SOURCE: Fortinet

Fortinet

October 21, 2010 16:21 ET

Fortinet Announces Third Quarter 2010 Financial Results

SUNNYVALE, CA--(Marketwire - October 21, 2010) - Fortinet® (NASDAQ: FTNT)

--  Billings of $94.7 million, up 33% year over year
--  Revenues of $85.0 million, up 29% year over year
--  Product revenue of $35.9 million, up 41% year over year
--  GAAP EPS of $0.18
--  Non-GAAP EPS of $0.17
--  Free cash flow of $31.5 million

Fortinet® (NASDAQ: FTNT) -- a leading network security provider and the worldwide leader of unified threat management (UTM) solutions -- today announced financial results for the third quarter ended September 30, 2010.

Financial Highlights for the Third Quarter of 2010

--  Billings(1): Total billings were $94.7 million for the third quarter of
    2010, an increase of 33% compared to the third 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 $85.0 million for the third quarter of 2010,
    an increase of 29% compared to the third quarter of 2009.  Within total
    revenue, product revenue was $35.9 million, an increase of 41% compared
    to the third quarter of 2009.  Services revenue was $44.5 million, an
    increase of 21% compared to the third quarter of 2009.  Ratable product
    and services revenue was $4.5 million, an increase of 26% compared to
    the third quarter of 2009.

--  Deferred Revenue: Deferred revenue was $235.3 million as of September
    30, 2010, an increase of 24% compared to deferred revenue as of
    September 30, 2009, and up $9.7 million from June 30, 2010.

--  Cash and Cash Flow: As of September 30, 2010, cash, cash equivalents
    and investments were $352.3 million, compared to $309.0 million as of
    June 30, 2010.  Cash flow from operations was $32.2 million for the
    third quarter of 2010, compared to $15.9 million for the third quarter
    of 2009.  In the third quarter of 2010, free cash flow was $31.5
    million, compared to $14.6 million for the third 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 $18.2 million for the
    third quarter of 2010, representing a GAAP operating margin of 21% and
    an increase of 88% compared to the third quarter of 2009.

--  Non-GAAP(1) Operating Income: Non-GAAP operating income was $20.6
    million for the third quarter of 2010, representing a non-GAAP
    operating margin of 24% and an increase of 76% compared to the third
    quarter of 2009.  Non-GAAP operating income and operating margin
    exclude stock-based compensation expense and, for the third 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 $14.0 million for the
    third quarter of 2010, based on tax expense of 23% of pre-tax income as
    a result of bringing the year-to-date effective tax rate to 29%.  This
    compares to $7.9 million for the third quarter of 2009 based on a 21%
    tax rate.  GAAP EPS was $0.18 for the third quarter of 2010, based on
    77.9 million weighted-average diluted shares outstanding, compared to
    $0.10 for the third quarter of 2009, based on 64.2 million
    weighted-average diluted shares outstanding.  GAAP EPS for the third
    quarter of 2009 was based on net income attributable to common
    stockholders of $6.4 million (after reducing net income by $1.5 million
    which was allocated to our participating preferred stock that converted
    into common stock at the time of our IPO).

--  Non-GAAP(1) Net Income and EPS: Non-GAAP net income was $13.5 million
    for the third quarter of 2010, based on a 35% tax rate.  This compares
    to $9.2 million of non-GAAP net income for the third quarter of 2009,
    based on a 24% tax rate.  Non-GAAP EPS was $0.17 for the third quarter
    of 2010 based on 77.9 million weighted-average diluted shares
    outstanding, compared to $0.14 for the third quarter of 2009 based on
    64.2 million weighted-average diluted shares outstanding.  Non-GAAP net
    income excludes stock-based compensation expense, non-cash asset
    acquisition related write-offs (for the third quarter of 2009) and the
    related tax effects.  Non-GAAP EPS for the third quarter of 2009 was
    based on non-GAAP net income of $9.2 million, which includes the income
    allocated to our participating preferred stock of $1.5 million.

