Proofpoint, Inc. (NASDAQ:PFPT), a leading next-generation security
and compliance company, today announced financial results for the
third quarter ended September 30, 2017.
“The third quarter marked another strong quarter for
Proofpoint,” stated Gary Steele, chief executive officer of
Proofpoint. “Our ability to exceed expectations across all of
our key operating metrics was once again driven by enterprise cloud
migration, the rapidly evolving threat landscape and the company’s
proven ability to identify, block, and remediate advanced
threats. The combination of ongoing traction from emerging
products, robust new and add-on activity, and consistently high
renewal rates positions Proofpoint to maintain momentum for the
remainder of the year and into 2018.”
Third Quarter 2017 Financial Highlights
- Revenue: Total revenue for the third quarter
of 2017 was $134.3 million, an increase of 35%, compared to $99.8
million for the third quarter of 2016.
- Billings: Total billings were $166.5 million
for the third quarter of 2017, an increase of 33%, compared to
$124.8 million for the third quarter of 2016.
- Gross Profit: GAAP gross profit for the third
quarter of 2017 was $98.3 million compared to $72.5 million for the
third quarter of 2016. Non-GAAP gross profit for the third
quarter of 2017 was $104.9 million compared to $77.2 million for
the third quarter of 2016. GAAP gross margin for the third
quarter of 2017 was 73%, consistent with the third quarter of 2016.
Non-GAAP gross margin was 78% for the third quarter of 2017
compared to 77% for the third quarter of 2016.
- Operating Income (Loss): GAAP operating loss
for the third quarter of 2017 was $(16.0) million compared to a
loss of $(11.8) million for the third quarter of 2016.
Non-GAAP operating income for the third quarter of 2017 was $13.3
million compared to $10.5 million for the third quarter of
2016.
- Net Income (Loss): GAAP net loss for the third
quarter of 2017 was $(22.0) million, or $(0.49) per share, based on
44.4 million weighted average shares outstanding. This
compares to a GAAP net loss of $(18.4) million, or $(0.44) per
share, based on 42.1 million weighted average shares outstanding
for the third quarter of 2016. Non-GAAP net income for the
third quarter of 2017 was $13.0 million, or $0.25 per share, based
on 55.4 million weighted average diluted shares outstanding.
This compares to a non-GAAP net income of $9.4 million, or $0.19
per share, based on 54.1 million weighted average diluted shares
outstanding for the third quarter of 2016. Non-GAAP earnings
per share for the third quarter of 2017 included the shares
associated with the company’s convertible notes, and cash interest
expense (net of tax) of $1.1 million was added back to net income
as the “If-Converted” threshold during the period was
achieved.
- Cash and Cash Flow: As of September 30, 2017,
Proofpoint had cash, cash equivalents, and short term investments
of $459.6 million. The company generated $44.2 million in net
cash from operations for the third quarter of 2017 compared to
$27.3 million during the third quarter of 2016. The company’s
free cash flow for the quarter was $32.3 million compared to $18.0
for the third quarter of 2016.
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.”
“Our strong third quarter results were highlighted by revenue
and billings growth of 35% and 33% year-over-year, respectively,”
stated Paul Auvil, chief financial officer of Proofpoint.
“During the quarter, we were particularly pleased with our ability
to exceed our profitability and free cash flow expectations while
continuing to grow the top line.”
Third Quarter and Recent Business
Highlights:
- Launched Proofpoint Domain Discover solution to proactively
stop lookalike domain email attacks before they strike.
- Launched the integration between Proofpoint’s Email Protection
and Email Fraud Defense which expands visibility, tools, and
services to better protect from email fraud attacks.
- Successfully completed initial deployments of TAP SaaS Defense
with customers around the world.
Financial OutlookAs of October 19, 2017,
Proofpoint is providing guidance for its fourth quarter and
increasing full year 2017 guidance as follows:
- Fourth Quarter 2017 Guidance: Total revenue is
expected to be in the range of $138.0 million to $140.0
million. Billings are expected to be in the range of $180.0
million to $182.0 million. GAAP gross margin is expected to
be 72%. Non-GAAP gross margin is expected to be 77.5%.
GAAP net loss is expected to be in the range of $(28.6) million to
$(25.7) million, or $(0.64) to $(0.57) per share, based on
approximately 44.9 million weighted average diluted shares
outstanding. Non-GAAP net income is expected to be in the
range of $9.5 to $10.5 million, or $0.19 to $0.21 per share, using
55.7 million weighted average diluted shares outstanding, and
adding back the $1.1 million in cash interest expense as prescribed
under the “If-Converted” method. Free cash flow during
the quarter is expected to be in the range of $25.0 million to
$27.0 million, which assumes capital expenditures of approximately
$13.0 million. In addition, the company has decided to transfer the
intellectual property related to the FireLayers acquisition from
Israel to the United States which will result in a one-time tax
payment of approximately $4.0 million, which is included in our
fourth quarter free cash flow guidance.
