Proofpoint Announces First Quarter 2013 Financial Results

Marketwired

SUNNYVALE, CA--(Marketwired - Apr 25, 2013) - Proofpoint, Inc. (NASDAQ: PFPT)

  • Total revenue of $30.8 million, up 25% year-over-year
  • Billings of $35.1 million, up 47% year-over-year
  • GAAP EPS loss of $0.19; Non GAAP EPS loss of $0.12
  • Generated operating cash flow of $1.2 million and free cash flow of $0.2 million

Proofpoint, Inc. (NASDAQ: PFPT), a leading security-as-a-service provider, today announced financial results for the first quarter ended March 31, 2013.

"We are very pleased with our strong first quarter performance and our ability to meet or exceed our first quarter guidance," stated Gary Steele, chief executive officer of Proofpoint. "Our high level of execution during the quarter was driven by our continued high win rates, strong renewals, expansion with our existing customers, and ongoing traction with our strategic partners."

Steele continued, "We continue to leverage our investments in our global sales infrastructure and cloud-based product portfolio as demand for our integrated security platform remains robust worldwide. Proofpoint remains in position to grow our global market share as our customers continue to replace legacy security solutions to protect their data."

First Quarter 2013 Financial Highlights

  • Revenue: Total revenue for the first quarter of 2013 was $30.8 million, an increase of 25% compared to $24.6 million in the prior-year period. Within total revenue, subscription revenue was $28.5 million, an increase of 22% on a year-over-year basis. Hardware and services revenue contributed the remaining $2.3 million of total revenue and benefitted from the completion of a large services contract which contributed approximately $1.0 million during the first quarter of 2013.

  • Billings: Total billings were $35.1 million for the first quarter of 2013, an increase of 47% compared to $23.9 million in the first quarter of 2012. 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 $21.7 million compared to $16.2 million for the first quarter of 2012. Non-GAAP gross profit for the quarter was $22.3 million compared to $17.5 million in the year ago period. Non-GAAP gross margin was 72% for the first quarter of 2013, compared to 71% during the same period last year.

  • Operating Loss: GAAP operating loss for the first quarter was $5.9 million compared to a loss of $4.6 million during the first quarter last year. Non-GAAP operating loss for the first quarter of 2013 was $3.4 million, compared to a loss of $1.8 million during the same period last year.

  • Net Loss: GAAP net loss for the first quarter was $6.4 million or $0.19 per share based on 33.5 million weighted average diluted shares outstanding. This compares to a GAAP net loss of $4.8 million or $0.85 per share based on 5.6 million weighted average diluted shares outstanding in the prior-year period. 

    Non-GAAP net loss for the first quarter of 2013 was $3.9 million or $0.12 per share based on 33.5 million weighted average diluted shares outstanding. This compares to a loss of $2.0 million or $0.08 per share based on 25.2 million weighted average diluted shares outstanding during the same period last year.

  • Adjusted EBITDA: Adjusted EBITDA for the first quarter of 2013 was negative $2.1 million compared to negative $0.8 million for the first quarter of 2012.

  • Cash and Cash Flow: As of March 31, 2013, Proofpoint had cash, cash equivalents and short term investments of $90.2 million, compared to $86.5 million as of December 31, 2012.

    The company generated $1.2 million in net cash from operations for the first quarter of 2013 compared to $0.2 million during the first quarter of 2012. The company generated $0.2 million in free cash flow for the quarter compared to negative $1.1 million during the first quarter of 2012.

    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:

  • Expanded the Proofpoint eDiscovery offering with the release of the Content Collection module for SharePoint, a new tool to automate the collection and preservation of information for legal holds residing on Microsoft SharePoint®.

  • Announced the launch of the Proofpoint Essentials solution suite, which is designed for distribution across MSPs and dedicated security resellers and is based on technology from the acquisition of European-based MailDistiller.

  • Announced the following new channel partners: Bishop Technologies, Inc., recognized as one of the leaders in email archive migration in North America; Integralis, one of the largest providers of IT-security solutions in Europe; and Exclusive Networks, one of the largest value-added distributors in Europe specializing in security, networking, infrastructure and storage solutions. 

"We had a strong start to the year as evidenced by our 47% year-over-year increase in billings during the first quarter," stated Paul Auvil, chief financial officer of Proofpoint. "The growth was driven by the combination of strong renewals along with the continued momentum of our new and add-on business worldwide. Proofpoint remains in position to continue our drive for global market share due to our strong balance sheet and ability to generate cash from operations."

Financial Outlook
As of April 25, 2013 Proofpoint is providing guidance for its second quarter and full year 2013 guidance as follows:

  • Second Quarter 2013 Guidance: Total revenue is expected to be in the range of $30.8 million to $31.4 million. Billings are expected to be in the range of $33.7 million to $34.3 million. Adjusted EBITDA loss is expected to be in the range of $1.7 million to $1.4 million. Non-GAAP EPS loss is expected to be in the range of $0.09 to $0.08 based on approximately 34.5 million weighted average diluted shares outstanding.