(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: "Our ability to execute across all verticals and geographies drove our strong performance this quarter, as we once again proved to be the partner of choice for many large enterprises seeking a complete UTM solution. We continue to demonstrate our value proposition, gain market share, and grow our customer base. Furthermore, our focus on security innovation is yielding tangible results, as the introduction of new cutting edge solutions, including our highly differentiated FortiGate-3950B, FortiGate-1240B and FortiAP appliances are resonating well with our customers and further differentiating us in the market."

Ken Goldman, chief financial officer of Fortinet, stated: "We are very pleased with our third quarter results, which marks the fourth consecutive quarter as a publicly traded company that we have exceeded our expectations in terms of billings, revenue and profitability. We are excited about the momentum in our business and the robust demand for network security and UTM solutions, and will continue to invest significantly in the near term to strengthen our sales and support infrastructure, as well as our research and development capabilities in order to support our growth."

Conference Call Details

Fortinet will host a conference call today, October 21, 2010, 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 # 16168970. 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 November 4, 2010, by dialing (800) 642-1687 (domestic) or (706) 645-9291 (international). The replay passcode is 16168970.

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 # 16170554. 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 November 4, 2010 at (800) 642-1687 (domestic) or (706) 645-9291 (international). The replay passcode is 16170554.

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 © 2010 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, FortiDB and FortiWeb. Other trademarks belong to their respective owners.

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 continued growth in market share and customer acquisitions, business momentum and demand for network security and UTM solutions and our plans to invest to strengthen our sales and support infrastructure and our research and development capabilities to support growth. 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 measure 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 non-cash asset acquisition related write-offs for the third quarter of 2009. 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 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 non-cash asset acquisition related write-offs (for the third quarter of 2009), less the related tax effects for both periods presented. We define non-GAAP EPS as non-GAAP net income divided by the weighted-average outstanding shares, on a fully-diluted basis and, for the third quarter of 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 outstanding shares, 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 third quarter of 2009, the non-cash asset acquisition related write-offs. We used a 35 percent effective tax rate to calculate non-GAAP net income for the third quarter of 2010. We believe the 35 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 third quarter of 2009 was 24 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)

                                                 September 30, December 31,
                      ASSETS                          2010         2009
                                                  -----------  -----------
CURRENT ASSETS:
  Cash and cash equivalents                       $    77,139  $   212,458
  Short-term investments                              215,151       47,856
  Accounts receivable, net of allowance for
   doubtful accounts of $303 and $367,
   respectively                                        59,562       54,551
  Inventory                                            11,284       10,649
  Deferred tax asset                                    9,876        9,652
  Prepaid expenses and other current assets             5,705        3,100
  Deferred cost of revenues                             3,888        3,951
                                                  -----------  -----------
           Total current assets                       382,605      342,217
PROPERTY AND EQUIPMENT -- Net                           6,797        6,387
DEFERRED COST OF REVENUES -- Noncurrent                 6,081        5,743
DEFERRED TAX ASSET -- Noncurrent                       31,671       31,671
LONG-TERM INVESTMENTS                                  60,054            -
OTHER ASSETS                                            1,239        1,195
                                                  -----------  -----------
TOTAL ASSETS                                      $   488,447  $   387,213
                                                  ===========  ===========
       LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
  Accounts payable                                $     9,766  $    10,987
  Accrued liabilities                                  15,638       15,050
  Accrued payroll and compensation                     18,398       13,991
  Deferred revenue                                    158,430      140,537
                                                  -----------  -----------
           Total current liabilities                  202,232      180,565
DEFERRED REVENUE -- Noncurrent                         76,820       61,393
OTHER NON-CURRENT LIABILITIES                           2,944        2,803
                                                  -----------  -----------
           Total liabilities                          281,996      244,761
                                                  -----------  -----------
STOCKHOLDERS' EQUITY:
  Common stock                                             74           67
  Additional paid-in-capital                          242,165      204,268
  Treasury stock -- common                             (2,995)      (2,995)
  Accumulated other comprehensive income                2,075        1,084
  Accumulated deficit                                 (34,868)     (59,972)
                                                  -----------  -----------
           Total stockholders' equity                 206,451      142,452
                                                  -----------  -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY        $   488,447  $   387,213
                                                  ===========  ===========




                              FORTINET, INC.

