Blue Coat Reports Results for Second Quarter Fiscal 2012

SUNNYVALE, CA--(Marketwire -11/17/11)- Blue Coat Systems, Inc. (NASDAQ: BCSI - News), a leading provider of Web security and WAN optimization solutions, today reported financial results for its second fiscal quarter ended October 31, 2011. Total net revenue for the second quarter of fiscal 2012 was $114.1 million compared with net revenue of $109.5 million in the first quarter of fiscal 2012 and $121.0 million in the second quarter of fiscal 2011.

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

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

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

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

Financial Outlook

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

About Non-GAAP Financial Measures

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

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

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

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

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

 


                           BLUE COAT SYSTEMS, INC.
                                   Table 1
               CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                    (In thousands, except per share data)
                                 (Unaudited)


                                                         Six Months Ended
                          Three Months Ended               October 31,
                 ----------------------------------- -----------------------
                 October 31,   July 31,  October 31,
                     2011        2011        2010        2011        2010
                 ----------- ----------- ----------- ----------- -----------
Net revenue:
  Product        $    62,289 $    58,556 $    73,127 $   120,845 $   148,695
  Service             51,792      50,953      47,920     102,745      94,832
                 ----------- ----------- ----------- ----------- -----------
Total net
 revenue             114,081     109,509     121,047     223,590     243,527
Cost of net
 revenue:
  Product             14,883      13,764      15,284      28,647      31,248
  Service             12,089      12,268      10,723      24,357      21,111
                 ----------- ----------- ----------- ----------- -----------
Total cost of
 net revenue          26,972      26,032      26,007      53,004      52,359
                 ----------- ----------- ----------- ----------- -----------
Gross profit          87,109      83,477      95,040     170,586     191,168

Operating
 expenses:
  Sales and
   marketing          46,781      47,557      44,821      94,338      89,476
  Research and
   development        19,618      19,209      20,948      38,827      40,803
  General and
   administrative     11,447      10,173      10,715      21,620      21,058
  Amortization
   of intangible
   assets              1,826       1,843       1,843       3,669       3,686
  Restructuring            -           -          38           -         178
                 ----------- ----------- ----------- ----------- -----------
Total operating
 expenses             79,672      78,782      78,365     158,454     155,201
                 ----------- ----------- ----------- ----------- -----------
Operating income       7,437       4,695      16,675      12,132      35,967

Interest income          137         113         126         250         290
Interest expense       (227)       (235)       (223)       (462)       (447)
Other income
 (expense), net        (473)       (346)         158       (819)       (165)
                 ----------- ----------- ----------- ----------- -----------
Income before
 income taxes          6,874       4,227      16,736      11,101      35,645
Provision for
 income taxes          2,288       1,532       4,703       3,820       9,687
                 ----------- ----------- ----------- ----------- -----------
Net income       $     4,586 $     2,695 $    12,033 $     7,281 $    25,958
                 =========== =========== =========== =========== ===========


Basic net income
 per share       $      0.10 $      0.06 $      0.26 $      0.16 $      0.56
                 =========== =========== =========== =========== ===========
Diluted net
 income per
 share           $      0.10 $      0.06 $      0.25 $      0.15 $      0.55
                 =========== =========== =========== =========== ===========

Weighted average
 shares used in
 computing basic
 net income per
 share                46,362      46,718      46,712      46,517      46,520
                 =========== =========== =========== =========== ===========

Weighted average
 shares used in
 computing
 diluted net
 income per
 share                46,699      47,692      47,638      47,124      47,594
                 =========== =========== =========== =========== ===========



 


                          BLUE COAT SYSTEMS, INC.
                                  Table 2
           Reconciliation of GAAP to Non-GAAP Financial Measures
                   (In thousands, except per share data)
                                (Unaudited)

                                                           Six Months Ended
                                Three Months Ended           October 31,
                         -------------------------------- -----------------
                         October 31, July 31, October 31,
                             2011      2011       2010      2011     2010
                         ----------- -------- ----------- -------- --------
Gross Profit
 Reconciliation:
-----------------------
GAAP gross profit        $    87,109 $ 83,477 $    95,040 $170,586 $191,168
  Stock-based
   compensation expense
   included in cost of
   revenue              A        451      440         422      891      776
  Amortization of
   intangible assets
   included in cost of
   revenue              B      1,168    1,168       1,168    2,336    2,356
                         ----------- -------- ----------- -------- --------
Non-GAAP gross profit    $    88,728 $ 85,085 $    96,630 $173,813 $194,300
                         =========== ======== =========== ======== ========


