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Sourcefire Announces Record Revenue for Fourth Quarter & Full Year 2012

COLUMBIA, MD--(Marketwire - Feb 21, 2013) - Sourcefire, Inc. (NASDAQ: FIRE), a leader in intelligent cybersecurity solutions, today announced financial results for its fiscal fourth quarter and full year ended December 31, 2012.

"Sourcefire achieved record revenue for the fourth quarter and full year driven by strong global demand for our best in class solutions running on our FirePOWER platform and the successful execution of our expanded go-to-market strategy," said Marty Roesch, interim CEO of Sourcefire. "Our threat-centric approach continues to be the key differentiator for Sourcefire, and our customers are making increasingly larger commitments to us to keep their extended networks safe."

Financial Summary

  • Total Revenue - Revenue for the fourth quarter of 2012 was $67.4 million compared to $53.2 million in the fourth quarter of 2011, an increase of 27%. Revenue for the year ended December 31, 2012 was $223.1 million compared to $165.6 million for 2011, an increase of 35%.

  • GAAP Net Income - Net income was $2.6 million for the fourth quarter of 2012, or $0.08 per diluted share, on the basis of generally accepted accounting principles (GAAP), compared with GAAP net income of $4.1 million, or $0.14 per diluted share, in the fourth quarter of 2011. GAAP net income for the year ended December 31, 2012 was $5.0 million, or $0.16 per diluted share, compared with GAAP net income of $6.2 million, or $0.21 per diluted share, for 2011.

  • Adjusted Net Income - Adjusted net income for the fourth quarter of 2012, which excludes stock-based compensation expense, amortization of acquisition-related intangible assets and includes an assumed tax rate of 35%, was $8.9 million, or $0.29 per diluted share. This compares to adjusted net income of $7.6 million, or $0.25 per diluted share, in the fourth quarter of 2011, which excludes stock-based compensation expense, amortization of acquisition-related intangible assets and other acquisition-related expenses and includes an assumed tax rate of 35%. Adjusted net income for the year ended December 31, 2012, which excludes stock-based compensation expense, amortization of acquisition-related intangible assets and includes an assumed tax rate of 35%, was $24.9 million, or $0.81 per diluted share. This compares to adjusted net income for 2011, which excludes stock-based compensation expense, amortization of acquisition-related intangible assets and other acquisition-related expenses, and includes an assumed tax rate of 35%, of $16.8 million, or $0.57 per diluted share.

  • Cash and Cash Flow - As of December 31, 2012, the Company's cash, cash equivalents and investments totaled $204.0 million. Net cash provided by operating activities was $16.6 million in the fourth quarter of 2012 and $42.7 million for the full year 2012. The Company generated free cash flow of $13.8 million in the fourth quarter of 2012 and $33.8 million for the full year 2012.

Recent Company Highlights
Revenue Growth

  • Increased 2012 U.S. commercial revenue to $104.0 million, up 17% over 2011.

  • Increased 2012 international revenue to $74.4 million, up 77% over 2011.

  • Increased 2012 U.S. federal sector revenue to $44.7 million, up 28% over 2011.

Innovation & Recognition

  • Announced it has expanded its FirePOWER™ appliance family performance range with the addition of the 7000 series. The FirePOWER performance range is now from 50 Mbps to 40+ Gbps, the broadest in the industry.

  • Announced the new Advanced Malware Protection for FirePOWER, providing users with unmatched visibility and control of modern threats on the network -- from point of entry, through propagation, to post-infection remediation.

  • Announced it has expanded its Advanced Malware Protection offerings to include new Incident Response Professional Services that assist customers in addressing advanced malware challenges. The services enable customers to clearly identify an event, evaluate the risk and determine the most effective approach to remediate. Experienced in incident response techniques, methodology and the actions of malicious code, the Sourcefire Incident Response Team helps customers eliminate uncertainty and make educated decisions for better protection -- before, during and after an attack.

First Quarter 2013 Outlook

Based on information as of February 21, 2013, Sourcefire expects revenue for the first quarter of 2013 in the range of $56.0 million to $58.0 million, net income per diluted share in the range of $0.01 to $0.03 and, on an adjusted basis, net income per diluted share in the range of $0.11 to $0.13. Sourcefire's expectation of adjusted net income per diluted share excludes stock-based compensation expense of $6.4 million to $6.6 million and amortization of acquired intangible assets of approximately $0.3 million and includes an assumed 35% tax rate.

