SOURCE: Proofpoint

Proofpoint

April 30, 2014 16:04 ET

Proofpoint Announces First Quarter 2014 Financial Results

SUNNYVALE, CA--(Marketwired - Apr 30, 2014) - Proofpoint, Inc. (NASDAQ: PFPT)

  • Total revenue of $42.7 million, up 39% year-over-year
  • Billings of $46.6 million, up 33% year-over-year
  • GAAP EPS loss of $0.39; Non-GAAP EPS loss of $0.12
  • Generated operating cash flow of $4.1 million and free cash flow of $1.8 million
  • Increasing FY 2014 revenue and billings guidance

Proofpoint, Inc. (NASDAQ: PFPT), a leading security-as-a-service provider, today announced financial results for the first quarter ended March 31, 2014.

"We are very pleased with the strong start to the year, which was highlighted by our robust revenue and billings growth during the first quarter," stated Gary Steele, chief executive officer of Proofpoint. "Our ability to exceed expectations across all key operating metrics was driven by our continued high win rates across our entire product line, strong renewals, and expansion with our existing customers."

Steele continued, "As the competitive landscape continues to shift in our favor, Proofpoint remains in position to grow market share globally. Consequently, we remain committed to innovation in product development to extend our leadership position and to expansion of our sales and marketing infrastructure."

First Quarter 2014 Financial Highlights

  • Revenue: Total revenue for the first quarter of 2014 was $42.7 million, an increase of 39% compared to $30.8 million in the prior-year period. Within total revenue, subscription revenue was $41.2 million, an increase of 45% on a year-over-year basis. Hardware and services revenue contributed the remaining $1.5 million of total revenue.

  • Billings: Total billings were $46.6 million for the first quarter of 2014, an increase of 33% compared to $35.1 million in the first quarter of 2013. The company defines 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.

  • Gross Profit: GAAP gross profit for the first quarter was $29.0 million compared to $21.7 million for the first quarter of 2013. Non-GAAP gross profit for the quarter was $30.4 million compared to $22.3 million in the year ago period. Non-GAAP gross margin was 71% for the first quarter of 2014, compared to 72% for the same period last year.

  • Operating Loss: GAAP operating loss for the first quarter was $11.3 million compared to a loss of $5.9 million during the first quarter last year. Non-GAAP operating loss for the first quarter of 2014 was $3.2 million, compared to a loss of $3.4 million during the same period last year.

  • Net Loss: GAAP net loss for the first quarter was $14.4 million or $0.39 per share based on 36.6 million weighted average diluted shares outstanding. This compares to a GAAP net loss of $6.4 million or $0.19 per share based on 33.5 million weighted average diluted shares outstanding in the prior-year period.

    Non-GAAP net loss for the first quarter of 2014 was $4.2 million or $0.12 per share based on 36.6 million weighted average shares outstanding. This compares to a loss of $3.9 million or $0.12 per share based on 33.5 million weighted average shares outstanding during the same period last year.

  • Adjusted EBITDA: Adjusted EBITDA for the first quarter of 2014 was negative $1.4 million compared to negative $2.1 million for the first quarter of 2013.

  • Cash and Cash Flow: As of March 31, 2014, Proofpoint had cash, cash equivalents and short term investments of $257.2 million, an increase of $5.4 million from the end of the prior quarter.

    The company generated $4.1 million in net cash from operations for the first quarter of 2014 compared to generating $1.2 million during the first quarter of 2013. The company generated $1.8 million in free cash flow for the quarter compared to $0.2 million during the first quarter of 2013.

A reconciliation of GAAP to non-GAAP financial measures has been provided in the financial tables included in this press release. An explanation of these measures and how they are calculated are also included below under the heading "Non-GAAP Financial Measures."

First Quarter and Recent Business Highlights:

  • Selected as a Reader Trust award winner in the Best Email Security Solution category for the 2014 SC Magazine Awards.

  • Launched Proofpoint Malvertising Protection for publishers & demand side platforms and Targeted Attack Protection for enterprise defense against attackers' use of malware via internet advertising network.

  • Added Next-Generation Predictive Defense™ to Targeted Attack Protection solution.

  • Joined the Ready for IBM Security Intelligence program and unveiled a new device support module (DSM) that enables information and event integration between IBM QRadar Security Intelligence Platform products and the Proofpoint Enterprise Protection and Proofpoint Enterprise Privacy offerings.

"Proofpoint's execution was strong during the first quarter, as evidenced by our year-over-year growth rates in subscription revenue and in billings of 45% and 33%, respectively," stated Paul Auvil, chief financial officer of Proofpoint. "The combination of our strong balance sheet and ability to generate free cash flow positions the company to maintain momentum and grow market share globally."

