended to supplement GAAP financial information, and may be different from non-GAAP financial measures used by other companies. The Company believes that these measures provide useful information to its management, board of directors and investors regarding its ongoing operating activities and business trends related to its financial condition and results of operations. The Company believes that it is useful to provide investors with information to understand how specific line items in the statement of operations are affected by certain items, such as stock-based compensation expense, amortization of intangible assets, expenses for matters related to the stock option investigation, and restructuring expenses, and related income tax adjustments. In addition, the Company's management and board of directors use these non-GAAP financial measures in developing operating budgets and in reviewing the Company's results of operations, since such items have limited impact on their current and future operating decisions. Additionally, the Company believes that inclusion of these non-GAAP financial measures provides consistency and comparability with its past reports of financial results. However, investors should be aware that non-GAAP measures have inherent limitations and should be read in conjunction with the Company's consolidated financial statements prepared in accordance with GAAP. Refer to the accompanying tables for a detailed reconciliation of GAAP to non-GAAP gross profit, operating income, net income and diluted net income per share.

Conference Call & Webcast
Blue Coat will hold its quarterly conference call to discuss final results for the second quarter of fiscal 2012 and the outlook for the third quarter of fiscal 2012 on Thursday, November 17, 2011 at 2:00 p.m. PST (5:00 p.m. EST). Participants in the United States should call (800) 230-1074. International participants should call (612) 234-9960. The passcode for the call is: 222996. The conference call can also be accessed through an audio webcast from the Company's website, www.bluecoat.com/company/corporate-investor. A replay of the call will be available starting on Thursday, November 17, 2011 at 5:00 p.m. PST (8:00 p.m. EST), and can be accessed by calling (800) 475-6701 for U.S. participants and (320) 365-3844 for international participants. The passcode for the replay is 222996.

About Blue Coat Systems
Blue Coat Systems, Inc. is a leading provider of Web security and WAN optimization solutions. Blue Coat offers solutions that provide the visibility, acceleration and security required to optimize and secure the flow of information to any user, on any network, anywhere. This application intelligence enables enterprises to tightly align network investments with business requirements, speed decision making and secure business applications for long-term competitive advantage. Blue Coat also offers service provider solutions for managed security and WAN optimization, as well as carrier-grade caching solutions to save on bandwidth and improve the end-user Web experience. For additional information, please visit www.bluecoat.com.

FORWARD-LOOKING STATEMENTS: This document contains certain forward-looking statements. All statements other than statements of historical fact are statements that could be deemed forward-looking statements including: any statements regarding our business outlook and future financial and operating results; any statements of expectation or belief; any statements regarding plans, strategies and objectives of management for future operations; and any statements of assumptions underlying any of the foregoing. Risks, uncertainties and assumptions include the risks that are described from time to time in the Securities and Exchange Commission reports filed by the Company, including but not limited to the risks described in the Company's most recent reports on Form 10-K and Form 10-Q, particularly under the heading "Risk Factors." No assurances can be given that any of the events anticipated by the forward-looking statements will transpire or occur, or if any of them do so, what impact they will have on the results of operations or financial condition of the Company. The Company assumes no obligation and does not intend to update any of these forward-looking statements, except as required by applicable law, after the date on which it was made.

Blue Coat and the Blue Coat logo are registered trademarks or trademarks of Blue Coat Systems, Inc. and/or its affiliates in the United States and certain other countries. All other trademarks mentioned in this document are the property of their respective owners.

BLUE COAT SYSTEMS, INC.
Table 1
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
Six Months Ended
Three Months Ended October 31,
October 31, 2011 July 31, 2011 October 31, 2010 2011 2010
Net revenue:
Product $ 62,289 $ 58,556 $ 73,127 $ 120,845 $ 148,695
Service 51,792 50,953 47,920 102,745 94,832
Total net revenue 114,081 109,509 121,047 223,590 243,527
Cost of net revenue:
Product 14,883 13,764 15,284 28,647 31,248
Service 12,089 12,268 10,723 24,357 21,111
Total cost of net revenue 26,972 26,032 26,007 53,004 52,359
Gross profit 87,109 83,477 95,040 170,586 191,168
Operating expenses:
Sales and marketing 46,781 47,557 44,821 94,338 89,476
Research and development 19,618 19,209 20,948 38,827 40,803
General and administrative 11,447 10,173 10,715 21,620 21,058
Amortization of intangible assets 1,826 1,843 1,843 3,669 3,686
Restructuring - - 38 - 178
Total operating expenses 79,672 78,782 78,365 158,454 155,201
Operating income 7,437 4,695 16,675 12,132 35,967
Interest income 137 113 126 250 290
Interest expense (227) (235) (223) (462) (447)
Other income (expense), net (473) (346) 158 (819) (165)
Income before income taxes 6,874 4,227 16,736 11,101 35,645
Provision for income taxes 2,288 1,532 4,703 3,820 9,687
Net income $ 4,586 $ 2,695 $ 12,033 $ 7,281 $ 25,958
Basic net income per share $ 0.10 $ 0.06 $ 0.26 $ 0.16 $ 0.56
Diluted net income per share $ 0.10 $ 0.06 $ 0.25 $ 0.15 $ 0.55
Weighted average shares used in computing basic net income per share
46,362