  • Full Year 2013 Guidance: Total revenue is expected to be in the range of $128.5 million to $129.5 million. Billings is expected to be in the range of $149.5 million to $151.5 million. Adjusted EBITDA loss is expected to be in the range of $4.8 million and $4.5 million. Non-GAAP EPS loss is expected to be in the range of $0.35 to $0.34 based on approximately 35.0 million weighted average diluted shares outstanding. Free cash flow, defined as operating cash flow less capital expenditure, is expected to be approximately positive $5.0 million, which assumes capital expenditures of $7.0 million to $8.0 million.

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, 2013. To access this call, dial 888.715.1394 for the U.S. and Canada or 913.312.1510 for international callers with conference ID #7521452. 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 9, 2013, by dialing 877.870.5176 for the U.S. and Canada or 858.384.5517 for international callers and entering passcode #7521452.

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 and Proofpoint Essentials are trademarks or registered trademarks 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 the momentum in the company's business, 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: the effect of general economic conditions; specific economic risks in different geographies and among different industries; our inability to continue to generate cash from operations or 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; risks related to integrating the employees, customers and technologies of acquired businesses; 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, 2012, 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 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 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 associated with acquisitions. 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 associated with acquisitions. We used a 6 percent effective tax rate to calculate non-GAAP net loss for the first quarter of 2013 and 2 percent for the first quarter of 2012. We believe that a 4-8% 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. 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. 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-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 they do not reflect our capital expenditures or future requirements for capital expenditures and that they do 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,
 
    2013     2012  
Revenue:                
  Subscription   $ 28,452     $ 23,269  
  Hardware and services     2,312       1,350  
    Total revenue     30,764       24,619  
Cost of revenue:(1)(2)                
  Subscription     7,829       7,211  
  Hardware and services     1,239       1,169  
    Total cost of revenue     9,068       8,380  
Gross profit     21,696       16,239  
Operating expense:(1)(2)                
  Research and development     7,562       5,881  
  Sales and marketing     16,128       12,175  
  General and administrative     3,902       2,766  
    Total operating expense     27,592       20,822  
Operating loss     (5,896 )     (4,583 )
Interest income (expense), net     12       (60 )
Other income (expense), net     (367 )     (31 )
Loss before provision for income taxes     (6,251 )     (4,674 )
Provision for income taxes     (142 )     (79 )
Net loss   $ (6,393 )   $ (4,753 )
Net loss per share, basic and diluted   $ (0.19 )   $ (0.85 )
Weighted average shares outstanding, basic and diluted     33,461       5,619  
                 
(1) Includes stock-based compensation expense as follows:                
    Cost of subscription revenue   $ 232     $ 129  
    Cost of hardware and services revenue     36       11  
    Research and development     505       422  
    Sales and marketing     774       651  
    General and administrative     524       288  
      Total stock-based compensation expense   $ 2,071     $ 1,501  
(2) Includes intangible amortization expense as follows:                
    Cost of subscription revenue   $ 326     $ 1,100  
    Research and development     8       8  
    Sales and marketing     70       171  
      Total intangible amortization expense   $ 404     $ 1,279  
                       
                       
   
Proofpoint, Inc.  
Condensed Consolidated Balance Sheets  
(On a GAAP basis)  
(In thousands, except per share amounts)  
(Unaudited)  
             
    March 31,     December 31,  
    2013     2012  
Assets                
Current assets                
  Cash and cash equivalents   $ 44,654     $ 39,254  
  Short-term investments     45,588       47,263  
  Accounts receivable, net     20,544       18,115  
  Inventory     410       567  
  Deferred product costs, current     1,271       1,184  
  Prepaid expenses and other current assets     3,678       3,491  
    Total current assets     116,145       109,874  
Property and equipment, net     8,438       8,560  
Deferred product costs, noncurrent     286       326  
Goodwill     18,557       18,557  
Intangible assets, net     2,509       2,913  
Other noncurrent assets     205       211  
    Total assets   $ 146,140     $ 140,441  
Liabilities and Stockholders' Equity                
Current liabilities                
  Accounts payable   $ 4,586     $ 2,496  
  Accrued liabilities     11,823       12,078  
  Notes payable and lease obligations     1,659       1,658  
  Deferred rent     511       462  
  Deferred revenue     65,068       62,642  
    Total current liabilities     83,647       79,336  
Notes payable and lease obligations, noncurrent     1,939       2,354  
Other long term liabilities, noncurrent     661       726  
Deferred revenue, noncurrent     26,112       24,217  
    Total liabilities     112,359       106,633  
                 
Stockholders' equity                
Preferred stock, $0.0001 par value; 5,000 shares authorized; no shares issued and outstanding at March 31, 2013 and December 31, 2012     -       -  
Common stock, $0.0001 par value; 200,000 shares authorized at March 31, 2013 and December 31, 2012; 34,050 and 33,044 shares issued and outstanding at March 31, 2013 and December 31, 2012, respectively     3       3  
Additional paid-in capital     222,659       216,280  
Accumulated other comprehensive income (loss)     (11 )     3  
Accumulated deficit     (188,870 )     (182,478 )
  Total stockholders' equity     33,781       33,808  
  Total liabilities and stockholders' equity   $ 146,140     $ 140,441  
                   