Financial Outlook
As of April 30, 2014 Proofpoint is providing guidance for its second quarter and full year 2014 as follows:

  • Second Quarter 2014 Guidance: Total revenue is expected to be in the range of $43.0 million to $44.0 million. Billings are expected to be in the range of $45.5 million to $47.5 million. Adjusted EBITDA loss is expected to be in the range of $1.0 million to $2.0 million. Non-GAAP EPS loss is expected to be in the range of $0.11 to $0.13 based on approximately 37.3 million weighted average shares outstanding.

  • Full Year 2014 Guidance: Total revenue is expected to be in the range of $178.0 million to $180.0 million. Billings is expected to be in the range of $207.0 million to $209.0 million. Adjusted EBITDA loss is expected to be in the range of $3.0 million to $5.0 million. Non-GAAP EPS loss is expected to be in the range of $0.41 to $0.46 based on approximately 37.7 million weighted average shares outstanding. Free cash flow, defined as operating cash flow less capital expenditures, is expected to be approximately positive $10.0 million, which assumes capital expenditures of $13.0 million to $15.0 million for the full year.

Quarterly Conference Call
Proofpoint will host a conference call today at 1:30 p.m. Pacific Time (4:30 p.m. Eastern Time) to review the company's financial results for the first quarter ended March 31, 2014. To access this call, dial 888-296-4305 for the U.S. and Canada or 719-325-2307 for international callers with conference ID #9531561. A live webcast of the conference call will be accessible from the Investors section of Proofpoint's website at investors.proofpoint.com, and a recording will be archived and accessible at investors.proofpoint.com. An audio replay of this conference call will also be available through May 14, 2014, by dialing 877.870.5176 for the U.S. and Canada or 858.384.5517 for international callers and entering passcode #9531561.

About Proofpoint, Inc.
Proofpoint, Inc. (NASDAQ: PFPT) is a leading security-as-a-service provider that focuses on cloud-based solutions for threat protection, compliance, archiving & governance, and secure communications. Organizations around the world depend on Proofpoint's expertise, patented technologies, and on-demand delivery system to protect against phishing, malware and spam, safeguard privacy, encrypt sensitive information, and archive and govern messages and critical enterprise information. More information is available at www.proofpoint.com.

Proofpoint is a trademark or registered trademark of Proofpoint, Inc. in the U.S. and other countries. All other trademarks contained herein are the property of their respective owners.

Forward-Looking Statements
This press release contains forward-looking statements that involve risks and uncertainties. These forward-looking statements include statements regarding momentum in the company's business, market position, future growth, market share and future financial results. 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: other risks that may inhibit our drive to expand our business and global market share; failure to maintain or increase renewals and increased business from existing customers and failure to generate increased business through existing or new channel partner relationships; uncertainties related to continued success in sales growth and market share gains; failure to convert sales opportunities into definitive customer agreements; risks associated with successful implementation of multiple integrated software products and other product functionality; competition, particularly from larger companies with more resources than Proofpoint; risks related to new target markets, new product introductions and innovation; the ability to attract and retain key personnel; changes in strategy; risks associated with management of growth; lengthy sales and implementation cycles, particularly in larger organizations; the time it takes new sales personnel to become fully productive; unforeseen delays in developing new technologies and the uncertain market acceptance of new products or features; technological changes that make Proofpoint's products and services less competitive; risks associated with the adoption of, and demand for, the Security-as-a-Service model in general and by specific industries; the effect of general economic conditions, including as a result of specific economic risks in different geographies and among different industries; risks related to integrating the employees, customers and technologies of acquired businesses; assumption of unknown liabilities from acquisitions; ability to retain customers of acquired entities; and the other risk factors set forth from time to time in our filings with the SEC, including our Annual Report on Form 10-K for the year ended December 31, 2013, and the other reports we file with the SEC, copies of which are available free of charge at the SEC's website at www.sec.gov or upon request from our investor relations department. All forward-looking statements herein reflect our opinions only as of the date of this release, and Proofpoint undertakes no obligation, and expressly disclaims any obligation, to update forward-looking statements herein in light of new information or future events.

Non-GAAP Financial Measures
We have provided in this release financial information that has not been prepared in accordance with GAAP. We use these non-GAAP financial measures internally in analyzing our financial results and believe they are useful to investors, as a supplement to GAAP measures, in evaluating our ongoing operational performance. We believe 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 our financial results with other companies in our 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.