- Full Year 2017 Guidance: Total revenue is
expected to be in the range of $508.0 million to $510.0
million. Billings are expected to be in the range of $630.0
million to $632.0 million. GAAP gross margin is expected to be
72%. Non-GAAP gross margin is expected to be 77%. GAAP
net loss is expected to be in the range of $(102.0) million to
$(98.9) million, or $(2.31) to $(2.24) per share, based on
approximately 44.1 million weighted average diluted shares
outstanding. Non-GAAP net income is expected to be in the
range of $36.1 million to $37.1 million, or $0.73 to $0.75 per
share, using 55.4 million weighted average diluted shares
outstanding, and adding back the $4.2 million in cash interest
expense as prescribed under the “If-Converted”
method. Free cash flow for the full year is expected to
be in the range of $101.5 million to $103.5 million, which assumes
capital expenditures of approximately $48.0 million. In addition,
our free cash flow guidance includes the approximate $4.0 million
impact from the intellectual property tax payment mentioned above
which was not included in our previous guidance
range.
- Full Year 2018 Guidance: Total revenue is
expected to be in the range of $644.0 million to $648.0
million. Billings are expected to be in the range of $798.0
million to $802.0 million. Non-GAAP net income is expected to
be in the range of $50.0 million to $54.0 million, or $0.96 to
$1.03 per share, using 56.3 million weighted average diluted shares
outstanding, and adding back the $4.2 million in cash interest
expense as prescribed under the “If-Converted” method. Free
cash flow is expected to be approximately $135.0 million, which
assumes capital expenditures of approximately $45.0 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 third quarter ended September 30, 2017.
To access this call, dial (877) 795-3599 for the U.S. or
Canada, or (719) 325-2177 for international callers with conference
ID #2246702. 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 November 2,
2017, by dialing (844) 512-2921 for the U.S. or Canada or (412)
317-6671 for international callers, and entering passcode
#2246702.
About Proofpoint, Inc.
Proofpoint Inc. (NASDAQ:PFPT) is a leading next-generation
security and compliance company that provides cloud-based solutions
to protect the way people work today. Proofpoint solutions enable
organizations to protect their users from advanced attacks
delivered via email, social media and mobile apps, protect the
information their users create from advanced attacks and compliance
risks, and respond quickly when incidents occur. 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, win rates and renewal rates, future
growth, 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: 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 and market
acceptance thereof; the ability to attract and retain key
personnel; potential 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; security
breaches, which could affect our brand; the costs of litigation;
the impact of changes in foreign currency exchange rates; 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 Quarterly
Report on Form 10-Q for the three months ended June 30, 2017, 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.
Computational Guidance on Earnings Per Share
Estimates
Accounting principles require that EPS be computed based on the
weighted average shares outstanding ("basic"), and also assuming
the issuance of potentially issuable shares (such as those subject
to stock options, convertible notes, etc.) if those potentially
issuable shares would reduce EPS ("diluted").
The number of shares related to options and similar instruments
included in diluted EPS is based on the "Treasury Stock Method"
prescribed in Financial Accounting Standards Board ("FASB") ASC
Topic 260, Earnings Per Share ("FASB ASC Topic 260"). This method
assumes a theoretical repurchase of shares using the proceeds of
the respective stock option exercise at a price equal to the
issuer's average stock price during the related earnings period.
Accordingly, the number of shares includable in the calculation of
diluted EPS in respect of stock options and similar instruments is
dependent on this average stock price and will increase as the
average stock price increases.
The number of shares includable in the calculation of diluted
EPS in respect of convertible senior notes is based on the "If
Converted" method prescribed in FASB ASC Topic 260. This method
assumes the conversion or exchange of these securities for shares
of common stock. In determining if convertible securities are
dilutive, the interest savings (net of tax) subsequent to an
assumed conversion are added back to net earnings. The shares
related to a convertible security are included in diluted EPS only
if EPS as otherwise calculated is greater than the interest
savings, net of tax, divided by the shares issuable upon exercise
or conversion of the instrument. Accordingly, the calculation of
diluted EPS for these instruments is dependent on the level of net
earnings. Each series of convertible securities is considered
individually and in sequence, starting with the series having the
lowest incremental earnings per share, to determine if its effect
is dilutive or anti-dilutive.
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.
We do not provide a reconciliation of full year 2018 non-GAAP
financial measures to our comparable GAAP financial measures
because we could not do so without unreasonable effort due to
unavailability of information needed to calculate reconciling items
and due to variability, complexity and limited visibility of the
adjusting items that would be excluded from the non-GAAP financial
measures in 2018. When planning, forecasting and analyzing 2018, we
do so primarily on a non-GAAP basis without preparing a GAAP
analysis as that would require estimates for items such as
stock‑based compensation, acquisition-related expenses, and
litigation-related expenses, which are inherently difficult to
predict with reasonable accuracy. Stock-based compensation expense,
for example, is difficult to estimate because it depends on the
company’s future hiring and retention needs, as well as the future
fair market value of the company’s common stock, all of which are
difficult to predict and subject to constant change. In addition,
for purposes of setting annual guidance, it would be difficult to
quantify stock-based compensation expense for the year with
reasonable accuracy in the current quarter.
