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CST: 23/10/2019 02:39:30   

Proofpoint Announces Second Quarter 2019 Financial Results

89 Days ago

Second Quarter Highlights

  • Total revenue of $214.4 million, up 25% year-over-year
  • Billings of $232.1 million, up 17% year-over-year
  • GAAP EPS of $(0.52) per share, Non-GAAP EPS of $0.41 per share
  • Operating cash flow of $43.4 million and free cash flow of $35.0 million
  • Increasing FY19 billings, revenue and profitability guidance

SUNNYVALE, Calif., July 25, 2019 (GLOBE NEWSWIRE) -- Proofpoint, Inc. (NASDAQ: PFPT), a leading next-generation security and compliance company, today announced financial results for the second quarter ended June 30, 2019.

“Our second quarter results represent another clear example of our team’s consistent execution and strong focus on our customers and innovation,” stated Gary Steele, chief executive officer of Proofpoint. “The significant investments we’re making in broadening our product suite, and the encouraging progress we’re seeing with our bundling strategy, provide further opportunity to drive attractive growth and increase our market share in the over $13 billion total addressable market.”

Second Quarter 2019 Financial Highlights

  • Revenue: Total revenue for the second quarter of 2019 was $214.4 million, an increase of 25%, compared to $171.9 million for the second quarter of 2018.

  • Billings: Total billings for the second quarter of 2019 were $232.1 million, an increase of 17%, compared to $197.9 million for the second quarter of 2018.

  • Gross Profit: GAAP gross profit for the second quarter of 2019 was $156.6 million compared to $121.1 million for the second quarter of 2018. Non-GAAP gross profit for the second quarter of 2019 was $169.4 million compared to $132.4 million for the second quarter of 2018. GAAP gross margin for the second quarter of 2019 was 73% compared to 70% for the second quarter of 2018. Non-GAAP gross margin for the second quarter of 2019 was 79% compared to 77% for the second quarter of 2018.
  • Operating Income (Loss): GAAP operating loss for the second quarter of 2019 was $(29.3) million compared to a loss of $(30.4) million for the second quarter of 2018. Non-GAAP operating income for the second quarter of 2019 was $28.4 million compared to $14.9 million for the second quarter of 2018.

    Net Income (Loss): GAAP net loss for the second quarter of 2019 was $(28.9) million, or $(0.52) per share, based on 55.8 million weighted average shares outstanding. This compares to a GAAP net loss of $(34.3) million, or $(0.67) per share, based on 50.9 million weighted average shares outstanding for the second quarter of 2018. Non-GAAP net income for the second quarter of 2019 was $24.1 million, or $0.41 per share, based on 58.1 million weighted average diluted shares outstanding. This result included an additional $4.7 million in non-cash income tax expense, at an effective rate of 17%, using the SEC’s Non-GAAP Financial Measures Compliance and Disclosure Interpretations (C&DI 102.11) compared to the Company’s historical calculation methodology, and as disclosed on April 25, 2019.
  • Cash and Cash Flow: As of June 30, 2019, Proofpoint had cash, cash equivalents, and short-term investments of $182.7 million. The company generated $43.4 million in net cash from operations for the second quarter of 2019 compared to $30.1 million during the second quarter of 2018. The company’s free cash flow for the second quarter of 2019 was $35.0 million compared to $22.0 million for the second quarter of 2018.

“We are pleased with our ability to exceed expectations during the second quarter and further demonstrate the strong operating leverage inherent within our financial model,” stated Paul Auvil, chief financial officer of Proofpoint. “The company remains well-positioned to execute our disciplined growth strategy given the ongoing investments we’re making in expanding our product portfolio for our customers and driving strong returns on behalf of our shareholders.”

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.”

Financial Outlook

As of July 25, 2019, Proofpoint is providing its third quarter and full year 2019 guidance as follows:

  • Third Quarter 2019 Guidance: Total revenue is expected to be in the range of $223.0 million to $225.0 million. Billings are expected to be in the range of $274.0 million to $276.0 million. GAAP gross margin is expected to be 73%. Non-GAAP gross margin is expected to be approximately 79%. GAAP net loss is expected to be in the range of $(53.9) million to $(50.0) million, or $(0.96) to $(0.89) per share, based on approximately 56.0 million weighted average diluted shares outstanding. This estimate for GAAP net loss also includes a GAAP tax expense of approximately $20.0 million for the transfer of certain intellectual property from Israel to the United States associated with the acquisition of Meta Networks. Non-GAAP net income is expected to be in the range of $21.5 to $23.5 million, or $0.37 to $0.40 per share, using 58.6 million weighted average diluted shares outstanding, and based on our reporting under C&DI 102.11. Free cash flow during the quarter is expected to be in the range of $40.0 million to $42.0 million, and includes an assumed cash tax payment of approximately $10.0 million for the transfer of certain intellectual property associated with the acquisition of Meta Networks. Excluding this one-time expense, free cash flow guidance would have been $50.0 million to $52.0 million.  Capital expenditures are expected to be approximately $10.0 million.

