SOURCE: Fortinet

Fortinet

January 25, 2011 16:15 ET

Fortinet Announces Fourth Quarter and Full Year 2010 Financial Results

SUNNYVALE, CA--(Marketwire - January 25, 2011) - Fortinet® (NASDAQ: FTNT)

Fourth Quarter 2010 Highlights:

--  Billings of $111.0 million, up 35% year over year
--  Revenues of $93.6 million, up 32% year over year
--  Product revenue of $41.1 million, up 40% year over year
--  GAAP EPS of $0.20
--  Non-GAAP EPS of $0.22, including a $0.03 per share tax benefit (due to
    a lower tax rate)
--  Free cash flow of $30.5 million

Full Year 2010 Highlights:

--  Billings of $375.4 million, up 33% year over year
--  Revenues of $324.7 million, up 29% year over year
--  Product revenue of $135.1 million, up 37% year over year
--  GAAP EPS of $0.53
--  Non-GAAP EPS of $0.57
--  Free cash flow of $100 million

Fortinet® (NASDAQ: FTNT) -- a leading network security provider and the worldwide leader in unified threat management (UTM) solutions -- today announced financial results for the fourth quarter and full year ended December 31, 2010.

Financial Highlights for the Fourth Quarter of 2010

--  Billings(1): Total billings were $111.0 million for the fourth quarter
    of 2010, an increase of 35% compared to the fourth quarter of 2009.  We
    define billings, a non-GAAP financial measure, as revenue recognized
    during the period plus the change in deferred revenue from the
    beginning to the end of the period.

--  Revenue: Total revenue was $93.6 million for the fourth quarter of
    2010, an increase of 32% compared to the fourth quarter of 2009.
    Within total revenue, product revenue was $41.1 million, an increase of
    40% compared to the fourth quarter of 2009.  Services revenue was
    $47.9 million, an increase of 28% compared to the fourth quarter of
    2009.  Ratable product and services revenue was $4.6 million, an
    increase of 17% compared to the fourth quarter of 2009.

--  Deferred Revenue: Deferred revenue was $252.6 million as of
    December 31, 2010, an increase of 25% compared to deferred revenue as
    of December 31, 2009, and up $17.4 million from September 30, 2010.

--  Cash and Cash Flow: As of December 31, 2010, cash, cash equivalents and
    investments were $387.5 million, compared to $352.3 million as of
    September 30, 2010.  Cash flow from operations was $31.4 million for
    the fourth quarter of 2010, compared to $16.2 million for the fourth
    quarter of 2009.  In the fourth quarter of 2010, free cash flow was
    $30.5 million, compared to $15.9 million for the fourth quarter of
    2009.  We define free cash flow, a non-GAAP financial measure of
    liquidity, as net cash provided by operating activities less capital
    expenditures.(1)

--  GAAP Operating Income: GAAP operating income was $20.7 million for the
    fourth quarter of 2010, representing a GAAP operating margin of 22% and
    an increase of 178% compared to the fourth quarter of 2009.

--  Non-GAAP(1) Operating Income: Non-GAAP operating income was
    $23.2 million for the fourth quarter of 2010, representing a non-GAAP
    operating margin of 25% and an increase of 105% compared to the fourth
    quarter of 2009.  Non-GAAP operating income and operating margin
    exclude stock-based compensation expense and, for the fourth quarter of
    2009, non-cash asset acquisition related write-offs.  Non-cash asset
    acquisition related write-offs consist of intangible assets that have
    no future value but exclude ongoing amortization of intangible assets
    that provide an ongoing benefit to our recurring operations.

--  GAAP Net Income and EPS: GAAP net income was $16.1 million for the
    fourth quarter of 2010, based on a 23% tax rate for the quarter.  The
    fourth quarter rate brings us to a 27% tax rate for the year.  This
    compares to GAAP net income of $43.9 million for the fourth quarter of
    2009 (which includes a $37.8 million tax benefit from the reversal of
    our valuation allowance).  GAAP EPS was $0.20 for the fourth quarter of
    2010, based on 80.3 million weighted-average diluted shares
    outstanding, compared to $0.62 for the fourth quarter of 2009, based on
    70.8 million weighted-average diluted shares outstanding.