Non-GAAP gross profit. We define non-GAAP gross profit as GAAP gross profit, less stock-based compensation expense and the amortization of intangibles associated with acquisitions. We consider this non-GAAP financial measure to be a useful metric for management and investors because they exclude the effect of stock-based compensation expense and the amortization of intangibles associated with acquisitions so that our management and investors can compare our recurring core business operating results over multiple periods. There are a number of limitations related to the use of non-GAAP gross profit versus gross profit calculated in accordance with GAAP. Non-GAAP gross profit excludes stock-based compensation expense. Stock-based compensation has been and will continue to be for the foreseeable future a significant recurring expense in our business. Stock-based compensation is an important part of our employees' compensation and impacts their performance. In addition, the components of the costs that we exclude in our calculation of non-GAAP gross profit may differ from the components that our peer companies exclude when they report their non-GAAP results. Management compensates for these limitations by providing specific information regarding the GAAP amounts excluded from non-GAAP gross profit and evaluating non-GAAP gross profit together with gross profit calculated in accordance with GAAP.

Non-GAAP operating loss. We define non-GAAP operating loss as operating loss less stock-based compensation expense and the amortization of intangibles and non-recurring costs associated with acquisitions and litigation. We consider this non-GAAP financial measure to be a useful metric for management and investors because they exclude the effect of stock-based compensation expense and the amortization of intangibles and non-recurring costs associated with acquisitions so that our management and investors can compare our recurring core business operating results over multiple periods. There are a number of limitations related to the use of non-GAAP operating loss versus operating loss calculated in accordance with GAAP. For example, non-GAAP operating loss excludes stock-based compensation expense. Stock-based compensation has been and will continue to be for the foreseeable future a significant recurring expense in our business. Stock-based compensation is an important part of our employees' compensation and impacts their performance. In addition, the components of the costs that we exclude in our calculation of non-GAAP operating loss 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 loss and evaluating non-GAAP operating loss together with operating loss calculated in accordance with GAAP.

Non-GAAP net loss. We define non-GAAP net loss as net loss less stock-based compensation expense and the amortization of intangibles and non-recurring costs associated with acquisitions and litigation, and non-cash interest expense related to the convertible debt discount and non-recurring issuance costs for the convertible debt offering. We consider this non-GAAP financial measure to be a useful metric for management and investors for the same reasons that we use non-GAAP operating loss. However, in order to provide a complete picture of our recurring core business operating results, we also exclude from non-GAAP net loss the tax effects associated with stock-based compensation and the amortization of intangibles and non-recurring costs associated with acquisitions and litigation, and non-cash interest expense related to the convertible debt discount and non-recurring issuance costs for the convertible debt offering. We used a 5 percent effective tax rate to calculate non-GAAP net loss for the first quarter of 2014 and 4 percent for the first quarter of 2013. We believe that a 15-20% effective tax rate range is a reasonable estimate of the near-term normalized tax rate under our current global operating structure. The same limitations described above regarding our use of non-GAAP operating loss also apply to our use of non-GAAP net loss.

Billings. We define billings as revenue recognized plus the change in deferred revenue from the beginning to the end of the period, but excluding additions to deferred revenue from acquisitions. We consider 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 our business, and has historically represented a majority of the quarterly revenue that we recognize. There are a number of limitations related to the use of billings versus revenue calculated in accordance with GAAP. Billings include amounts that have not yet been recognized as revenue, but excluding additions to deferred revenue from acquisitions. We may also calculate billings in a manner that is different from other companies that report similar financial measures. Management compensates for these limitations by providing specific information regarding GAAP revenue and evaluating billings together with revenues calculated in accordance with GAAP.

Adjusted EBITDA. We define adjusted EBITDA as net loss, adjusted to exclude: depreciation, amortization of intangibles, interest income (expense), net, provision for income taxes, stock-based compensation, acquisition- and litigation-related expense, other income, and other expense. We believe that the use of adjusted EBITDA is useful to investors and other users of our financial statements in evaluating our operating performance because it provides them with an additional tool to compare business performance across companies and across periods. We use adjusted EBITDA in conjunction with traditional GAAP operating performance measures as part of our overall assessment of our performance, for planning purposes, including the preparation of our annual operating budget, to evaluate the effectiveness of our business strategies and to communicate with our board of directors concerning our financial performance. We do not place undue reliance on adjusted EBITDA as our only measure of operating performance. Adjusted EBITDA should not be considered as a substitute for other measures of financial performance reported in accordance with GAAP. There are limitations to using this non-GAAP financial measure, including that other companies may calculate this measure differently than we do, that it does not reflect our capital expenditures or future requirements for capital expenditures and that it does not reflect changes in, or cash requirements for, our working capital.