46,718

46,712

46,517

46,520
Weighted average shares used in computing diluted net income per share
46,699

47,692

47,638

47,124

47,594

BLUE COAT SYSTEMS, INC.
Table 2
Reconciliation of GAAP to Non-GAAP Financial Measures
(In thousands, except per share data)
(Unaudited)
Six Months Ended
Three Months Ended October 31,
October 31, 2011 July 31, 2011 October 31, 2010 2011 2010
Gross Profit Reconciliation:
GAAP gross profit $ 87,109 $ 83,477 $ 95,040 $ 170,586 $ 191,168
Stock-based compensation expense included in cost of revenue A 451 440 422 891 776
Amortization of intangible assets included in cost of revenue B 1,168 1,168 1,168 2,336 2,356
Non-GAAP gross profit $ 88,728 $ 85,085 $ 96,630 $ 173,813 $ 194,300
Operating Income Reconciliation:
GAAP operating income $ 7,437 $ 4,695 $ 16,675 $ 12,132 $ 35,967
Stock-based compensation expense A 3,723 4,478 4,913 8,201 8,985
Amortization of intangible assets B 2,994 3,011 3,011 6,005 6,042
Expense for matters related to the stock option investigation C - - 41 - 99
Restructuring D - - 38 - 178
Non-GAAP operating income $ 14,154 $ 12,184 $ 24,678 $ 26,338 $ 51,271
Net Income Reconciliation:
GAAP net income $ 4,586 $ 2,695 $ 12,033 $ 7,281 $ 25,958
Stock-based compensation expense A 3,723 4,478 4,913 8,201 8,985
Amortization of intangible assets B 2,994 3,011 3,011 6,005 6,042
Expense for matters related to the stock option investigation C - - 41 - 99
Restructuring D - - 38 - 178
Income tax adjustments E (2,023 ) (1,749 ) (1,977 ) (3,772 ) (4,069 )
Non-GAAP net income $ 9,280 $ 8,435 $ 18,059 $ 17,715 $ 37,193
Net Income per Share Reconciliation:
GAAP diluted net income per share $ 0.10 $ 0.06 $ 0.25 $ 0.15 $ 0.55
Stock-based compensation expense A 0.08 0.09 0.10 0.17 0.19
Amortization of intangible assets B 0.06 0.06 0.06 0.13 0.13
Expense for matters related to the stock option investigation C - - - - -
Restructuring D - - - - -
Income tax adjustments E (0.04 ) (0.03 ) (0.03 ) (0.07 ) (0.09 )
Non-GAAP diluted net income per share $ 0.20 $ 0.18 $ 0.38 $ 0.38 $ 0.78
Shares used in computing non-GAAP diluted net income per share 46,699 47,692 47,638 47,124 47,594
Notes:
(A) Stock-based compensation expense consists of non-cash charges for employee stock options, restricted stock awards, restricted stock units and employee stock purchase plan awards.
Results include stock-based compensation expense as follows (unaudited):
Six Months Ended
Three Months Ended October 31,
October 31, 2011 July 31, 2011 October 31, 2010 2011 2010
Cost of revenue $ 451 $ 440 $ 422 $ 891 $ 776
Sales and marketing 1,257 1,470 1,462 2,727 2,794
Research and development 1,478 1,395 1,579 2,873 2,810
General and administrative 537 1,173 1,450 1,710 2,605
Total $ 3,723 $ 4,478 $ 4,913 $ 8,201 $ 8,985
(B) Amortization of intangible assets associated with acquisitions.
(C) Includes expense for matters related to the Company's stock option investigation.
(D) Restructuring includes severance and facilities related exit costs associated with the Fiscal 2010 Restructuring Plan.
(E) Income tax adjustment is used to reconcile the GAAP tax provision to a non-GAAP tax provision utilizing an expected annual effective tax rate of 30% in fiscal 2012.