Non-GAAP gross profit and gross margin. We define non-GAAP gross
profit as GAAP gross profit, adjusted to exclude stock-based
compensation expense and the amortization of intangibles associated
with acquisitions. We define non-GAAP gross margin as non-GAAP
gross profit divided by GAAP revenue. We consider these non-GAAP
financial measures to be useful metrics for management and
investors because they exclude the effect of non-cash charges that
can fluctuate for Proofpoint, based on timing of equity award
grants and the size, timing and purchase price allocation of
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 and non-GAAP gross margin versus gross profit and
gross margin, in each case, calculated in accordance with GAAP. For
example, 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 and non-GAAP gross margin 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 non-GAAP gross
margin and evaluating non-GAAP gross profit and non-GAAP gross
margin together with gross profit and gross margin calculated in
accordance with GAAP.
Non-GAAP operating loss. We define non-GAAP operating loss as
operating loss, adjusted to exclude stock-based compensation
expense and the amortization of intangibles and costs associated
with acquisitions and litigation. Costs associated with
acquisitions include legal, accounting, and other professional
fees, as well as changes in the fair value of contingent
consideration obligations. 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 costs associated with acquisitions
and litigation 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, as noted above, non-GAAP operating loss excludes
stock-based compensation expense. 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, and some of
these items are cash-based. 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,
adjusted to exclude stock-based compensation expense, amortization
of intangibles, costs associated with acquisitions and litigation,
non-cash interest expense related to the convertible debt discount
and issuance costs for the convertible debt offering, and tax
effects associated with these items. 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 costs associated with
acquisitions and litigation, and non-cash interest expense related
to the convertible debt discount and issuance costs for the
convertible debt offering.
In order to provide a complete picture of our recurring core
business operating results, we also compute the tax effect of the
adjustments used in determining our non-GAAP results by calculating
an adjusted tax provision which considers the current and deferred
tax impact of the adjustments. The adjusted tax provision
reflects all of the relevant impacts of the adjustments, inclusive
of those items that have an impact to the effective tax rate,
current provision and deferred provision. As a result of the
varying impacts of each item, the effective tax rate for the
adjusted tax provision will vary period over period as compared to
the GAAP tax provision. The adjusted tax provision is then compared
to the GAAP tax provision, and the difference is reflected as
“income tax benefit (expense)” in the reconciliation between GAAP
net loss/income and Non-GAAP net loss/income.
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 exclude 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.
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. |
Consolidated Statements of
Operations |
(In thousands, except per share
amounts) |
(Unaudited) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September
30, |
|
Nine Months Ended September
30, |
|
|
|
|
2017 |
|
2016 |
|
2017 |
|
2016 |
|
Revenue: |
|
|
|
|
|
|
|
|
|
|
Subscription |
|
|
$ |
131,038 |
|
|
$ |
97,163 |