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 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 our company 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. Management compensates for this limitation by providing information about our capital expenditures on the face of the cash flow statement and in the "Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources" section of our quarterly and annual reports filed with the SEC.

   
Proofpoint, Inc.  
Condensed Consolidated Statements of Operations  
(On a GAAP basis)  
(In thousands, except per share amounts)  
(Unaudited)  
             
    Three Months Ended
March 31,
 
    2014     2013  
Revenue:                
  Subscription   $ 41,204     $ 28,452  
  Hardware and services     1,500       2,312  
    Total revenue     42,704       30,764  
Cost of revenue:(1)(2)                
  Subscription     11,451       7,829  
  Hardware and services     2,260       1,239  
    Total cost of revenue     13,711       9,068  
Gross profit     28,993       21,696  
Operating expense:(1)(2)                
  Research and development     11,948       7,562  
  Sales and marketing     22,818       16,128  
  General and administrative     5,506       3,902  
    Total operating expense     40,272       27,592  
Operating loss     (11,279 )     (5,896 )
Interest (expense) income, net     (2,773 )     12  
Other expense, net     (199 )     (367 )
Loss before provision for income taxes     (14,251 )     (6,251 )
Provision for income taxes     (144 )     (142 )
Net loss   $ (14,395 )   $ (6,393 )
Net loss per share, basic and diluted   $ (0.39 )   $ (0.19 )
Weighted average shares outstanding, basic and diluted     36,564       33,461  
                 
(1) Includes stock-based compensation expense as follows:                
      Cost of subscription revenue   $ 412     $ 232  
      Cost of hardware and services revenue     129       36  
      Research and development     2,034       505  
      Sales and marketing     2,097       774  
      General and administrative     1,301       524  
        Total stock-based compensation expense   $ 5,973     $ 2,071  
(2) Includes intangible amortization expense as follows:                
      Cost of subscription revenue   $ 829     $ 326  
      Research and development     23       8  
      Sales and marketing     1,097       70  
      General and administrative     11       -  
        Total intangible amortization expense   $ 1,960     $ 404  
                 
                 
   
Proofpoint, Inc.  
Condensed Consolidated Balance Sheets  
(On a GAAP basis)  
(In thousands, except per share amounts)  
(Unaudited)  
             
    March 31,     December 31,  
    2014     2013  
Assets                
Current assets                
  Cash and cash equivalents   $ 257,247     $ 243,786  
  Short-term investments     -       8,015  
  Accounts receivable, net     22,347       26,221  
  Inventory     1,296       860  
  Deferred product costs, current     1,222       1,004  
  Prepaid expenses and other current assets     8,750       7,963  
    Total current assets     290,862       287,849  
Property and equipment, net     12,853       11,221  
Deferred product costs, noncurrent     282       357  
Goodwill     63,764       63,764  
Intangible assets, net     21,016       22,976  
Other noncurrent assets     4,297       4,392  
    Total assets   $ 393,074     $ 390,559  
Liabilities and Stockholders' Equity                
Current liabilities                
  Accounts payable   $ 8,804     $ 7,281  
  Accrued liabilities     18,519       19,260  
  Notes payable and lease obligations, current     1,659       1,655  
  Deferred rent, current     246       297  
  Deferred revenue, current     92,643       89,450  
    Total current liabilities     121,871       117,943  
Convertible senior notes     155,058       152,928  
Notes payable and lease obligations, noncurrent     280       695  
Other long term liabilities, noncurrent     7,324       7,300  
Deferred revenue, noncurrent     35,250       34,533  
    Total liabilities     319,783       313,399  
                 
Stockholders' equity                
Common stock, $0.0001 par value; 200,000 shares authorized at March 31, 2014 and December 31, 2013; 36,926 and 36,140 shares issued and outstanding at March 31, 2014 and December 31, 2013, respectively     4       4  
Additional paid-in capital     297,691       287,165  
Accumulated deficit     (224,404 )     (210,009 )
  Total stockholders' equity     73,291       77,160  
  Total liabilities and stockholders' equity   $ 393,074     $ 390,559  
                 
                 
   
Proofpoint, Inc.  
Condensed Consolidated Statements of Cash Flows  
(On a GAAP basis)  
(In thousands)  
(Unaudited)  
             