--  Non-GAAP(1) Net Income and EPS: Non-GAAP net income was $17.3 million
    for the fourth quarter of 2010, based on a 27% tax rate for the
    quarter.  The fourth quarter rate brings us to a 32% tax rate for the
    year.  Non-GAAP net income for the fourth quarter of 2009 was
    $9.2 million, based on a 21% tax rate.  Non-GAAP EPS was $0.22 for the
    fourth quarter of 2010 based on 80.3 million weighted-average diluted
    shares outstanding, compared to $0.13 for the fourth quarter of 2009
    based on 70.8 million weighted-average diluted shares outstanding.
    Non-GAAP EPS for the fourth quarter of 2010 included a benefit of $0.03
    associated with a reduction in our annual non-GAAP tax rate as
    discussed in our full year results section below.  Non-GAAP net income
    excludes stock-based compensation expense, non-cash asset acquisition
    related write-offs (for the fourth quarter of 2009) and the related tax
    effects.  Non-GAAP EPS for the fourth quarter of 2009 was based on
    non-GAAP net income of $9.2 million, based on a 21% tax rate.

(1) A reconciliation of GAAP to non-GAAP financial measures has been provided in the financial statement tables included in this press release. An explanation of these measures is also included below under the heading "Non-GAAP Financial Measures."

Full Year 2010 Results

--  Billings: Total billings were $375.4 million for fiscal 2010, an
    increase of 33% compared to fiscal 2009.

--  Revenue: Total revenue was $324.7 million for fiscal 2010, an increase
    of 29% compared to fiscal 2009.  Within total revenue, product revenue
    was $135.1 million for fiscal 2010, an increase of 37% compared to
    fiscal 2009, and services revenue was $172.0 million for fiscal 2010,
    an increase of 24% compared to fiscal 2009.  Ratable product and
    services revenue was $17.5 million, an increase of 23% compared to
    fiscal 2009.

--  Cash and Cash Flow: As of December 31, 2010, cash, cash equivalents and
    investments were $387.5 million, compared to $260.3 million as of
    December 31, 2009.  Cash flow from operations was $103.4 million for
    fiscal 2010, compared to $62.0 million for fiscal 2009.  Free cash flow
    was $99.6 million, compared to $57.4 million for fiscal 2009.  We
    define free cash flow, a non-GAAP financial measure of liquidity, as
    net cash provided by operating activities less capital expenditures.(1)

--  GAAP Operating Income: GAAP operating income was $55.3 million for
    fiscal 2010, representing a GAAP operating margin of 17% and an
    increase of 118% compared to fiscal 2009.

--  Non-GAAP(1) Operating Income: Non-GAAP operating income was
    $64.7 million for fiscal 2010, representing a non-GAAP operating margin
    of 20% and an increase of 84% compared to fiscal 2009.

--  GAAP Net Income and EPS: GAAP net income was $41.2 million for fiscal
    2010, compared to $50.9 million for 2009 (which includes a
    $37.8 million tax benefit from the reversal of our valuation
    allowance).  GAAP EPS was $0.53 on 78.2 million weighted-average
    diluted shares outstanding for fiscal 2010, compared with $0.78 on
    65.2 million weighted-average diluted shares outstanding for fiscal
    2009.

--  Non-GAAP(1) Net Income and EPS: Non-GAAP net income was $44.6 million
    for fiscal 2010, based on a 32% tax rate.  The non-GAAP tax rate for
    fiscal 2010 was lower than the 35% non-GAAP tax rate anticipated for
    fiscal 2010 due to the utilization of various R&D tax credits,
    including the reinstated Federal R&D Credit.  Non-GAAP net income for
    fiscal 2009 was $30.5 million, based on an 18% tax rate.  Non-GAAP EPS
    was $0.57 on 78.2 million weighted-average diluted shares outstanding
    for fiscal 2010, compared to $0.47 on 65.2 million weighted-average
    diluted shares outstanding for fiscal 2009.

(1) A reconciliation of GAAP to non-GAAP financial measures has been provided in the financial statement tables included in this press release. An explanation of these measures is also included below under the heading "Non-GAAP Financial Measures."

Management Commentary:

Ken Xie, founder, president and chief executive officer of Fortinet, stated: "2010 was an exceptional year for Fortinet, as we demonstrated our ability to successfully execute our global go to market strategy and increase market share. Our ongoing emphasis on product innovation, along with the build out of our sales coverage, continues to enable us to both attract new customers and maintain and grow business with our existing customers. We remain focused on strengthening and expanding our solution offering through new products and enhancements to help keep our competitive edge and meet the network security needs of large enterprises worldwide."