Operating Income
 Reconciliation:
-----------------------
GAAP operating income    $     7,437 $  4,695 $    16,675 $ 12,132 $ 35,967
  Stock-based
   compensation expense A      3,723    4,478       4,913    8,201    8,985
  Amortization of
   intangible assets    B      2,994    3,011       3,011    6,005    6,042
  Expense for matters
   related to the stock
   option investigation C          -        -          41        -       99
  Restructuring         D          -        -          38        -      178
                         ----------- -------- ----------- -------- --------
Non-GAAP operating
 income                  $    14,154 $ 12,184 $    24,678 $ 26,338 $ 51,271
                         =========== ======== =========== ======== ========


Net Income
 Reconciliation:
-----------------------
GAAP net income          $     4,586 $  2,695 $    12,033 $  7,281 $ 25,958
  Stock-based
   compensation expense A      3,723    4,478       4,913    8,201    8,985
  Amortization of
   intangible assets    B      2,994    3,011       3,011    6,005    6,042
  Expense for matters
   related to the stock
   option investigation C          -        -          41        -       99
  Restructuring         D          -        -          38        -      178
  Income tax
   adjustments          E     (2,023)  (1,749)     (1,977)  (3,772)  (4,069)
                         ----------- -------- ----------- -------- --------
Non-GAAP net income      $     9,280 $  8,435 $    18,059 $ 17,715 $ 37,193
                         =========== ======== =========== ======== ========


Net Income per Share
 Reconciliation:
-----------------------
GAAP diluted net income
 per share               $      0.10 $   0.06 $      0.25 $   0.15 $   0.55
  Stock-based
   compensation expense A       0.08     0.09        0.10     0.17     0.19
  Amortization of
   intangible assets    B       0.06     0.06        0.06     0.13     0.13
  Expense for matters
   related to the stock
   option investigation C          -        -           -        -        -
  Restructuring         D          -        -           -        -        -
  Income tax
   adjustments          E      (0.04)   (0.03)      (0.03)   (0.07)   (0.09)
                         ----------- -------- ----------- -------- --------
Non-GAAP diluted net
 income per share        $      0.20 $   0.18 $      0.38 $   0.38 $   0.78
                         =========== ======== =========== ======== ========


Shares used in
 computing non-GAAP
 diluted net income per
 share                        46,699   47,692      47,638   47,124   47,594
                         =========== ======== =========== ======== ========




Notes:

(A) Stock-based compensation expense consists of non-cash charges for
     employee stock options, restricted stock awards, restricted stock units
     and employee stock purchase plan awards.


    Results include stock-based compensation expense as follows (unaudited):
                                                            Six Months Ended
                                Three Months Ended             October 31,
                       ----------------------------------- -----------------
                        October 31,  July 31,  October 31,
                           2011        2011       2010        2011     2010
                       ------------ --------- ------------ -------- --------
    Cost of revenue    $        451 $     440 $        422 $    891 $    776
    Sales and
     marketing                1,257     1,470        1,462    2,727    2,794
    Research and
     development              1,478     1,395        1,579    2,873    2,810
    General and
     administrative             537     1,173        1,450    1,710    2,605
                       ------------ --------- ------------ -------- --------
      Total            $      3,723 $   4,478 $      4,913 $  8,201 $  8,985
                       ============ ========= ============ ======== ========
(B) Amortization of intangible assets associated with acquisitions.

© Includes expense for matters related to the Company's stock option
     investigation.

(D) Restructuring includes severance and facilities related exit costs
     associated with the Fiscal 2010 Restructuring Plan.

(E) Income tax adjustment is used to reconcile the GAAP tax provision to a
     non-GAAP tax provision utilizing an expected annual effective tax rate
     of 30% in fiscal 2012.



 


                          BLUE COAT SYSTEMS, INC.
                                  Table 3
                   CONDENSED CONSOLIDATED BALANCE SHEETS
                               (In thousands)
                                (Unaudited)

                                               October 31,      April 30,
                                                  2011            2011
                                             --------------  --------------

ASSETS

Current assets:
  Cash and cash equivalents                  $      361,393  $      375,939
  Accounts receivable, net                           70,737          67,626
  Inventory                                           9,934          10,134
  Prepaid expenses and other current assets          11,706          14,091
  Current portion of deferred income tax
   assets                                            10,582          10,399
                                             --------------  --------------
Total current assets                                464,352         478,189

Property and equipment, net                          29,565          31,745
Restricted cash                                       1,066           1,031
Goodwill                                            242,611         242,611
Identifiable intangible assets, net                  18,965          24,970
Non-current portion of deferred income tax
 assets                                              35,517          34,650
Other assets                                          5,760           6,212
                                             --------------  --------------
Total assets                                 $      797,836  $      819,408
                                             ==============  ==============