|
|
$ |
360,891 |
|
|
$ |
261,878 |
|
|
Hardware
and services |
|
|
|
3,274 |
|
|
|
2,621 |
|
|
|
9,000 |
|
|
|
6,813 |
|
|
Total
revenue |
|
|
|
134,312 |
|
|
|
99,784 |
|
|
|
369,891 |
|
|
|
268,691 |
|
|
Cost of
revenue:(1)(2) |
|
|
|
|
|
|
|
|
|
|
Subscription |
|
|
|
31,211 |
|
|
|
23,987 |
|
|
|
89,895 |
|
|
|
68,867 |
|
|
Hardware
and services |
|
|
|
4,800 |
|
|
|
3,293 |
|
|
|
12,985 |
|
|
|
9,895 |
|
|
Total
cost of revenue |
|
|
|
36,011 |
|
|
|
27,280 |
|
|
|
102,880 |
|
|
|
78,762 |
|
|
Gross profit |
|
|
|
98,301 |
|
|
|
72,504 |
|
|
|
267,011 |
|
|
|
189,929 |
|
|
Operating expense:(1)(2) |
|
|
|
|
|
|
|
|
|
|
Research
and development |
|
|
|
32,477 |
|
|
|
24,493 |
|
|
|
94,389 |
|
|
|
70,734 |
|
|
Sales and
marketing |
|
|
|
68,518 |
|
|
|
51,467 |
|
|
|
189,704 |
|
|
|
146,654 |
|
|
General
and administrative |
|
|
|
13,388 |
|
|
|
8,393 |
|
|
|
36,223 |
|
|
|
41,996 |
|
|
Total
operating expense |
|
|
|
114,383 |
|
|
|
84,353 |
|
|
|
320,316 |
|
|
|
259,384 |
|
|
Operating loss |
|
|
|
(16,082 |
) |
|
|
(11,849 |
) |
|
|
(53,305 |
) |
|
|
(69,455 |
) |
|
Interest expense |
|
|
|
(5,733 |
) |
|
|
(5,920 |
) |
|
|
(17,547 |
) |
|
|
(17,529 |
) |
|
Other income (expense),
net |
|
|
|
829 |
|
|
|
(228 |
) |
|
|
884 |
|
|
|
(528 |
) |
|
Loss before provision
for income taxes |
|
|
|
(20,986 |
) |
|
|
(17,997 |
) |
|
|
(69,968 |
) |
|
|
(87,512 |
) |
|
Provision for income
taxes |
|
|
|
(977 |
) |
|
|
(370 |
) |
|
|
(3,410 |
) |
|
|
(812 |
) |
|
Net loss |
|
|
$ |
(21,963 |
) |
|
$ |
(18,367 |
) |
|
$ |
(73,378 |
) |
|
$ |
(88,324 |
) |
|
Net loss per share,
basic and diluted |
|
|
$ |
(0.49 |
) |
|
$ |
(0.44 |
) |
|
$ |
(1.67 |
) |
|
$ |
(2.12 |
) |
|
Weighted average shares
outstanding, basic and diluted |
|
|
|
44,418 |
|
|
|
42,109 |
|
|
|
43,850 |
|
|
|
41,604 |
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Includes
stock‑based compensation expense as follows: |
|
|
|
|
|
|
|
|
|
|
Cost of
subscription revenue |
|
|
$ |
2,876 |
|
|
$ |
2,080 |
|
|
$ |
8,115 |
|
|
$ |
5,439 |
|
|
Cost of
hardware and services revenue |
|
|
|
493 |
|
|
|
375 |
|
|
|
1,401 |
|
|
|
1,120 |
|
|
Research
and development |
|
|
|
7,803 |
|
|
|
6,019 |
|
|
|
22,597 |
|
|
|
17,498 |
|
|
Sales and
marketing |
|
|
|
8,943 |
|
|
|
7,174 |
|
|
|
25,070 |
|
|
|
20,710 |
|
|
General
and administrative |
|
|
|
5,222 |
|
|
|
4,315 |
|
|
|
15,032 |
|
|
|
12,387 |
|
|
Total
stock-based compensation expense |
|
|
$ |
25,337 |
|
|
$ |
19,963 |
|
|
$ |
72,215 |
|
|
$ |
57,154 |
|
|
(2) Includes
intangible amortization expense as follows: |
|
|
|
|
|
|
|
|
|
|
Cost of
subscription revenue |
|
|
$ |
3,190 |
|
|
$ |
2,223 |
|
|
$ |
9,567 |
|
|
$ |
6,458 |
|
|
Research
and development |
|
|
|
15 |
|
|
|
15 |
|
|
|
45 |
|
|
|
45 |
|
|
Sales and
marketing |
|
|
|
875 |
|
|
|
1,429 |
|
|
|
2,791 |
|
|
|
3,938 |
|
|
Total
intangible amortization expense |
|
|
$ |
4,080 |
|
|
$ |
3,667 |
|
|
$ |
12,403 |
|
|
$ |
10,441 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Proofpoint, Inc. |
Consolidated Balance Sheets |
(In thousands, except per share
amounts) |
(Unaudited) |
|
|
|
|
|
|
|
|
|
|
September 30, |
|
December 31, |
|
|
|
|
2017 |
|
2016 |
|
Assets |
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
Cash and
cash equivalents |
|
|
$ |
416,006 |
|
|
$ |
345,426 |
|
|
Short-term investments |
|
|
|
43,620 |
|
|
|
51,325 |
|
|
Accounts
receivable, net |
|
|
|
91,478 |
|
|
|
72,951 |
|
|
Inventory |
|
|
|
457 |
|
|
|
598 |
|
|
Deferred
product costs |
|
|
|
1,654 |
|
|
|
1,829 |
|
|
Deferred
commissions |
|
|
|
21,458 |
|
|
|
21,168 |
|
|
Prepaid
expenses and other current assets |
|
|
|
14,380 |
|
|
|
17,498 |
|
|
Total
current assets |
|
|
|
589,053 |
|
|
|
510,795 |
|
|