Ken Goldman, chief financial officer of Fortinet, stated: "We are very pleased with our strong finish to our first year as a public company, with fourth quarter and full year results exceeding our expectations across all of our key operating metrics. With a globally diversified business model, cutting edge technology and a healthier economic environment, we believe we are well positioned to continue to deliver solid growth in billings, revenues, operating margins and cash flow. We remain committed to stepping up our investments in our sales and R&D teams in order to ensure we can capitalize on the growth opportunities in the UTM and other complimentary markets."

Conference Call Details

Fortinet will host a conference call today, January 25, 2011, at 1:30 p.m. Pacific Time (4:30 p.m. Eastern Time) to discuss the Company's financial results. To access this call, dial (877) 303-6913 (domestic) or (224) 357-2188 (international) with conference ID # 36006860. A live webcast of the conference call and supplemental slides will be accessible from the Investor Relations page of Fortinet's website at http://investor.fortinet.com and a replay will be archived and accessible at: http://investor.fortinet.com/events.cfm. A replay of this conference call can also be accessed through February 8, 2011, by dialing (800) 642-1687 (domestic) or (706) 645-9291 (international). The replay passcode is 36006860.

Following Fortinet's earnings conference call, the Company will host an additional question-and-answer session at 3:30 p.m. Pacific Time (6:30 p.m. Eastern Time) to provide an opportunity for financial analysts to ask more detailed product and financial questions. To access this call, dial (877) 303-6913 (domestic) or (224) 357-2188 (international) with conference ID # 36007444. This follow-up call will be webcast live and accessible at http://investor.fortinet.com, and will be archived and available after the call at http://investor.fortinet.com/events.cfm. A replay of this conference call will also be available through February 8, 2011 at (800) 642-1687 (domestic) or (706) 645-9291 (international). The replay passcode is 36007444.

About Fortinet (www.fortinet.com)

Fortinet (NASDAQ: FTNT) is a worldwide provider of network security appliances and the market leader in unified threat management (UTM). Our products and subscription services provide broad, integrated and high-performance protection against dynamic security threats while simplifying the IT security infrastructure. Our customers include enterprises, service providers and government entities worldwide, including the majority of the 2009 Fortune Global 100. Fortinet's flagship FortiGate product delivers ASIC-accelerated performance and integrates multiple layers of security designed to help protect against application and network threats. Fortinet's broad product line goes beyond UTM to help secure the extended enterprise -- from endpoints, to the perimeter and the core, including databases and applications. Fortinet is headquartered in Sunnyvale, Calif., with offices around the world.

Copyright © 2011 Fortinet, Inc. All rights reserved. The symbols ® and ™ denote respectively federally registered trademarks and unregistered trademarks of Fortinet, Inc., its subsidiaries and affiliates. Fortinet's trademarks include, but are not limited to, the following: Fortinet, FortiGate, FortiGuard, FortiManager, FortiMail, FortiClient, FortiCare, FortiAnalyzer, FortiReporter, FortiOS, FortiASIC, FortiWiFi, FortiSwitch, FortiVoIP, FortiBIOS, FortiLog, FortiResponse, FortiCarrier, FortiScan, FortiAP, FortiDB and FortiWeb. Other trademarks belong to their respective owners. Fortinet has not independently verified statements or certifications herein attributed to third parties and Fortinet does not independently endorse such statements.

FTNT-F

Forward-looking Statements

This press release contains forward-looking statements that involve risks and uncertainties. These forward-looking statements include statements regarding our belief that we are well positioned to continue to deliver strong growth in billings, revenue operating margins, and cash flows and our plans to invest in our sales and support infrastructure and our research and development capabilities to strengthen and expand our solution offering. Although Fortinet attempts to be accurate in making forward-looking statements, it is possible that future circumstances might differ from the assumptions on which such statements are based. Important factors that could cause results to differ materially from the statements herein include the following: general economic risks; specific economic risks in different geographies and among different customer segments; uncertainty regarding increased business and renewals from existing customers; uncertainties around continued success in sales growth and market share gains; risks associated with successful implementation of multiple integrated software products and other product functionality risks; execution risks around new product introductions and innovation; the ability to attract and retain personnel; changes in strategy; risks associated with management of growth; lengthy sales and implementation cycles, particularly in larger organizations; technological changes that make our products and services less competitive; risks associated with the adoption of, and demand for, the UTM model; and the other risk factors set forth from time to time in our filings with the SEC, copies of which are available free of charge at the SEC's website at www.sec.gov or upon request from Fortinet's investor relations department. All forward-looking statements herein reflect our opinions only as of the date of this release, and we undertake no obligation, and expressly disclaim any obligation, to update forward-looking statements herein in light of new information or future events.