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

                                 Three Months Ended     Nine Months Ended
                                --------------------  --------------------
                                September  September  September  September
                                   30,        30,        30,        30,
                                  2010       2009       2010       2009
                                ---------  ---------  ---------  ---------
REVENUE:
  Product                       $  35,913  $  25,550  $  94,060  $  69,327
  Services                         44,527     36,712    124,116    101,758
  Ratable product and services      4,531      3,602     12,921     10,318
                                ---------  ---------  ---------  ---------
          Total revenue            84,971     65,864    231,097    181,403
                                ---------  ---------  ---------  ---------
COST OF REVENUE:
  Product*                         13,263     10,428     36,399     29,049
  Services*                         6,565      5,550     19,851     15,955
  Ratable product and services      1,615      1,455      4,733      4,062
                                ---------  ---------  ---------  ---------
          Total cost of revenue    21,443     17,433     60,983     49,066
                                ---------  ---------  ---------  ---------
GROSS PROFIT:
  Product                          22,650     15,122     57,661     40,278
  Services                         37,962     31,162    104,265     85,803
  Ratable product and services      2,916      2,147      8,188      6,256
                                ---------  ---------  ---------  ---------
          Total gross profit       63,528     48,431    170,114    132,337
                                ---------  ---------  ---------  ---------
OPERATING EXPENSES:
  Research and development*        12,389     10,797     36,999     31,207
  Sales and marketing*             26,987     23,468     81,487     69,572
  General and administrative*       5,993      4,490     16,985     13,678
                                ---------  ---------  ---------  ---------
           Total operating
            expenses               45,369     38,755    135,471    114,457
                                ---------  ---------  ---------  ---------
OPERATING INCOME                   18,159      9,676     34,643     17,880
INTEREST INCOME                       514        428      1,181      1,677
OTHER INCOME (EXPENSE) -- NET        (402)       (64)      (565)       148
                                ---------  ---------  ---------  ---------
INCOME BEFORE INCOME TAXES         18,271     10,040     35,259     19,705
PROVISION FOR INCOME TAXES          4,254      2,151     10,155      3,466
                                ---------  ---------  ---------  ---------
NET INCOME                         14,017      7,889     25,104     16,239
Premium paid on repurchase of
 convertible preferred shares           -          -          -     (9,266)
Income allocated to
 participating securities               -     (1,499)         -     (4,496)
                                ---------  ---------  ---------  ---------
Net income attributable to
 common stockholders            $  14,017  $   6,390  $  25,104  $   2,477
                                =========  =========  =========  =========
Net income per share:
   Basic                        $    0.20  $    0.11  $    0.36  $    0.04
                                =========  =========  =========  =========
   Diluted                      $    0.18  $    0.10  $    0.33  $    0.04
                                =========  =========  =========  =========
Weighted-average shares
 outstanding:
   Basic                           71,836     58,288     69,188     58,258
                                =========  =========  =========  =========
   Diluted                         77,921     64,167     76,645     64,181
                                =========  =========  =========  =========
* Includes stock-based
   compensation expense as
   follows:
    Cost of product revenue     $      26  $      25  $      76  $      76
    Cost of services revenue          242        169        684        465
    Research and development          600        516      1,741      1,392
    Sales and marketing             1,017        767      2,780      2,103
    General and administrative        549        459      1,565      1,243
                                ---------  ---------  ---------  ---------
                                $   2,434  $   1,936  $   6,846  $   5,279
                                =========  =========  =========  =========




                              FORTINET, INC.