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
  Accounts payable                           $       18,420  $       20,806
  Accrued payroll and related benefits               17,745          15,947
  Deferred revenue                                  116,995         121,526
  Other current liabilities                          11,184          10,758
                                             --------------  --------------
Total current liabilities                           164,344         169,037

Deferred revenue, less current portion               57,928          56,546
Deferred rent, less current portion                   4,940           5,501
Long-term income taxes payable                       38,953          35,152
Other non-current liabilities                           791             688
Convertible senior notes                             78,583          78,136
Commitments and contingencies

Blue Coat stockholders' equity:
  Common stock                                            4               4
  Additional paid-in capital                      1,239,979       1,269,311
  Accumulated deficit                              (787,686)       (794,967)
                                             --------------  --------------
Total stockholders' equity                          452,297         474,348
                                             --------------  --------------
Total liabilities and stockholders' equity   $      797,836  $      819,408
                                             ==============  ==============


                          BLUE COAT SYSTEMS, INC.
                                  Table 4
              CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                               (In thousands)
                                (unaudited)

                                               Six Months Ended October 31,
                                               ----------------------------
                                                    2011           2010
                                               -------------  -------------

Operating Activities
Net income                                     $       7,281  $      25,958
Adjustments to reconcile net income to net
 cash provided by operating activities:
  Depreciation                                         7,126          6,953
  Amortization                                         6,798          6,836
  Stock-based compensation                             8,201          8,985
  Deferred income taxes                               (1,050)         3,686
  Tax benefit of stock option deduction                   41            523
  Excess tax benefit from stock-based
   compensation                                         (334)          (521)
  Gain on disposition of equipment                         -             18
  Changes in operating assets and liabilities:
    Accounts receivable, net                          (3,111)       (17,976)
    Inventory                                            200         (4,788)
    Prepaid expenses and other assets                  2,491          4,029
    Accounts payable                                  (2,386)         4,079
    Accrued expenses and other liabilities             5,567          4,989
    Deferred revenue                                  (3,149)         8,666
                                               -------------  -------------
Net cash provided by operating activities             27,675         51,437

Investing Activities
Purchases of property and equipment, and
 technology licenses                                  (4,946)        (5,953)
Restricted cash                                          (35)           (45)
                                               -------------  -------------
Net cash used in investing activities                 (4,981)        (5,998)

Financing Activities
Net proceeds from issuance of common stock             5,446          6,894
Payments for repurchases of common stock             (43,020)             -
Excess tax benefit from stock-based
 compensation                                            334            521
Acquisition of noncontrolling interest                     -           (427)
                                               -------------  -------------
Net cash (used in) provided by financing
 activities                                          (37,240)         6,988

Net (decrease) increase in cash and cash
 equivalents                                         (14,546)        52,427
Cash and cash equivalents at beginning of
 period                                              375,939        236,347
                                               -------------  -------------
Cash and cash equivalents at end of period     $     361,393  $     288,774
                                               =============  =============





 

                           BLUE COAT SYSTEMS, INC.
                                   Table 5
                     RECONCILIATION OF PROJECTED GAAP TO
                    PROJECTED NON-GAAP FINANCIAL MEASURES
                    (In thousands, except per share data)


                                                    Three Months Ended
                                                     January 31, 2012
                                               ----------------------------
                                                    Low            High
                                               -------------  -------------

Projected GAAP Net Income                      $       2,200  $       6,300
Add back:
  Stock-based compensation expense           A         4,700          4,700
  Amortization of intangible assets          B         3,000          3,000
  Income tax adjustments                     C        (1,000)        (1,500)
                                               -------------  -------------
Projected Non-GAAP net income                  $       8,900  $      12,500
                                               =============  =============


Projected GAAP Diluted Net Income per Share           $ 0.05  $        0.13
Add back:
  Stock-based compensation expense           A $        0.10  $        0.10
  Amortization of intangible assets          B $        0.06  $        0.06
  Income tax adjustments                     C $       (0.02) $       (0.03)
                                               -------------  -------------
Projected Non-GAAP diluted net income per
 share                                         $        0.19  $        0.26
                                               =============  =============


--------------------------------------------

(A) Stock-based compensation expense consists of non-cash charges for
 employee stock options, restricted stock awards, restricted stock units and
 employee stock purchase plan awards.

(B) Amortization of intangible assets associated with acquisitions.

© Income tax adjustment is used to reconcile the GAAP tax provision to a
 non-GAAP tax provision utilizing an expected annual effective tax rate of
 30%.