Non-GAAP Financial Measures

Fortinet has provided in this release financial information that has not been prepared in accordance with GAAP. Fortinet uses these non-GAAP financial measures internally in analyzing its financial results and believes they are useful to investors, as a supplement to GAAP measures, in evaluating Fortinet's ongoing operational performance. Fortinet believes that the use of these non-GAAP financial measures provides an additional tool for investors to use in evaluating ongoing operating results and trends and in comparing its financial results with other companies in Fortinet's industry, many of which present similar non-GAAP financial measures to investors.

Non-GAAP financial measures should not be considered in isolation from, or as a substitute for, financial information prepared in accordance with GAAP. Investors are encouraged to review the reconciliation of these non-GAAP financial measures to their most directly comparable GAAP financial measures below. As previously mentioned, a reconciliation of our non-GAAP financial measures to their most directly comparable GAAP measures has been provided in the financial statement tables included below in this press release.

Billings. We define billings as revenue recognized plus the change in deferred revenue from the beginning to the end of the period. Fortinet considers billings to be a useful metric for management and investors because billings drive deferred revenue, which is an important indicator of the health and visibility of Fortinet's business, and has historically represented a majority of the quarterly revenue that Fortinet recognizes. There are a number of limitations related to the use of billings versus revenue calculated in accordance with GAAP. First, billings include amounts that have not yet been recognized as revenue. Second, Fortinet may calculate billings in a manner that is different from peer companies that report similar financial measures. Management compensates for these limitations by providing specific information regarding GAAP revenues and evaluating billings together with revenues calculated in accordance with GAAP.

Free Cash Flow. We define free cash flow as net cash provided by operating activities minus capital expenditures. We consider free cash flow to be a liquidity measure that provides useful information to management and investors about the amount of cash generated by the business that, after the acquisition of property and equipment, can be used for strategic opportunities, including investing in our business, making strategic acquisitions, and strengthening the balance sheet. Analysis of free cash flow also facilitates management's comparisons of our operating results to competitors' operating results. A limitation of using free cash flow versus the GAAP measure of net cash provided by operating activities as a means for evaluating Fortinet is that free cash flow does not represent the total increase or decrease in the cash balance from operations for the period because it excludes cash used for capital expenditures during the period. Our management compensates for this limitation by providing information about our capital expenditures on the face of the cash flow statement and under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources" in our Quarterly Report on Form 10-Q and Annual Report on Form 10-K. Fortinet has computed free cash flow using the same consistent method from quarter to quarter and year to year.

Non-GAAP operating income and operating margin. We define non-GAAP operating income as operating income plus stock-based compensation expense and, for the fourth quarter of 2009, non-cash asset acquisition related write-offs. Non-cash asset acquisition related write-offs include intangible assets that have no future value but exclude ongoing amortization of intangible assets that provide an ongoing benefit to our recurring operations. Non-GAAP operating margin is defined as non-GAAP operating income divided by revenue. Fortinet considers these non-GAAP financial measures to be useful metrics for management and investors because they exclude the effect of stock-based compensation expense and acquisition related expenses so that Fortinet's management and investors can compare Fortinet's recurring core business operating results over multiple periods. There are a number of limitations related to the use of non-GAAP operating income versus operating income calculated in accordance with GAAP. First, non-GAAP operating income excludes stock-based compensation expense. Stock-based compensation has been and will continue to be for the foreseeable future a significant recurring expense in Fortinet's business. Second, stock-based compensation is an important part of our employees' compensation and impacts their performance. Third, the components of the costs that we exclude in our calculation of non-GAAP operating income may differ from the components that our peer companies exclude when they report their non-GAAP results of operations. Management compensates for these limitations by providing specific information regarding the GAAP amounts excluded from non-GAAP operating income and evaluating non-GAAP operating income together with operating income calculated in accordance with GAAP.