Non-GAAP Measures

To supplement its consolidated financial statements presented in accordance with GAAP, Sourcefire considers certain financial measures that are not prepared in accordance with GAAP, including non-GAAP adjusted net income, adjusted net income per share, adjusted income from operations, adjusted income from operations as a percentage of revenue and free cash flow.

Sourcefire uses these non-GAAP financial measures, in addition to GAAP financial measures, to evaluate its operating and financial performance and to compare such performance to that of prior periods and to the performance of its competitors. The Company also uses these non-GAAP financial measures in making operational and financial decisions and in establishing operational goals. Sourcefire believes that providing these non-GAAP financial measures to investors, as a supplement to GAAP financial measures, helps investors to evaluate the Company's operating and financial performance and trends in its business, consistent with how management evaluates such performance and trends. The Company also believes these non-GAAP financial measures may be useful to investors in comparing its performance to the performance of other companies, although Sourcefire's non-GAAP financial measures are specific to it and the non-GAAP financial measures of other companies may not be calculated in the same manner.

Adjusted Net Income, Adjusted Net Income per Share, Adjusted Income from Operations and Adjusted Income from Operations as a Percentage of Revenue: In evaluating the operating performance of its business, Sourcefire excludes certain charges and credits that are required by GAAP. These non-GAAP measures exclude (i) stock-based compensation, which does not involve the expenditure of cash, (ii) amortization of acquisition-related intangible assets, which does not involve the expenditure of cash, and (iii) other acquisition-related expenses, which are unrelated to the ongoing operation of the Company's business in the ordinary course. For 2012 non-GAAP results are adjusted to reflect the effect of an assumed tax rate of 35%. This adjustment is intended to normalize the tax rate and provide a tax rate that approximates the Company's expected long-term GAAP tax rate.

Free Cash Flow: Sourcefire defines free cash flow as net cash provided by operating activities minus capital expenditures. The Company considers 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 purchase of property and equipment, can be used for strategic opportunities, including investing in the business, making strategic acquisitions and strengthening the balance sheet.

These measures should be considered in addition to results prepared in accordance with GAAP, but should not be considered a substitute for, or superior to, GAAP results. The non-GAAP measures included in this press release have been reconciled to the nearest GAAP measure in the table following the financial statements attached to this press release.

Conference Call and Webcast

On Thursday, February 21, 2013 at 5:00 p.m. Eastern Time, Sourcefire will host a conference call to review these results. A listen-only web cast of the session will be available at http://investor.sourcefire.com.

Those wishing to participate in the live session should use the following numbers to dial in:

Calling from the United States or Canada: 877-712-7037
Calling from other countries: 253-237-1122
Conference ID number: 86561838

An online replay will be available at http://investor.sourcefire.com following the completion of the live call and will remain available for at least 90 days.

About Sourcefire

Sourcefire, Inc. (NASDAQ: FIRE), a world leader in intelligent cybersecurity solutions, is transforming the way global large- to mid-size organizations and government agencies manage and minimize network security risks. With solutions from a next-generation network security platform to advanced malware protection, Sourcefire provides customers with Agile Security® that is as dynamic as the real world it protects and the attackers against which it defends. Trusted for more than 10 years, Sourcefire has been consistently recognized for its innovation and industry leadership with numerous patents, world-class research, and award-winning technology. Today, the name Sourcefire has grown synonymous with innovation, security intelligence and agile end-to-end security protection. For more information about Sourcefire, please visit www.sourcefire.com.

Sourcefire, the Sourcefire logo, Snort, the Snort and Pig logo, Agile Security and the Agile Security logo, ClamAV, FireAMP, FirePOWER, FireSIGHT and certain other trademarks and logos are trademarks or registered trademarks of Sourcefire, Inc. in the United States and other countries. Other company, product and service names may be trademarks or service marks of others.

Cautionary Language Concerning Forward-Looking Statements

The statements contained in this release that are not historical facts are "forward-looking statements" (as such term is defined in the Private Securities Litigation Reform Act of 1995) that involve risks and uncertainties. These statements include expectations regarding financial results for the first quarter of 2013.