Property and equipment,
net |
|
|
|
66,563 |
|
|
|
52,523 |
|
|
Deferred product
costs |
|
|
|
294 |
|
|
|
310 |
|
|
Goodwill |
|
|
|
167,270 |
|
|
|
167,270 |
|
|
Intangible assets,
net |
|
|
|
49,306 |
|
|
|
61,708 |
|
|
Long-term deferred
commissions |
|
|
|
5,476 |
|
|
|
4,496 |
|
|
Other assets |
|
|
|
8,170 |
|
|
|
4,558 |
|
|
Total
assets |
|
|
$ |
886,132 |
|
|
$ |
801,660 |
|
|
Liabilities and
Stockholders’ Equity |
|
|
|
|
|
|
Current
liabilities: |
|
|
|
|
|
|
Accounts
payable |
|
|
$ |
9,646 |
|
|
$ |
15,297 |
|
|
Accrued
liabilities |
|
|
|
54,548 |
|
|
|
50,765 |
|
|
Capital
lease obligations |
|
|
|
34 |
|
|
|
32 |
|
|
Deferred
rent |
|
|
|
511 |
|
|
|
409 |
|
|
Deferred
revenue |
|
|
|
325,070 |
|
|
|
259,109 |
|
|
Total
current liabilities |
|
|
|
389,809 |
|
|
|
325,612 |
|
|
Convertible senior
notes |
|
|
|
381,149 |
|
|
|
366,541 |
|
|
Long-term capital lease
obligations |
|
|
|
63 |
|
|
|
91 |
|
|
Long-term deferred
rent |
|
|
|
3,495 |
|
|
|
2,413 |
|
|
Other long-term
liabilities |
|
|
|
11,215 |
|
|
|
9,008 |
|
|
Long-term deferred
revenue |
|
|
|
67,436 |
|
|
|
53,072 |
|
|
Total
liabilities |
|
|
|
853,167 |
|
|
|
756,737 |
|
|
Stockholders’
equity |
|
|
|
|
|
|
Common stock, $0.0001
par value; 200,000 shares authorized; 44,736 and 43,015 shares
issued and outstanding at September 30, 2017 and December 31, 2016,
respectively |
|
|
|
4 |
|
|
|
4 |
|
|
Additional paid-in
capital |
|
|
|
576,446 |
|
|
|
514,034 |
|
|
Accumulated other
comprehensive loss |
|
|
|
- |
|
|
|
(7 |
) |
|
Accumulated
deficit |
|
|
|
(543,485 |
) |
|
|
(469,108 |
) |
|
Total
stockholders’ equity |
|
|
|
32,965 |
|
|
|
44,923 |
|
|
Total
liabilities and stockholders’ equity |
|
|
$ |
886,132 |
|
|
$ |
801,660 |
|
|
|
|
|
|
|
|
|
Proofpoint, Inc. |
Consolidated Statements of Cash
Flows |
(In thousands) |
(Unaudited) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September
30, |
|
Nine Months Ended September
30, |
|
|
|
|
2017 |
|
2016 |
|
2017 |
|
2016 |
|
Cash flows from
operating activities |
|
|
|
|
|
|
|
|
|
|
Net
loss |
|
|
$ |
(21,963 |
) |
|
$ |
(18,367 |
) |
|
$ |
(73,378 |
) |
|
$ |
(88,324 |
) |
|
Adjustments to reconcile net loss to net cash provided by operating
activities: |
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
|
10,139 |
|
|
|
8,092 |
|
|
|
29,286 |
|
|
|
22,713 |
|
|
Loss on
disposal of property and equipment |
|
|
|
31 |
|
|
|
17 |
|
|
|
388 |
|
|
|
305 |
|
|
Amortization of investment premiums, net of accretion of purchase
discounts |
|
|
|
(5 |
) |
|
|
17 |
|
|
|
5 |
|
|
|
52 |
|
|
Stock‑based compensation |
|
|
|
25,337 |
|
|
|
19,963 |
|
|
|
72,215 |
|
|
|
57,154 |
|
|
Change in
fair value of contingent consideration |
|
|
|
(67 |
) |
|
|
- |
|
|
|
(1,797 |
) |
|
|
- |
|
|
Amortization of debt issuance costs and accretion of debt
discount |
|
|
|
5,603 |
|
|
|
5,248 |
|
|
|
16,491 |
|
|
|
15,516 |
|
|
Foreign
currency transaction (gain) loss |
|
|
|
(573 |
) |
|
|
224 |
|
|
|
(659 |
) |
|
|
259 |
|
|
Changes
in assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
Accounts
receivable |
|
|
|
(15,850 |
) |
|
|
(11,570 |
) |
|
|
(18,575 |
) |
|
|
(14,869 |
) |
|
Inventory |
|
|
|
40 |
|
|
|
(128 |
) |
|
|
141 |
|
|
|
55 |
|
|
Deferred
products costs |
|
|
|
(169 |
) |
|
|
(31 |
) |
|
|
190 |
|
|
|
404 |
|
|
Deferred
commissions |
|
|
|
(2,062 |
) |
|
|
(255 |
) |
|
|
(1,271 |
) |
|
|
366 |
|
|
Prepaid
expenses |
|
|
|
(163 |
) |
|
|
(1,936 |
) |
|
|
(1,849 |
) |
|
|
(2,469 |
) |
|
Other
current assets |
|
|
|
52 |
|
|
|
357 |
|
|
|
312 |
|
|
|
461 |
|
|
Deferred income taxes |
|
|
|
85 |
|
|
|
144 |
|
|
|
(2,031 |
) |
|
|
(23 |
) |
|
Long-term
assets |
|
|
|
272 |
|
|
|
(3 |
) |
|
|
(3,438 |
) |
|
|
48 |
|
|
Accounts
payable |
|
|
|
(540 |
) |