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

                                 Three Months Ended     Nine Months Ended
                                --------------------  --------------------
                                September  September  September  September
                                   30,        30,        30,        30,
                                  2010       2009       2010       2009
                                ---------  ---------  ---------  ---------
CASH FLOWS FROM OPERATING
 ACTIVITIES:
  Net income                    $  14,017  $   7,889  $  25,104  $  16,239
  Adjustments to reconcile net
   income to net cash provided
   by operating activities:
    Depreciation and amortization   1,391      1,475      4,233      4,322
    Write-off of intangible
     assets                             -        444          -      1,075
    Gain on disposal of fixed
     assets                            14          -         14          -
    Amortization of investment
     premiums                       2,221        397      4,934        853
    Stock-based compensation        2,434      1,936      6,846      5,279
    Excess tax benefit from
     employee stock option
     plans                           (539)      (113)    (4,191)      (113)
    Changes in operating assets
     and liabilities:
      Accounts receivable -- net      244       (568)    (5,011)     1,932
      Inventory                       187     (1,483)    (2,815)    (1,552)
      Deferred tax assets              (6)        (6)        (8)        (6)
      Prepaid expenses and
       other current assets        (1,371)       (55)    (2,905)      (357)
      Deferred cost of revenues       (51)      (532)      (274)      (926)
      Other assets                    116         62         50        200
      Accounts payable             (3,041)       460       (689)     1,083
      Accrued liabilities           1,428        457      1,711        159
      Accrued payroll and
       compensation                 1,626       (495)     4,312       (689)
      Deferred revenue              9,729      5,307     33,321     18,758
      Income taxes payable          3,794        688      7,327       (501)
                                ---------  ---------  ---------  ---------
           Net cash provided by
            operating activities   32,193     15,863     71,959     45,756
                                ---------  ---------  ---------  ---------
CASH FLOWS FROM INVESTING
 ACTIVITIES:
  Purchase of investments        (120,189)   (34,603)  (311,995)  (118,662)
  Maturities and sales of
   investments                     35,921     40,595     80,097    107,283
  Purchase of property and
   equipment                         (671)    (1,242)    (2,900)    (4,253)
  Payments made in connection
   with asset acquisition, net          -       (900)         -       (900)
                                ---------  ---------  ---------  ---------
           Net cash provided by
            (used in) investing
            activities            (84,939)     3,850   (234,798)   (16,532)
                                ---------  ---------  ---------  ---------
CASH FLOWS FROM FINANCING
 ACTIVITIES:
  Proceeds from exercise of
   stock options                   11,351        912     23,892      1,908
  Offering costs paid in
   connection with Initial
   Public Offering                      -          -       (872)         -
  Repurchase of convertible
   preferred stock                      -          -          -    (12,768)
  Repurchase of common stock            -          -          -     (2,995)
  Restricted cash                      (4)         -         (4)         -
  Excess tax benefit from
   employee stock option plans        539        113      4,191        113
                                ---------  ---------  ---------  ---------
           Net cash provided by
            (used in) financing
            activities             11,886      1,025     27,207    (13,742)
                                ---------  ---------  ---------  ---------
EFFECT OF EXCHANGE RATES ON
 CASH AND CASH EQUIVALENTS          1,564      1,676        313      2,180
                                ---------  ---------  ---------  ---------
NET INCREASE (DECREASE) IN CASH
 AND CASH EQUIVALENTS             (39,296)    22,414   (135,319)    17,662
CASH AND CASH EQUIVALENTS --
 Beginning of period              116,435     51,819    212,458     56,571
                                ---------  ---------  ---------  ---------
CASH AND CASH EQUIVALENTS --
 End of period                  $  77,139  $  74,233  $  77,139  $  74,233
                                =========  =========  =========  =========




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     Nine Months Ended
                                -------------------  ---------------------
                                September September  September   September
                                   30,        30,        30,        30,
                                  2010       2009       2010       2009
                                ---------  --------  ----------  ---------
Total revenue                   $  84,971  $ 65,864  $  231,097  $ 181,403
 Increase in deferred revenue       9,729     5,307      33,321     18,758
                                ---------  --------  ----------  ---------
Total billings (Non-GAAP)       $  94,700  $ 71,171  $  264,418  $ 200,161
                                =========  ========  ==========  =========


Reconciliation of cash provided by operating activities to free cash flow


                                Three Months Ended     Nine Months Ended
                                -------------------  ---------------------
                                September September  September   September
                                   30,        30,        30,        30,
                                  2010       2009       2010       2009
                                ---------  --------  ----------  ---------
Net cash provided by operating
 activities                     $  32,193  $ 15,863  $   71,959  $  45,756
 Less purchases of property and
  equipment                          (671)   (1,242)     (2,900)    (4,253)
                                ---------  --------  ----------  ---------
Free cash flow (Non-GAAP)       $  31,522  $ 14,621  $   69,059  $  41,503
                                =========  ========  ==========  =========
Net cash provided by (used in)
 investing activities*          $ (84,939) $  3,850  $ (234,798) $ (16,532)
                                =========  ========  ==========  =========
Net cash provided by (used in)
 financing activities           $  11,886  $  1,025  $   27,207  $ (13,742)
                                =========  ========  ==========  =========