Non-GAAP net income and EPS. We define non-GAAP net income as net income plus stock-based compensation expense and, for the fourth quarter of 2009, non-cash asset acquisition related write-offs, less the related tax effects for both periods presented. We define non-GAAP EPS as non-GAAP net income divided by the weighted-average shares outstanding, on a fully-diluted basis and, for the fiscal 2009, we define non-GAAP EPS as including the premium paid on the repurchase of convertible preferred stock and income allocated to participating securities before dividing that amount by the weighted-average shares outstanding, on a fully diluted basis. We consider these non-GAAP financial measures to be a useful metric for management and investors for the same reasons that Fortinet uses non-GAAP operating income and non-GAAP operating margin. However, in order to provide a complete picture of our recurring core business operating results, we exclude from non-GAAP net income and non-GAAP EPS the tax effects associated with stock-based compensation and, for the fourth quarter of 2009, the non-cash asset acquisition related write-offs. We used a 32 percent effective tax rate to calculate non-GAAP net income for the fourth quarter of 2010. We believe the 32 percent effective tax rate is a reasonable estimate of a long-term normalized tax rate under our global operating structure. Our effective tax rate for the fourth quarter of 2009 was 21 percent which reflects only our foreign tax provision as our US operations had net operating losses to offset any taxable income. The same limitations described above regarding Fortinet's use of non-GAAP operating income and non-GAAP operating margin apply to our use of non-GAAP net income and non-GAAP EPS. Management compensates for these limitations by providing specific information regarding the GAAP amounts excluded from non-GAAP net income and non-GAAP EPS and evaluating non-GAAP net income and non-GAAP EPS together with net income and EPS calculated in accordance with GAAP.

                              FORTINET, INC.

                  CONDENSED CONSOLIDATED BALANCE SHEETS
                              (in thousands)
                                (unaudited)


                                              December 31,   December 31,
               ASSETS                             2010           2009
                                              -------------  -------------
CURRENT ASSETS:
  Cash and cash equivalents                   $      72,122  $     212,458
  Short-term investments                            241,388         47,856
  Accounts receivable, net of allowance for
   doubtful accounts of $303 and $367,
   respectively                                      72,336         54,551
  Inventory -- Net                                   13,517         10,649
  Deferred tax asset                                 10,509          9,652
  Prepaid expenses and other current assets           6,498          3,100
  Deferred cost of revenues                           3,788          3,951
                                              -------------  -------------
    Total current assets                            420,158        342,217
PROPERTY AND EQUIPMENT -- Net                         7,056          6,387
DEFERRED COST OF REVENUES -- Noncurrent               5,543          5,743
DEFERRED TAX ASSET -- Noncurrent                     37,443         31,671
LONG-TERM INVESTMENTS                                73,950              -
OTHER ASSETS                                          1,272          1,195
                                              -------------  -------------
TOTAL ASSETS                                  $     545,422  $     387,213
                                              =============  =============
    LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
  Accounts payable                            $      12,761  $      10,987
  Accrued liabilities                                16,303         15,050
  Accrued payroll and compensation                   19,670         13,991
  Deferred revenue                                  169,648        140,537
                                              -------------  -------------
    Total current liabilities                       218,382        180,565
DEFERRED REVENUE -- Noncurrent                       82,983         61,393
OTHER NON-CURRENT LIABILITIES                        11,603          2,803
                                              -------------  -------------
    Total liabilities                               312,968        244,761
                                              -------------  -------------
STOCKHOLDERS' EQUITY:
  Common stock                                           75             67
  Additional paid-in-capital                        251,920        204,268
  Treasury stock -- common                           (2,995)        (2,995)
  Accumulated other comprehensive income              2,181          1,084
  Accumulated deficit                               (18,727)       (59,972)
                                              -------------  -------------
    Total stockholders' equity                      232,454        142,452
                                              -------------  -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY    $     545,422  $     387,213
                                              =============  =============


                              FORTINET, INC.
                                                                           
                  CONSOLIDATED STATEMENTS OF OPERATIONS
                 (in thousands, except per share amounts)
                                (unaudited)