|
|
(3,053 |
) |
|
|
(1,914 |
) |
|
|
2,906 |
|
|
Accrued
liabilities |
|
|
|
11,530 |
|
|
|
3,688 |
|
|
|
15,544 |
|
|
|
2,933 |
|
|
Deferred
rent |
|
|
|
360 |
|
|
|
(91 |
) |
|
|
1,184 |
|
|
|
(103 |
) |
|
Deferred
revenue |
|
|
|
32,158 |
|
|
|
24,970 |
|
|
|
80,326 |
|
|
|
55,613 |
|
|
Net cash
provided by operating activities |
|
|
|
44,215 |
|
|
|
27,286 |
|
|
|
111,170 |
|
|
|
52,997 |
|
|
Cash flows from
investing activities |
|
|
|
|
|
|
|
|
|
|
Proceeds
from sales and maturities of short-term investments |
|
|
|
22,722 |
|
|
|
34,162 |
|
|
|
78,803 |
|
|
|
103,062 |
|
|
Purchase
of short-term investments |
|
|
|
(29,736 |
) |
|
|
(27,491 |
) |
|
|
(71,096 |
) |
|
|
(81,233 |
) |
|
Purchase
of property and equipment |
|
|
|
(11,889 |
) |
|
|
(9,333 |
) |
|
|
(34,756 |
) |
|
|
(25,527 |
) |
|
Payment
to escrow account |
|
|
|
- |
|
|
|
(9,645 |
) |
|
|
- |
|
|
|
(9,645 |
) |
|
Receipts
from escrow account |
|
|
|
496 |
|
|
|
- |
|
|
|
5,116 |
|
|
|
- |
|
|
Acquisitions of business, net of cash acquired |
|
|
|
- |
|
|
|
(8,351 |
) |
|
|
- |
|
|
|
(8,351 |
) |
|
Net cash
used in investing activities |
|
|
|
(18,407 |
) |
|
|
(20,658 |
) |
|
|
(21,933 |
) |
|
|
(21,694 |
) |
|
Cash flows from
financing activities |
|
|
|
|
|
|
|
|
|
|
Proceeds
from issuance of common stock |
|
|
|
3,710 |
|
|
|
4,811 |
|
|
|
16,928 |
|
|
|
15,146 |
|
|
Withholding taxes related to restricted stock net share
settlement |
|
|
|
(6,117 |
) |
|
|
(4,443 |
) |
|
|
(31,239 |
) |
|
|
(17,015 |
) |
|
Repayments of equipment loans and capital lease obligations |
|
|
|
(9 |
) |
|
|
(8 |
) |
|
|
(25 |
) |
|
|
(24 |
) |
|
Holdback
payments for prior acquisitions |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(1,397 |
) |
|
Contingent consideration payment |
|
|
|
(496 |
) |
|
|
- |
|
|
|
(5,116 |
) |
|
|
- |
|
|
Net cash
(used in) provided by financing activities |
|
|
|
(2,912 |
) |
|
|
360 |
|
|
|
(19,452 |
) |
|
|
(3,290 |
) |
|
Effect of
exchange rate changes on cash, cash equivalents and restricted
cash |
|
|
|
460 |
|
|
|
(66 |
) |
|
|
1,035 |
|
|
|
(36 |
) |
|
Net
increase in cash, cash equivalents and restricted cash |
|
|
|
23,356 |
|
|
|
6,922 |
|
|
|
70,820 |
|
|
|
27,977 |
|
|
Cash, cash
equivalents and restricted cash |
|
|
|
|
|
|
|
|
|
|
Beginning
of period |
|
|
|
393,001 |
|
|
|
367,332 |
|
|
|
345,537 |
|
|
|
346,277 |
|
|
End of
period |
|
|
$ |
416,357 |
|
|
$ |
374,254 |
|
|
$ |
416,357 |
|
|
$ |
374,254 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of Non-GAAP
Measures |
|
(In thousands, except per share
amounts) |
|
(Unaudited) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended |
|
Nine Months
Ended |
|
|
|
|
|
September
30, |
|
September
30, |
|
|
|
|
|
2017 |
|
2016 |
|
2017 |
|
2016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GAAP gross profit |
|
|
$ |
98,301 |
|
|
$ |
72,504 |
|
|
$ |
267,011 |
|
|
$ |
189,929 |
|
|
|
GAAP gross margin |
|
|
|
73 |
% |
|
|
73 |
% |
|
|
72 |
% |
|
|
71 |
% |
|
|
Plus: |
|
|
|
|
|
|
|
|
|
|
|
Stock-based
compensation expense |
|
|
|
3,369 |
|
|
|
2,455 |
|
|
|
9,516 |
|
|
|
6,559 |
|
|
|
Intangible amortization
expense |
|
|
|
3,190 |
|
|
|
2,223 |
|
|
|
9,567 |
|
|
|
6,458 |
|
|
|
Non-GAAP gross
profit |
|
|
|
104,860 |
|
|
|
77,182 |
|
|
|
286,094 |
|
|
|
202,946 |
|
|
|
Non-GAAP gross
margin |
|
|
|
78 |
% |
|
|
77 |
% |
|
|
77 |
% |
|
|
76 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GAAP operating
loss |
|
|
|
(16,082 |
) |
|
|
(11,849 |
) |
|
|
(53,305 |
) |
|
|
(69,455 |
) |
|
|
Plus: |
|
|
|
|
|
|
|
|
|
|
|
Stock-based
compensation expense |
|
|
|
25,337 |
|
|
|
19,963 |
|
|
|
72,215 |
|
|
|
57,154 |
|
|
|
Intangible amortization
expense |
|
|
|
4,080 |
|
|
|
3,667 |
|
|
|
12,403 |
|
|
|