    Three Months Ended
March 31,
 
    2014     2013  
Cash flows from operating activities                
  Net loss   $ (14,395 )   $ (6,393 )
  Adjustments to reconcile net loss to net cash provided by operating activities                
    Depreciation and amortization     3,802       1,677  
    Accretion of discounts on investments     15       239  
    Provision for allowance for doubtful accounts     (7 )     17  
    Stock-based compensation     5,973       2,071  
    Deferred income taxes     117       -  
    Change in fair value of contingent earn-outs     5       -  
    Amortization of debt issuance costs and accretion of debt discount     2,143       -  
    Changes in assets and liabilities:                
      Accounts receivable     3,881       (2,446 )
      Inventory     (435 )     157  
      Deferred products costs     (143 )     (47 )
      Prepaid expenses and other current assets     (789 )     (68 )
      Noncurrent assets     (89 )     6  
      Accounts payable     762       1,738  
      Accrued liabilities     (613 )     (126 )
      Deferred rent     (18 )     49  
      Deferred revenue     3,910       4,321  
        Net cash provided by operating activities     4,119       1,195  
Cash flows from investing activities                
  Proceeds from sales and maturities of short-term investments     8,000       21,836  
  Purchase of short-term investments     -       (20,413 )
  Purchase of property and equipment     (2,291 )     (988 )
      Net cash provided by investing activities     5,709       435  
Cash flows from financing activities                
  Proceeds from issuance of common stock, net of repurchases     4,155       4,184  
  Payments of debt issuance costs     (111 )     -  
  Repayments of notes payable and loans     (411 )     (414 )
      Net cash provided by financing activities     3,633       3,770  
      Net increase in cash and cash equivalents     13,461       5,400  
Cash and cash equivalents                
  Beginning of period     243,786       39,254  
  End of period   $ 257,247     $ 44,654  
                 
                 
   
Reconciliation of Non-GAAP Measures  
(In thousands, except per share amounts)  
(Unaudited)  
             
    Three Months Ended  
    March 31,  
    2014     2013  
                 
GAAP gross profit   $ 28,993     $ 21,696  
Plus:                
Stock-based compensation expense     541       268  
Intangible amortization expense     829       326  
Non-GAAP gross profit     30,363       22,290  
                 
GAAP operating loss     (11,279 )     (5,896 )
Plus:                
Stock-based compensation expense     5,973       2,071  
Intangible amortization expense     1,960       404  
Non-recurring acquisition expense     12       39  
Non-recurring litigation expense     122       -  
Non-GAAP operating loss     (3,212 )     (3,382 )
                 
GAAP net loss     (14,395 )     (6,393 )
Plus:                
Stock-based compensation expense     5,973       2,071  
Intangible amortization expense     1,960       404  
Non-recurring acquisition expense     12       39  
Non-recurring litigation expense     122       -  
Interest expense - debt discount and debt issuance costs     2,143       -  
Non-recurring income tax benefit     (57 )     -  
Non-GAAP net loss     (4,242 )     (3,879 )
                 
                 
Shares used in computing non-GAAP net loss per share, basic and diluted     36,564       33,461  
                 
Non-GAAP net loss, basic and diluted   $ (0.12 )   $ (0.12 )
                 
                 
                 
Reconciliation of Net Loss to Adjusted EBITDA  
(In thousands)  
(Unaudited)  
             
    Three Months Ended  
    March 31,  
    2014     2013  
                 
Net loss   $ (14,395 )   $ (6,393 )
Depreciation     1,842       1,273  
Amortization of intangible assets     1,960       404  
Interest expense (income), net     2,773       (12 )
Provision for income taxes     144       142  
EBITDA   $ (7,676 )   $ (4,586 )
                 
Stock-based compensation expense   $ 5,973     $ 2,071  
Acquisition-related expenses     12       39  
Litigation-related expenses     122       -  
Other income     (10 )     (2 )
Other expense     209       369  
Adjusted EBITDA   $ (1,370 )   $ (2,109 )
                 
                 
                 
Reconciliation of Total Revenue to Billings  
(In thousands)  
(Unaudited)  
             
    Three Months Ended  
    March 31,  
    2014     2013  
                 
Total revenue   $ 42,704     $ 30,764  
                 
Deferred revenue                
Ending     127,893       91,180  
Beginning     123,983       86,859  
Net Change     3,910       4,321  
                 
Billings   $ 46,614     $ 35,085  
                 
                 

Contact Information

  • MEDIA CONTACT:
    Orlando DeBruce
    Proofpoint, Inc.
    408-338-6870
    Email Contact

    INVESTOR CONTACT:
    Seth Potter
    ICR, Inc. for Proofpoint, Inc.
    646-277-1230
    Email Contact