Management cautions the reader that these forward-looking statements are only predictions and are subject to a number of both known and unknown risks and uncertainties, and actual results, performance, and/or achievements of Sourcefire, Inc. may differ materially from the future results, performance, and/or achievements expressed or implied by these forward-looking statements as a result of a number of factors. These factors include, without limitation, the fact that the outlook for the first quarter of 2013 could change, and also include, without limitation, those risks and uncertainties described from time to time in the reports filed by Sourcefire, Inc. with the U.S. Securities and Exchange Commission. Sourcefire, Inc. undertakes no obligation to update any forward-looking statements.

Sourcefire, Inc.

Consolidated Statements of Operations

(in thousands, except share and per share data)

Three Months Ended December 31,

Twelve Months Ended December 31,

2012

2011

2012

2011

Revenue:

(unaudited)

(unaudited)

(unaudited)

Products

$

43,313

$

33,959

$

135,490

$

98,166

Technical support and professional services

24,045

19,245

87,600

67,480

Total revenue

67,358

53,204

223,090

165,646

Cost of revenue:

Products

12,973

9,611

40,695

28,368

Technical support and professional services

3,209

2,680

11,321

8,841

Total cost of revenue

16,182

12,291

52,016

37,209

Gross profit

51,176

40,913

171,074

128,437

Operating expenses:

Research and development

10,713

8,849

41,570

33,145

Sales and marketing

25,396

19,009

86,759

64,589

General and administrative

10,242

5,258

28,194

19,709

Depreciation and amortization

1,514

1,059

5,187

3,917

Total operating expenses

47,865

34,175

161,710

121,360

Income from operations

3,311

6,738

9,364

7,077

Other income (expense), net

22

(252

)

20

(351

)

Income before income taxes

3,333

6,486

9,384

6,726

Provision for income taxes

701

2,352

4,357

536

Net income

$

2,632

$

4,134

$

5,027

$

6,190

Net income per share - basic

$

0.09

$

0.14

$

0.17

$

0.22

Net income per share - diluted

$

0.08

$

0.14

$

0.16

$

0.21

Weighted average shares outstanding used in computing per share amounts:

Basic

30,203,709

28,912,772

29,787,100

28,607,013

Diluted

31,246,472

29,907,917

30,929,210

29,529,525

Stock-based compensation expense for the three and twelve months ended December 31, 2012 and 2011 is included in the Consolidated

Statements of Operations as follows (in thousands):

Three Months Ended December 31,

Twelve Months Ended December 31,

2012

2011

2012

2011

(unaudited)

(unaudited)

(unaudited)

(unaudited)

Cost of revenue (product)

$

154

$

72

$

480

$

273

Cost of revenue (services)

249

157

863

514

Stock-based comp expense included in cost of revenue

403

229

1,343

787

Research and development

1,630

934

5,507

3,408

Sales and marketing

3,007

1,623

9,966

5,990

General and administrative

5,041

1,311

9,348

4,696

Stock-based comp expense included in operating expenses

9,678

3,868

24,821

14,094

Total stock-based compensation expense

$

10,081

$

4,097

$

26,164

$

14,881

Sourcefire, Inc.

Condensed Consolidated Balance Sheets

(in thousands)

December 31,

December 31,

2012

2011

Assets

(unaudited)

(unaudited)

Cash and cash equivalents

$

96,178

$

59,407

Investments

107,777

98,407

Accounts receivable, net

77,426

54,914

Inventory

6,880

4,285

Deferred tax assets

13,023

11,339

Prepaid expenses and other current assets

9,043

7,718

Property and equipment, net

15,438

12,233

Goodwill

15,000

15,000

Intangible assets, net

4,456

5,822

Other long-term assets

19,453

14,802

Total assets

$

364,674

$

283,927

Liabilities

Accounts payable and accrued expenses

$

27,783

$

23,237

Deferred revenue

90,241

61,570

Other liabilities

1,524

1,263

Total liabilities

119,548

86,070

Stockholders' Equity

Common stock

30

28

Additional paid-in capital

255,610

213,402

Accumulated deficit

(10,522

)

(15,549

)

Accumulated other comprehensive income (loss)

8

(24

)

Total stockholders' equity

245,126

197,857

Total liabilities and stockholders' equity

$

364,674

$

283,927

Sourcefire, Inc.