10,441 |
|
|
|
Acquisition-related
expenses |
|
|
|
(56 |
) |
|
|
464 |
|
|
|
(1,810 |
) |
|
|
586 |
|
|
|
Litigation-related
expenses |
|
|
|
- |
|
|
|
(1,716 |
) |
|
|
- |
|
|
|
12,941 |
|
|
|
Non-GAAP operating
income |
|
|
|
13,279 |
|
|
|
10,529 |
|
|
|
29,503 |
|
|
|
11,667 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GAAP net loss |
|
|
|
(21,963 |
) |
|
|
(18,367 |
) |
|
|
(73,378 |
) |
|
|
(88,324 |
) |
|
|
Plus: |
|
|
|
|
|
|
|
|
|
|
|
Stock-based
compensation expense |
|
|
|
25,337 |
|
|
|
19,963 |
|
|
|
72,215 |
|
|
|
57,154 |
|
|
|
Intangible amortization
expense |
|
|
|
4,080 |
|
|
|
3,667 |
|
|
|
12,403 |
|
|
|
10,441 |
|
|
|
Acquisition-related
expenses |
|
|
|
(56 |
) |
|
|
464 |
|
|
|
(1,810 |
) |
|
|
586 |
|
|
|
Litigation-related
expenses |
|
|
|
- |
|
|
|
(1,716 |
) |
|
|
- |
|
|
|
12,941 |
|
|
|
Interest expense - debt
discount and issuance costs |
|
|
|
5,603 |
|
|
|
5,248 |
|
|
|
16,491 |
|
|
|
15,516 |
|
|
|
Income tax expense
(1) |
|
|
|
43 |
|
|
|
118 |
|
|
|
671 |
|
|
|
73 |
|
|
|
Non-GAAP net
income |
|
|
$ |
13,044 |
|
|
$ |
9,377 |
|
|
$ |
26,592 |
|
|
$ |
8,387 |
|
|
|
Add interest expense of
convertible senior notes, net of tax (2) |
|
|
|
1,060 |
|
|
|
1,060 |
|
|
|
3,180 |
|
|
|
- |
|
|
|
Numerator for non-GAAP
EPS calculation |
|
|
$ |
14,104 |
|
|
$ |
10,437 |
|
|
$ |
29,772 |
|
|
$ |
8,387 |
|
|
|
Non-GAAP net income per
share - diluted |
|
|
$ |
0.25 |
|
|
$ |
0.19 |
|
|
$ |
0.54 |
|
|
$ |
0.18 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GAAP weighted-average
shares used to compute net loss per share, diluted |
|
|
|
44,418 |
|
|
|
42,109 |
|
|
|
43,850 |
|
|
|
41,604 |
|
|
|
Dilutive effect of
convertible senior notes (2) |
|
|
|
7,938 |
|
|
|
7,989 |
|
|
|
7,938 |
|
|
|
- |
|
|
|
Dilutive effect of
employee equity incentive plan awards (3) |
|
|
|
3,082 |
|
|
|
3,977 |
|
|
|
3,355 |
|
|
|
3,820 |
|
|
|
Non-GAAP
weighted-average shares used to compute net income per share,
diluted |
|
|
|
55,438 |
|
|
|
54,075 |
|
|
|
55,143 |
|
|
|
45,424 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Due to the full valuation allowance on the Company's U.S.
deferred tax assets, there were no tax effects associated with the
non-GAAP adjustments for stock-based compensation expense, costs
associated with acquisitions and litigations, and non-cash interest
expense related to the debt discount and issuance costs for the
convertible debt offerings. Only GAAP deferred tax expenses or
benefits related to the amortization of intangibles were excluded
from the non-GAAP income tax expense. |
|
(2) The Company uses the if-converted method to compute
diluted earnings per share with respect to its convertible senior
notes. There was no add-back of interest expense or additional
dilutive shares related to the convertible senior notes where the
effect was anti-dilutive. |
|
(3) The Company uses the treasury method to compute the
dilutive effect of employee equity incentive plan awards. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of Total Revenue to
Billings |
|
(In thousands) |
|
(Unaudited) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended |
|
Nine Months
Ended |
|
|
|
|
|
September
30, |
|
September
30, |
|
|
|
|
|
2017 |
|
2016 |
|
2017 |
|
2016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue |
|
|
$ |
134,312 |
|
|
$ |
99,784 |
|
|
$ |
369,891 |
|
|
$ |
268,691 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred revenue |
|
|
|
|
|
|
|
|
|
|
|
Ending |
|
|
|
392,506 |
|
|
|
280,539 |
|
|
|
392,506 |
|
|
|
280,539 |
|
|
|
Beginning |
|
|
|
360,349 |
|
|
|
254,370 |
|
|
|
312,181 |
|
|
|
223,726 |
|
|
|
Net Change |
|
|
|
32,157 |
|
|
|
26,169 |
|
|
|
80,325 |
|
|
|
56,813 |
|
|
|
Less: |
|
|
|
|
|
|
|
|
|
|
|