  • Full Year 2019 Guidance: Total revenue is expected to be in the range of $878.5 million to $880.5 million. Billings are expected to be in the range of $1,064.0 million to $1,068.0 million. GAAP gross margin is expected to be 73%. Non-GAAP gross margin is expected to be 79%. GAAP net loss is expected to be in the range of $(124.3) million to $(118.9) million, or $(2.22) to $(2.13) per share, based on approximately 55.9 million weighted average diluted shares outstanding. As noted in the paragraph above, this estimate for GAAP net loss includes a GAAP tax expense of approximately $20.0 million for the transfer of certain intellectual property from Israel to the United States associated with the acquisition of Meta Networks. Non-GAAP net income is expected to be in the range of $94.0 million to $96.0 million, or $1.61 to $1.64 per share, using 58.5 million weighted average diluted shares outstanding, and based on our reporting under C&DI 102.11. Free cash flow is expected to be in the range of $196.0 million to $198.0 million, which includes the aforementioned $10.0 million tax payment expected in the third quarter associated with the acquisition of Meta Networks and not contemplated in the annual guidance provided on April 25, 2019. Excluding this one-time expense, free cash flow guidance would have been $206.0 to $208.0 million.  Capital expenditures are expected to be approximately $38.0 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 second quarter ended June 30, 2019. To access this call, dial (800) 263-0877 for the U.S. or Canada, or (323) 794-2094 for international callers, with conference ID #4345370. A live webcast, and an archived recording of the conference call will be accessible from the Investors section of Proofpoint’s website at investors.proofpoint.com. An audio replay of this conference call will also be available through August 8, 2019, by dialing (844) 512-2921 for the U.S. or Canada or (412) 317-6671 for international callers, and entering passcode #4345370.

About Proofpoint, Inc.

Proofpoint, Inc. (NASDAQ: PFPT) is a leading cybersecurity company that protects organizations’ greatest assets and biggest risks: their people. With an integrated suite of cloud-based solutions, Proofpoint helps companies around the world stop targeted threats, safeguard their data, and make their users more resilient against cyber attacks. Leading organizations of all sizes, including more than half of the Fortune 1000, rely on Proofpoint to mitigate their most critical security and compliance risks across email, the cloud, social media, and the web. 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 March 31, 2019, 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.

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 income. We define non-GAAP operating income 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 income versus operating loss calculated in accordance with GAAP. For example, as noted above, non-GAAP operating income excludes stock-based compensation expense. In addition, the components of the costs that we exclude in our calculation of non-GAAP operating income 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 income and evaluating non-GAAP operating income together with operating loss calculated in accordance with GAAP.

Non-GAAP net income. We define non-GAAP net income 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, loss on conversion of convertible debt, and tax effects. 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 income.

Starting January 1, 2019, we changed the calculation of our non-GAAP provision for income taxes in accordance with the SEC’s Non-GAAP Financial Measures Compliance and Disclosure Interpretations. Our current and deferred income tax expense is commensurate with the non-GAAP measure of profitability using a non-GAAP tax rate of 17% for the three and six months ended June 30, 2019. We use an annual projected tax rate in a computation of the non-GAAP income tax provision, and exclude the direct impact of stock-based compensation and intangible amortization expenses. The projected rate considers other factors such as our current operating structure, existing tax positions in various jurisdictions, and key legislation in major jurisdictions where we operate.