Condensed Consolidated Statements of Cash Flows

(in thousands)

Three Months Ended December 31,

Twelve Months Ended December 31,

2012

2011

2012

2011

(unaudited)

(unaudited)

(unaudited)

(unaudited)

Net income

$

2,632

$

4,134

$

5,027

$

6,190

Adjustments to reconcile net income to net cash provided by operating activities

14,000

10,889

37,658

8,412

Net cash provided by operating activities

16,632

15,023

42,685

14,602

Net cash used in investing activities

(5,853

)

(10,250

)

(22,298

)

(16,949

)

Net cash provided by financing activities

2,111

3,321

16,384

7,344

Net increase in cash and cash equivalents

12,890

8,094

36,771

4,997

Cash and cash equivalents at beginning of period

83,288

51,313

59,407

54,410

Cash and cash equivalents at end of period

$

96,178

$

59,407

$

96,178

$

59,407

Sourcefire, Inc.

Reconciliation of Non-GAAP Measures to GAAP

(in thousands, except share and per share data)

Three Months Ended December 31,

Twelve Months Ended December 31,

2012

2011

2012

2011

(unaudited)

(unaudited)

(unaudited)

(unaudited)

Reconciliation of adjusted income from operations:

GAAP income from operations

$

3,311

$

6,738

$

9,364

$

7,077

Amortization of acquisition-related intangible assets

342

252

1,368

1,008

Other acquisition-related expenses*

-

667

1,436

2,790

Stock-based compensation expense

10,081

4,097

26,164

14,881

Adjusted income from operations

$

13,734

$

11,754

$

38,332

$

25,756

Adjusted income from operations as % of total revenue

20.4

%

22.1

%

17.2

%

15.5

%

Reconciliation of adjusted net income:

GAAP net income

$

2,632

$

4,134

$

5,027

$

6,190

Stock-based compensation expense

10,081

4,097

26,164

14,881

Amortization of acquisition-related intangible assets

342

252

1,368

1,008

Other acquisition-related expenses**

-

781

1,436

3,246

Tax credit for research and experimentation

-

-

-

(2,001

)

Income tax adjustment***

(4,113

)

(1,714

)

(9,066

)

(6,514

)

Adjusted net income

$

8,942

$

7,550

$

24,929

$

16,810

Adjusted net income per share - basic

$

0.30

$

0.26

$

0.84

$

0.59

Adjusted net income per share - diluted

$

0.29

$

0.25

$

0.81

$

0.57

Weighted average number of shares - basic

30,203,709

28,912,772

29,787,100

28,607,013

Weighted average number of shares - diluted

31,246,472

29,907,917

30,929,210

29,529,525

* Includes the accrual of retention obligations related to the hiring of former Immunet employees and other acquisition-related costs.

** Includes the accrual of retention obligations related to the hiring of former Immunet employees, the increase in the fair value of acquisition-related contingent consideration and other acquisition-related costs.

*** Income tax adjustment is used to adjust the GAAP provision for income taxes to a Non-GAAP provision for income taxes utilizing an assumed tax rate of 35%.

Reconciliation of net cash provided by operating activities to free cash flow:

Three Months Ended December 31,

Twelve Months Ended December 31,

2012

2011

2012

2011

(unaudited)

(unaudited)

(unaudited)

(unaudited)

Net cash provided by operating activities

$

16,632

$

15,023

$

42,685

$

14,602

Purchase of property and equipment

(2,786

)

(2,167

)

(8,935

)

(6,511

)

Free cash flow

$

13,846

$

12,856

$

33,750

$

8,091

Sourcefire, Inc.

Supplemental Operating Data

Three Months Ended December 31,

Twelve Months Ended December 31,

2012

2011

2012

2011

(unaudited)

(unaudited)

(unaudited)

(unaudited)

Number of deals in excess of $500,000

25

28

76

68

Number of deals in excess of $100,000

127

126

406

333

Number of new customers

162

171

452

452

Percentage of channel-influenced deals

56

%

59

%

46

%

51

%

Total channel partners

738

576

Number of full-time employees at end of period

599

451

Revenue Composition by Geography:

United States

61

%

74

%

67

%

75

%

International

39

%

26

%

33

%

25

%

Total

100

%

100

%

100

%

100

%

Revenue Composition by Business Distribution:

Existing customer product revenue

32

%

31

%

36

%

35

%

New customer product revenue

32

%

33

%

25

%

24

%

Services revenue

36

%

36

%

39

%

41

%

Total

100

%

100

%

100

%

100

%