Deferred revenue
contributed by acquisitions |
|
|
|
- |
|
|
|
(1,200 |
) |
|
|
- |
|
|
|
(1,200 |
) |
|
|
Billings |
|
|
$ |
166,469 |
|
|
$ |
124,753 |
|
|
$ |
450,216 |
|
|
$ |
324,304 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of GAAP Cash Flows from
Operations to Free Cash Flows |
(In thousands) |
(Unaudited) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended |
|
Nine Months
Ended |
|
|
|
|
September
30, |
|
September
30, |
|
|
|
|
2017 |
|
2016 |
|
2017 |
|
2016 |
|
|
|
|
|
|
|
|
|
|
|
|
GAAP cash flows
provided by operating activities |
|
|
$ |
44,215 |
|
|
$ |
27,286 |
|
|
$ |
111,170 |
|
|
$ |
52,997 |
|
|
Less: |
|
|
|
|
|
|
|
|
|
|
Purchases of property
and equipment |
|
|
|
(11,889 |
) |
|
|
(9,333 |
) |
|
|
(34,756 |
) |
|
|
(25,527 |
) |
|
Non-GAAP free cash
flows |
|
|
$ |
32,326 |
|
|
$ |
17,953 |
|
|
$ |
76,414 |
|
|
$ |
27,470 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue by Solution |
|
(In thousands) |
|
(Unaudited) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended |
|
|
|
September 30, 2017 |
|
June 30, 2017 |
|
March 31, 2017 |
|
December 31, 2016 |
|
September 30, 2016 |
|
June 30, 2016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Protection and Advanced
Threat |
|
$ |
101,434 |
|
$ |
90,376 |
|
$ |
84,480 |
|
$ |
78,698 |
|
$ |
72,664 |
|
$ |
64,797 |
|
Archiving, Privacy and
Governance |
|
|
32,878 |
|
|
31,953 |
|
|
28,770 |
|
|
28,107 |
|
|
27,120 |
|
|
25,107 |
|
Total revenue |
|
$ |
134,312 |
|
$ |
122,329 |
|
$ |
113,250 |
|
$ |
106,805 |
|
$ |
99,784 |
|
$ |
89,904 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of Non-GAAP Measures to
Guidance |
|
(In millions, except per share
amount) |
|
(Unaudited) |
|
|
|
|
|
|
|
|
|
Three Months
Ending |
|
Year
Ending |
|
|
|
December
31, |
|
December
31, |
|
|
|
2017 |
|
2017 |
|
|
|
|
|
|
|
Total revenue |
|
$138 - $140 |
|
$508 - $510 |
|
|
|
|
|
|
|
GAAP gross profit |
|
99.7 - 101.4 |
|
363.8 - 365.6 |
|
GAAP gross margin |
|
72% |
|
72% |
|
Plus: |
|
|
|
|
|
Stock-based
compensation expense |
|
4.1 - 3.9 |
|
14.6 - 14.3 |
|
Intangible amortization
expense |
|
3.2 |
|
12.8 |
|
Non-GAAP gross
profit |
|
107.0 - 108.5 |
|
391.2 - 392.7 |
|
Non-GAAP gross
margin |
|
77.5% |
|
77% |
|
|
|
|
|
|
|
GAAP net loss |
|
$(28.6) - $(25.5) |
|
$(102.0) - $(98.9) |
|
Plus: |
|
|
|
|
|
Stock-based
compensation expense |
|
28.5 - 26.6 |
|
100.7- 98.8 |
|
Intangible amortization
expense |
|
4.0 |
|
16.4 |
|
Acquisition-related
expenses |
|
- |
|
(1.7) - (1.8) |
|
Interest expense - debt
discount and issuance costs |
|
5.6 - 5.5 |
|
22.2 - 22.1 |
|
Income tax expense |
|
(0.0) - (0.1) |
|
0.5 |
|
Non-GAAP net
income |
|
$9.5 - $10.5 |
|
$36.1 - $37.1 |
|
Add interest expense of
convertible senior notes, net of tax (if dilutive) |
|
1.1 |
|
4.2 |
|
Numerator for non-GAAP
EPS calculation |
|
$10.6 - $11.6 |
|
$40.3 - $41.3 |
|
Non-GAAP net income per
share - diluted |
|
$0.19 - $0.21 |
|
$0.73 - $0.75 |
|
Non-GAAP
weighted-average shares used to compute net income per share,
diluted |
|
55.7 |
|
55.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ending |
|
Year
Ending |
|
|
|
December
31, |
|
December
31, |
|
|
|
2017 |
|
2017 |
|
|
|
|
|
|
|
GAAP cash flows
provided by operating activities |
|
$38.0 - $40.0 |
|
$149.3 - $151.3 |
|
Less: |
|
|
|
|
|
Purchases of property
and equipment |
|
(13.0) |
|
(47.8) |
|
Non-GAAP free cash
flows |
|
$25.0 - $27.0 |
|
$101.5 - $103.5 |
|
|
|
|
|
|
|
Media ContactKristy CampbellProofpoint,
Inc.408-517-4710kcampbell@proofpoint.com
Investor ContactsJason Starr
Proofpoint,
Inc.408-585-4351jstarr@proofpoint.com
Seth PotterICR for Proofpoint,
Inc.646-277-1230seth.potter@icrinc.com
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