                                 Three Months Ended   Twelve Months Ended
                                --------------------  --------------------
                                December   December   December   December
                                   31,        31,        31,        31,
                                  2010       2009       2010       2009
                                ---------  ---------  ---------  ---------
REVENUE:
  Product                       $  41,080  $  29,359  $ 135,140  $  98,686
  Services                         47,930     37,414    172,046    139,172
  Ratable product and services      4,589      3,939     17,510     14,257
                                ---------  ---------  ---------  ---------
    Total revenue                  93,599     70,712    324,696    252,115
                                ---------  ---------  ---------  ---------
COST OF REVENUE:
  Product*                         15,545     13,117     51,944     42,166
  Services*                         7,116      6,310     26,967     22,265
  Ratable product and services      1,562      1,482      6,295      5,544
                                ---------  ---------  ---------  ---------
    Total cost of revenue          24,223     20,909     85,206     69,975
                                ---------  ---------  ---------  ---------
GROSS PROFIT:
  Product                          25,535     16,242     83,196     56,520
  Services                         40,814     31,104    145,079    116,907
  Ratable product and services      3,027      2,457     11,215      8,713
                                ---------  ---------  ---------  ---------
    Total gross profit             69,376     49,803    239,490    182,140
                                ---------  ---------  ---------  ---------
OPERATING EXPENSES:
  Research and development*        12,802     10,988     49,801     42,195
  Sales and marketing*             30,481     26,719    111,968     96,291
  General and administrative*       5,395      4,642     22,380     18,320
                                ---------  ---------  ---------  ---------
    Total operating expenses       48,678     42,349    184,149    156,806
                                ---------  ---------  ---------  ---------
OPERATING INCOME                   20,698      7,454     55,341     25,334
INTEREST INCOME                       634        304      1,815      1,981
OTHER INCOME (EXPENSE) -- NET        (250)        50       (815)       198
                                ---------  ---------  ---------  ---------
INCOME BEFORE INCOME TAXES         21,082      7,808     56,341     27,513
PROVISION FOR INCOME TAXES          4,941    (36,132)    15,096    (32,666)
                                ---------  ---------  ---------  ---------
NET INCOME                         16,141     43,940     41,245     60,179
Premium paid on repurchase of
 convertible preferred shares           -          -          -     (9,266)
                                ---------  ---------  ---------  ---------
Net income attributable to
 common stockholders            $  16,141  $  43,940  $  41,245  $  50,913
                                =========  =========  =========  =========
Net income per share:
  Basic                         $    0.22  $    1.02  $    0.59  $    1.93
                                =========  =========  =========  =========
  Diluted                       $    0.20  $    0.62  $    0.53  $    0.78
                                =========  =========  =========  =========
Weighted-average shares
 outstanding:
  Basic                            73,849     42,991     70,363     26,334
                                =========  =========  =========  =========
  Diluted                          80,334     70,760     78,203     65,219
                                =========  =========  =========  =========
* Includes stock-based
  compensation expense as
  follows:
  Cost of product revenue       $      25  $      26  $     101  $     102
  Cost of services revenue            245        193        929        658
  Research and development            598        571      2,339      1,963
  Sales and marketing               1,030        917      3,810      3,020
  General and administrative          571        475      2,136      1,718
                                ---------  ---------  ---------  ---------
                                $   2,469  $   2,182  $   9,315  $   7,461
                                =========  =========  =========  =========



                              FORTINET, INC.

                  CONSOLIDATED STATEMENTS OF CASH FLOWS
                              (in thousands)
                                (unaudited)