Billings. We define billings as revenue recognized plus the change in deferred revenue and customer prepayments less change in unbilled accounts receivable from the beginning to the end of the period, but excluding additions to deferred revenue from acquisitions. Customer prepayments represent billed amounts for which the contract can be terminated and the customer has a right of refund. Unbilled accounts receivable represent amounts for which the company has recognized revenue, pursuant to its revenue recognition policy, for subscription software already delivered and professional services already performed, but billed in arrears and for which the company believes it has an unconditional right to payment. 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
June 30,
  Six Months Ended
June 30,
      2019       2018       2019       2018  
Revenue:                
Subscription   $ 210,780     $ 169,019     $ 410,364     $ 327,806  
Hardware and services     3,659       2,856       7,012       6,530  
Total revenue     214,439       171,875       417,376       334,336  
Cost of revenue:(1)(2)                
Subscription     50,648       45,618       98,900       87,816  
Hardware and services     7,180       5,154       14,171       10,013  
Total cost of revenue     57,828       50,772       113,071       97,829  
Gross profit     156,611       121,103       304,305       236,507  
Operating expense:(1)(2)                
Research and development     55,185       47,527       108,434       91,259  
Sales and marketing     102,837       84,911       199,841       162,808  
General and administrative     27,881       19,029       53,706       36,554  
Total operating expense     185,903       151,467       361,981       290,621  
Operating loss     (29,292 )     (30,364 )     (57,676 )     (54,114 )
Interest income (expense)     1,068       (3,187 )     2,246       (6,008 )
Other expense, net     (409 )     (633 )     (861 )     (290 )
Loss before income taxes     (28,633 )     (34,184 )     (56,291 )     (60,412 )
(Provision for) benefit from income taxes     (280 )     (114 )     (900 )     13,958  
Net loss   $ (28,913 )   $ (34,298 )   $ (57,191 )   $ (46,454 )
Net loss per share, basic and diluted   $ (0.52 )   $ (0.67 )   $ (1.03 )   $ (0.92 )
Weighted average shares outstanding, basic and diluted     55,768       50,935       55,553       50,721  
(1)  Includes stock‑based compensation expense as follows:                
Cost of subscription revenue   $ 4,269     $ 3,448     $ 8,144     $ 6,899  
Cost of hardware and services revenue     1,054       571       1,960       1,162  
Research and development     12,522       9,986       24,021       20,021  
Sales and marketing     15,799       12,382       29,553       23,884  
General and administrative     12,006       7,410       22,993       12,903  
     Total stock-based compensation expense   $ 45,650     $ 33,797     $ 86,671     $ 64,869  
(2)  Includes intangible amortization expense as follows:                
Cost of subscription revenue   $ 7,505     $ 7,244     $ 14,267     $ 13,020  
Research and development     -       15       -       30  
Sales and marketing     3,634       3,982       7,171       6,397  
     Total intangible amortization expense   $ 11,139     $ 11,241     $ 21,438     $ 19,447  
                 

 

Proofpoint, Inc.
Consolidated Balance Sheets
(In thousands, except per share amounts)
(Unaudited)
         
    June 30,   December 31,
      2019       2018  
Assets        
Current assets:        
Cash and cash equivalents   $ 149,697     $ 185,392  
Short-term investments     33,008       46,307  
Accounts receivable, net     170,998       199,194  
Inventory     356       481  
Deferred product costs     1,902       1,800  
Deferred commissions     40,208       37,391  
Prepaid expenses and other current assets     21,300       16,872  
Total current assets     417,469       487,437  
Property and equipment, net     70,688       70,627  
Operating lease right-of-use asset     52,156       -  
Long-term deferred product costs     296       303  
Goodwill     543,143       460,425  
Intangible assets, net     136,207       136,645  
Long-term deferred commissions     74,479       69,989  
Other assets     15,426       7,592  
Total assets   $ 1,309,864     $ 1,233,018  
Liabilities and Stockholders’ Equity        
Current liabilities:        
Accounts payable   $ 18,567     $ 20,237  
Accrued liabilities     71,336       90,719  
Deferred rent     -       829  
Operating lease liabilities     22,510       -  
Deferred revenue     515,048       490,296  
Total current liabilities     627,461       602,081  
Long-term deferred rent     -       3,757  
Long-term operating lease liabilities     34,461       -  
Other long-term liabilities     9,223       6,812  
Long-term deferred revenue     113,431       107,834  
Total liabilities     784,576       720,484  
Stockholders’ equity        
Common stock, $0.0001 par value; 200,000 shares authorized; 56,043 and 55,149
   shares issued and outstanding at June 30, 2019, and
   December 31, 2018, respectively
    6       6  
Additional paid-in capital     1,177,800       1,107,953  
Accumulated other comprehensive income (loss)     2       (7 )
Accumulated deficit     (652,520 )     (595,418 )
Total stockholders’ equity     525,288       512,534  
Total liabilities and stockholders’ equity   $ 1,309,864     $ 1,233,018  
         