                   
   
Proofpoint, Inc.  
Condensed Consolidated Statements of Cash Flows  
(On a GAAP basis)  
(In thousands)  
(Unaudited)  
             
    Three Months Ended
March 31,
 
    2013     2012  
Cash flows from operating activities                
  Net loss   $ (6,393 )   $ (4,753 )
  Adjustments to reconcile net loss to net cash provided by (used in) operating activities                
    Depreciation and amortization     1,677       2,295  
    Accretion of investments     239       -  
    Provision for allowance for doubtful accounts     17       -  
    Stock-based compensation     2,071       1,501  
    Changes in assets and liabilities:                
      Accounts receivable     (2,446 )     1,455  
      Inventory     157       235  
      Deferred products costs     (47 )     408  
      Prepaid expenses and other current assets     (68 )     437  
      Noncurrent assets     6       111  
      Accounts payable     1,738       714  
      Accrued liabilities     (126 )     (1,432 )
      Deferred rent     49       2  
      Deferred revenue     4,321       (737 )
        Net cash provided by operating activities     1,195       236  
Cash flows from investing activities                
  Proceeds from sales and maturities of short-term investments     21,836       2,334  
  Purchase of short-term investments     (20,413 )     -  
  Purchase of property and equipment, net     (988 )     (1,287 )
      Net cash provided by investing activities     435       1,047  
Cash flows from financing activities                
  Proceeds from issuance of common stock, net of repurchases     4,184       1,553  
  Repayments of equipment financing loans     (414 )     (28 )
      Net cash provided by financing activities     3,770       1,525  
      Net increase in cash and cash equivalents     5,400       2,808  
Cash and cash equivalents                
  Beginning of period     39,254       9,767  
  End of period   $ 44,654     $ 12,575  
                   
                   
   
Reconciliation of Non-GAAP Measures  
(In thousands, except per share amounts)  
(Unaudited)  
             
    Three Months Ended  
    March 31,  
    2013     2012  
                 
GAAP gross profit   $ 21,696     $ 16,239  
Plus Adjustments:                
Stock-based compensation expense     268       140  
Intangible amortization expense     326       1,100  
Non-GAAP gross profit     22,290       17,479  
                 
GAAP operating loss     (5,896 )     (4,583 )
Plus:                
Stock-based compensation expense     2,071       1,501  
Intangible amortization expense     404       1,279  
Non-recurring acquisition expense     39       3  
Non-GAAP operating loss     (3,382 )     (1,800 )
                 
GAAP net loss     (6,393 )     (4,753 )
Plus:                
Stock-based compensation expense     2,071       1,501  
Intangible amortization expense     404       1,279  
Non-recurring acquisition expense     39       3  
Non-GAAP net loss     (3,879 )     (1,970 )
                 
                 
Weighted average shares outstanding, basic and diluted     33,461       5,619  
Plus:                
                 
Additional weighted average shares giving effect to initial public offering and conversion of convertible                
preferred stock at the beginning of the period     -       19,567  
Shares used in computing Non-GAAP net loss per share, basic and diluted     33,461       25,186  
                 
Non-GAAP net loss, basic and diluted   $ (0.12 )   $ (0.08 )
                 
                 
             
Reconciliation of Net Loss to Adjusted EBITDA  
(In thousands)  
(Unaudited)  
             
    Three Months Ended  
    March 31,  
    2013     2012  
                 
Net Loss   $ (6,393 )   $ (4,753 )
Depreciation     1,273       1,017  
Amortization of Intangible Assets     404       1,279  
Interest (income) expense, net     (12 )     60  
Provision for Income Taxes     142       79  
EBITDA   $ (4,586 )   $ (2,318 )
                 
Stock Based Comp   $ 2,071     $ 1,501  
Acquisition Related Expenses     39       3  
Other Income     (2 )     -  
Other Expense     369       31  
Adjusted EBITDA   $ (2,109 )   $ (783 )
                 
                 
           
Reconciliation of Total Revenue to Billings  
(In thousands)  
(Unaudited)  
           
    Three Months Ended  
    March 31,  
    2013   2012  
               
Total Revenue   $ 30,764   $ 24,619  
               
Deferred Revenue              
Ending     91,180     75,503  
Beginning     86,859     76,240  
Net Change     4,321     (737 )
               
Billings   $ 35,085   $ 23,882  
               
Contact:
MEDIA CONTACT:
ORLANDO DEBRUCE
PROOFPOINT, INC.
408-338-6870
ODEBRUCE@PROOFPOINT.COM

INVESTOR CONTACT:
SETH POTTER
ICR FOR PROOFPOINT, INC.
646-277-1230
SETH.POTTER@ICRINC.COM
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