BLUE COAT SYSTEMS, INC.
Table 3
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
October 31, April 30,
2011 2011
ASSETS
Current assets:
Cash and cash equivalents $ 361,393 $ 375,939
Accounts receivable, net 70,737 67,626
Inventory 9,934 10,134
Prepaid expenses and other current assets 11,706 14,091
Current portion of deferred income tax assets 10,582 10,399
Total current assets 464,352 478,189
Property and equipment, net 29,565 31,745
Restricted cash 1,066 1,031
Goodwill 242,611 242,611
Identifiable intangible assets, net 18,965 24,970
Non-current portion of deferred income tax assets 35,517 34,650
Other assets 5,760 6,212
Total assets $ 797,836 $ 819,408
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 18,420 $ 20,806
Accrued payroll and related benefits 17,745 15,947
Deferred revenue 116,995 121,526
Other current liabilities 11,184 10,758
Total current liabilities 164,344 169,037
Deferred revenue, less current portion 57,928 56,546
Deferred rent, less current portion 4,940 5,501
Long-term income taxes payable 38,953 35,152
Other non-current liabilities 791 688
Convertible senior notes 78,583 78,136
Commitments and contingencies
Blue Coat stockholders' equity:
Common stock 4 4
Additional paid-in capital 1,239,979 1,269,311
Accumulated deficit (787,686 ) (794,967 )
Total stockholders' equity 452,297 474,348
Total liabilities and stockholders' equity $ 797,836 $ 819,408
BLUE COAT SYSTEMS, INC.
Table 4
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(unaudited)
Six Months Ended October 31,
2011 2010
Operating Activities
Net income $ 7,281 $ 25,958
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation 7,126 6,953
Amortization 6,798 6,836
Stock-based compensation 8,201 8,985
Deferred income taxes (1,050 ) 3,686
Tax benefit of stock option deduction 41 523
Excess tax benefit from stock-based compensation (334 ) (521 )
Gain on disposition of equipment - 18
Changes in operating assets and liabilities:
Accounts receivable, net (3,111 ) (17,976 )
Inventory 200 (4,788 )
Prepaid expenses and other assets 2,491 4,029
Accounts payable (2,386 ) 4,079
Accrued expenses and other liabilities 5,567 4,989
Deferred revenue (3,149 ) 8,666
Net cash provided by operating activities 27,675 51,437
Investing Activities
Purchases of property and equipment, and technology licenses (4,946 ) (5,953 )
Restricted cash (35 ) (45 )
Net cash used in investing activities (4,981 ) (5,998 )
Financing Activities
Net proceeds from issuance of common stock 5,446 6,894
Payments for repurchases of common stock (43,020 ) -
Excess tax benefit from stock-based compensation 334 521
Acquisition of noncontrolling interest - (427 )
Net cash (used in) provided by financing activities (37,240 ) 6,988
Net (decrease) increase in cash and cash equivalents (14,546 ) 52,427
Cash and cash equivalents at beginning of period 375,939 236,347
Cash and cash equivalents at end of period $ 361,393 $ 288,774

BLUE COAT SYSTEMS, INC.
Table 5
RECONCILIATION OF PROJECTED GAAP TO
PROJECTED NON-GAAP FINANCIAL MEASURES
(In thousands, except per share data)
Three Months Ended
January 31, 2012
Low High
Projected GAAP Net Income $ 2,200 $ 6,300
Add back:
Stock-based compensation expense A 4,700 4,700
Amortization of intangible assets B 3,000 3,000
Income tax adjustments C (1,000 ) (1,500 )
Projected Non-GAAP net income $ 8,900 $ 12,500
Projected GAAP Diluted Net Income per Share $ 0.05 $ 0.13
Add back:
Stock-based compensation expense A $ 0.10 $ 0.10
Amortization of intangible assets B $ 0.06 $ 0.06
Income tax adjustments C $ (0.02 ) $ (0.03 )
Projected Non-GAAP diluted net income per share $ 0.19 $ 0.26
(A) Stock-based compensation expense consists of non-cash charges for employee stock options, restricted stock awards, restricted stock units and employee stock purchase plan awards.
(B) Amortization of intangible assets associated with acquisitions.
(C) Income tax adjustment is used to reconcile the GAAP tax provision to a non-GAAP tax provision utilizing an expected annual effective tax rate of 30%.

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