                                 Three Months Ended   Twelve Months Ended
                                --------------------  --------------------
                                December   December   December   December
                                   31,        31,        31,        31,
                                  2010       2009       2010       2009
                                ---------  ---------  ---------  ---------
CASH FLOWS FROM OPERATING
 ACTIVITIES:
  Net income                    $  16,141  $  43,940  $  41,245  $  60,179
  Adjustments to reconcile net
   income to net cash provided
   by operating activities:
    Depreciation and
     amortization                   1,463      1,613      5,696      5,935
    Write-off of intangible
     assets                             -      1,312          -      2,387
    Gain on disposal of fixed
     assets                             -          -         14          -
    Amortization of investment
     premiums                       2,415        (17)     7,349        836
    Stock-based compensation        2,469      2,182      9,315      7,461
    Excess tax benefit from
     employee stock option
     plans                         (1,590)    (1,461)    (5,781)    (1,574)
    Income tax benefit from
     release of valuation
     allowance                          -    (30,211)         -    (30,211)
    Changes in operating assets
     and liabilities:
      Accounts receivable --
       net                        (12,773)   (10,440)   (17,784)    (8,508)
      Inventory                    (3,131)      (460)    (5,946)    (2,012)
      Deferred tax assets          (4,270)    (9,572)    (4,278)    (9,578)
      Prepaid expenses and
       other current assets          (944)       167     (3,849)      (190)
      Deferred cost of revenues       638       (137)       364     (1,063)
      Other assets                      5       (619)        55       (419)
      Accounts payable              3,126      1,963      2,437      3,046
      Accrued liabilities             652      1,998      2,363      2,157
      Accrued payroll and
       compensation                 1,153      1,319      5,465        630
      Deferred revenue             17,380     11,555     50,701     30,313
      Income taxes payable          8,690      3,083     16,017      2,582
                                ---------  ---------  ---------  ---------
        Net cash provided by
         operating activities      31,424     16,215    103,383     61,971
                                ---------  ---------  ---------  ---------

CASH FLOWS FROM INVESTING
 ACTIVITIES:
  Purchase of investments         (99,118)   (18,569)  (411,113)  (137,231)
  Maturities and sales of
   investments                     56,283     48,843    136,380    156,126
  Purchase of property and
   equipment                         (876)      (336)    (3,776)    (4,589)
  Payments received (made) in
   connection with asset
   acquisition -- net                   -        351          -       (549)
  Deposits of restricted cash          66          -         62          -
                                ---------  ---------  ---------  ---------
        Net cash provided by
         (used in) investing
         activities               (43,645)    30,289   (278,447)    13,757
                                ---------  ---------  ---------  ---------

CASH FLOWS FROM FINANCING
 ACTIVITIES:
  Proceeds from exercise of
   stock options and warrants       5,218      2,070     29,110      3,978
  Proceeds from Initial Public
   Offering -- net of offering
   costs                                -     88,260          -     88,260
  Offering costs paid in
   connection with Initial
   Public Offering                      -          -       (872)         -
  Repurchase of convertible
   preferred stock                      -          -          -    (12,768)
  Repurchase of common stock            -          -          -     (2,995)
  Excess tax benefit from
   employee stock option plans      1,590      1,461      5,781      1,574
                                ---------  ---------  ---------  ---------
        Net cash provided by
         financing activities       6,808     91,791     34,019     78,049
                                ---------  ---------  ---------  ---------
EFFECT OF EXCHANGE RATES ON
 CASH AND CASH EQUIVALENTS            396        (70)       709      2,110
                                ---------  ---------  ---------  ---------
NET INCREASE (DECREASE) IN CASH
 AND CASH EQUIVALENTS              (5,017)   138,225   (140,336)   155,887
CASH AND CASH EQUIVALENTS --
 Beginning of period               77,139     74,233    212,458     56,571
                                ---------  ---------  ---------  ---------
CASH AND CASH EQUIVALENTS --
 End of period                  $  72,122  $ 212,458  $  72,122  $ 212,458
                                =========  =========  =========  =========



Reconciliations of non-GAAP results of operations measures to the nearest
comparable GAAP measures
(in thousands, except per share amounts)
(unaudited)


Reconciliation of GAAP revenue to billings


                           Three Months Ended       Twelve Months Ended
                        ------------------------- -------------------------
                        December 31, December 31, December 31, December 31,
                            2010         2009         2010         2009
                        ------------ ------------ ------------ ------------
Total revenue           $     93,599 $     70,712 $    324,696 $    252,115
  Increase in deferred
   revenue                    17,380       11,555       50,701       30,313
                        ------------ ------------ ------------ ------------
Total billings
 (Non-GAAP)             $    110,979 $     82,267 $    375,397 $    282,428
                        ============ ============ ============ ============


Reconciliation of cash provided by operating activities to free cash flow


                           Three Months Ended       Twelve Months Ended
                        ------------------------  ------------------------
                        December 31, December 31, December 31, December 31,
                            2010         2009         2010         2009
                        -----------  -----------  -----------  -----------
Net cash provided by
 operating activities   $    31,424  $    16,215  $   103,383  $    61,971
 Less purchases of
  property and
  equipment                    (876)        (336)      (3,776)      (4,589)
                        -----------  -----------  -----------  -----------
Free cash flow
 (Non-GAAP)             $    30,548  $    15,879  $    99,607  $    57,382
                        ===========  ===========  ===========  ===========
Net cash provided by
 (used in) investing
 activities*            $   (43,645) $    30,289  $  (278,447) $    13,757
                        ===========  ===========  ===========  ===========
Net cash provided by
 financing activities   $     6,808  $    91,791  $    34,019  $    78,049
                        ===========  ===========  ===========  ===========
*includes purchases of
 property and
 equipment.