*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
                  September 30, 2010             September 30, 2009
              -----------------------------  -----------------------------
                GAAP    Adjust-    Non-GAAP    GAAP    Adjust-    Non-GAAP
              Results    ments      Results   Results   ments      Results
              --------  ------     --------  ---------  -----     --------
Operating
 Income       $ 18,159   2,434 (a) $ 20,593  $   9,676  2,029 (b) $ 11,705
              ========  ======     ========  =========  =====     ========
Operating
 Margin           21.4%                24.2%      14.7%               17.8%
              ========             ========  =========            ========
                         2,434 (a)                      2,029 (b)
                        (2,993)(c)                       (714)(c)
                        ------                          -----
Net Income    $ 14,017    (559)    $ 13,458  $   7,889  1,315     $  9,204
 Income
  allocated to
  participating
  securities         -       -            -  $  (1,499) 1,499 (d)        -
              --------  ------     --------  ---------  -----     --------
Net income
 attributable
 to common
 stockholders $ 14,017             $ 13,458  $   6,390            $  9,204
              ========             ========  =========            ========
Net income
 per share
 - diluted    $   0.18             $   0.17  $    0.10            $   0.14
              ========             ========  =========            ========
Shares used
 in per share
 calculation
 - diluted      77,921               77,921     64,167              64,167
              ========             ========  =========            ========

(a) To eliminate $2.4 million of stock-based compensation expense in the
    three months ended September 30, 2010.
(b) To eliminate $1.9 million of stock-based compensation expense and
    $0.1 million of non-cash acquisition related charges in the three
    months ended September 30, 2009.
(c) To eliminate the tax effects related to expenses noted in (a) and (b).
(d) To adjust net income attributable to common shareholders for the
    portion of current year earnings allocated to participating
    securities.


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

                   Nine Months Ended              Nine Months Ended
                  September 30, 2010             September 30, 2009
              -----------------------------  -----------------------------
                GAAP    Adjust-    Non-GAAP    GAAP    Adjust-    Non-GAAP
              Results    ments      Results   Results   ments      Results
              --------  ------     --------  ---------  -----     --------
Operating
 Income       $ 34,643   6,846 (a) $ 41,489  $  17,880  6,003 (b) $ 23,883
              ========  ======     ========  =========  =====     ========
Operating
 Margin           15.0%                18.0%       9.9%               13.2%
              ========             ========  =========            ========
                         6,846 (a)                      6,003 (b)
                        (4,582)(c)                       (976)(c)
                        ------                          -----
Net Income    $ 25,104   2,264     $ 27,368  $  16,239  5,027     $ 21,266
 Premium
  paid on
  repurchase
  of convertible
  preferred
  shares             -       -            -     (9,266) 9,266 (d)        -
 Income
  allocated
  to
  participating
  securities         -       -            -     (4,496) 4,496 (e)        -
              --------  ------     --------  ---------  -----     --------
Net income
 attributable
 to common
 stockholders $ 25,104             $ 27,368  $   2,477            $ 21,266
              ========             ========  =========            ========
Net income
 per share
 - diluted    $   0.33             $   0.36  $    0.04            $   0.33
              ========             ========  =========            ========
Shares used
 in per share
 calculation
 - diluted      76,645               76,645     64,181              64,181
              ========             ========  =========            ========

(a) To eliminate $6.8 million of stock-based compensation expense in the
    nine months ended September 30, 2010.
(b) To eliminate $5.3 million of stock-based compensation expense and $0.7
    million of non-cash acquisition related charges in the nine months
    ended September 30, 2009.
(c) To eliminate the tax effects related to expenses noted in (a) and (b).
(d) To adjust net income attributable to common shareholders for the
    premium paid on repurchase of convertible preferred stock.
(e) To adjust net income attributable to common shareholders for the
    portion of current year earnings allocated to participating
    securities.

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