Reconciliation of GAAP to non-GAAP operating income, operating margin, net
income and net income per share.


                 Three Months Ended              Three Months Ended
                  December 31, 2010               December 31, 2009
           ------------------------------  -------------------------------
             GAAP    Adjus-      Non-GAAP    GAAP    Adjust-      Non-GAAP
           Results   tments      Results   Results    ments       Results
           --------  ------      --------  --------  -------      --------
Operating
 Income    $ 20,698   2,469 (a)  $ 23,167  $  7,454    3,845  (b) $ 11,299
           ========  ======      ========  ========  =======      ========
Operating
 Margin        22.1%                 24.8%     10.5%                  16.0%
           ========              ========  ========               ========
                      2,469  (a)                       3,845  (b)
                     (1,332) (c)                        (796) (c)
                     ------
                                                     (37,771) (d)
                                                     -------
Net Income $ 16,141   1,137      $ 17,278  $ 43,940  (34,722)     $  9,218
           ========              ========  ========               ========
Net income
 per share
 - diluted $   0.20              $   0.22  $   0.62               $   0.13
           ========              ========  ========               ========
Shares
 used in
 per share
 calcula-
 tion -
 diluted     80,334                80,334    70,760                 70,760
           ========              ========  ========               ========

(a) To eliminate $2.5 million of stock-based compensation expense in the
    three months ended December 31, 2010.
(b) To eliminate $2.2 million of stock-based compensation expense and $1.7
    million of non-cash acquisition related charges in the three months
    ended December 31, 2009.
(c) To eliminate the tax effects related to expenses noted in (a) and (b).
(d) To eliminate the income statement impact from the reversal of the
    valuation allowance.


Reconciliation of GAAP to non-GAAP operating income, operating margin, net
income and net income per share.

                 Twelve Months Ended             Twelve Months Ended
                  December 31, 2010               December 31, 2009
           ------------------------------  -------------------------------
             GAAP    Adjus-      Non-GAAP    GAAP    Adjust-      Non-GAAP
           Results   tments      Results   Results    ments       Results
           --------  ------      --------  --------  -------      --------
Operating
 Income    $ 55,341   9,315  (a) $ 64,656  $ 25,334    9,848  (b) $ 35,182
           ========  ======      ========  ========  =======      ========
Operating
 Margin        17.0%                 19.9%     10.0%                  14.0%
           ========              ========  ========               ========
                      9,315  (a)                       9,848  (b)
                                                      (1,772) (c)
                     (5,914) (c)                     (37,771) (d)
                     ------                          -------
Net Income $ 41,245   3,401      $ 44,646  $ 60,179  (29,695)     $ 30,484
 Premium
  paid on
  repurchase
  of
  convertible
  preferred
  shares          -       -             -    (9,266)   9,266  (e)        -
           --------  ------      --------  --------  -------      --------
Net income
 attributable
 to common
 stock-
 holders   $ 41,245              $ 44,646  $ 50,913               $ 30,484
           ========              ========  ========               ========
Net income
 per share
 - diluted $   0.53              $   0.57  $   0.78               $   0.47
           ========              ========  ========               ========
Shares
 used in
 per share
 calculation
 - diluted   78,203                78,203    65,219                 65,219
           ========              ========  ========               ========

(a) To eliminate $9.3 million of stock-based compensation expense in the
    twelve months ended December 31, 2010.
(b) To eliminate $7.5 million of stock-based compensation expense and $2.4
    million of non-cash acquisition related charges in the twelve months
    ended December 31, 2009.
(c) To eliminate the tax effects related to expenses noted in (a) and (b).
(d) To eliminate the income statement impact from the reversal of the
    valuation allowance.
(e) To adjust net income attributable to common shareholders for the
    premium paid on repurchase of convertible preferred stock.

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