Proofpoint, Inc.
Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
                 
    Three Months Ended
June 30,
  Six Months Ended
June 30,
      2019       2018       2019       2018  
Cash flows from operating activities                
Net loss   $ (28,913 )   $ (34,298 )   $ (57,191 )   $ (46,454 )
Adjustments to reconcile net loss to net cash provided by operating activities:                
Depreciation and amortization     19,577       19,354       38,237       34,878  
Stock-based compensation     45,650       33,797       86,671       64,869  
Change in fair value of contingent consideration     -       -       -       (79 )
Amortization of debt issuance costs and accretion of debt discount     -       3,100       -       6,153  
Amortization of deferred commissions     12,400       8,334       23,671       16,708  
Amortization of operating lease right-of-use assets     5,713       -       11,347       -  
Deferred income taxes     (550 )     (124 )     (610 )     (14,896 )
Other     233       1,033       967       820  
Changes in assets and liabilities:                
Accounts receivable     (7,756 )     (21,589 )     27,860       (23,025 )
Inventory     255       203       124       330  
Deferred products costs     (195 )     (147 )     (95 )     (253 )
Deferred commissions     (18,063 )     (12,715 )     (30,978 )     (21,929 )
Prepaid expenses     (1,326 )     1,282       (7,695 )     (2,614 )
Other current assets     237       5       459       1,657  
Long-term assets     (154 )     236       (623 )     350  
Accounts payable     1,139       (801 )     (3,166 )     4,210  
Accrued liabilities     2,176       7,253       (10,371 )     (4,498 )
Deferred rent     -       (53 )     -       61  
Operating lease liabilities     (5,260 )     -       (11,448 )     -  
Deferred revenue     18,247       25,194       30,350       48,698  
  Net cash provided by operating activities     43,410       30,064       97,509       64,986  
Cash flows from investing activities                
Proceeds from maturities of short-term investments     22,776       5,932       55,049       37,432  
Proceeds from sales of short-term investments     -       -       -       11,931  
Purchase of short-term investments     (15,395 )     (9,933 )     (41,768 )     (23,694 )
Purchase of property and equipment     (8,373 )     (8,072 )     (13,850 )     (16,611 )
Receipts from escrow account     -       -       -       555  
Acquisitions of business, net of cash acquired     (104,503 )     -       (104,503 )     (223,786 )
  Net cash used in investing activities     (105,495 )     (12,073 )     (105,072 )     (214,173 )
Cash flows from financing activities                
Proceeds from issuance of common stock     13,586       10,323       14,691       13,001  
Withholding taxes related to restricted stock net share settlement     (10,382 )     (14,597 )     (35,005 )     (34,640 )
Repayments of equipment loans and capital lease obligations     -       (4 )     -       (16 )
Contingent consideration payment     -       -       -       (555 )
  Net cash provided by (used in) financing activities     3,204       (4,278 )     (20,314 )     (22,210 )
  Effect of exchange rate changes on cash, cash equivalents and restricted cash     (127 )     (587 )     79       (213 )
  Net (decrease) increase in cash, cash equivalents and restricted cash     (59,008 )     13,126       (27,798 )     (171,610 )
Cash, cash equivalents and restricted cash                
Beginning of period     217,362       101,924       186,152       286,660  
End of period   $ 158,354     $ 115,050     $ 158,354     $ 115,050  
                 

 

Reconciliation of Non-GAAP Measures
(In thousands, except per share amounts)
(Unaudited)
                   
      Three Months Ended       Six Months Ended    
      June 30,       June 30,    
      2019       2018       2019       2018    
                   
                   
GAAP gross profit   $ 156,611     $ 121,103     $ 304,305     $ 236,507    
GAAP gross margin     73 %     70 %     73 %     71 %  
Plus:                  
Stock-based compensation expense     5,323       4,019       10,104       8,061    
Intangible amortization expense     7,505       7,244       14,267       13,020    
Non-GAAP gross profit     169,439       132,366       328,676       257,588    
Non-GAAP gross margin     79 %     77 %     79 %     77 %  
                   
GAAP operating loss     (29,292 )     (30,364 )     (57,676 )     (54,114 )  
Plus:                  
Stock-based compensation expense     45,650       33,797       86,671       64,869    
Intangible amortization expense     11,139       11,241       21,438       19,447    
Acquisition-related expenses     853       265       853       1,433    
Non-GAAP operating income     28,350       14,939       51,286       31,635    
                   
GAAP net loss     (28,913 )     (34,298 )     (57,191 )     (46,454 )  
Plus:                  
Stock-based compensation expense     45,650       33,797       86,671       64,869    
Intangible amortization expense     11,139       11,241       21,438       19,447    
Acquisition-related expenses     853       265       853       1,433    
Interest expense - debt discount and issuance costs     -       3,100       -       6,153    
Income tax expense (1)     (4,652 )     26       (8,054 )     (14,694 )  
Non-GAAP net income   $ 24,077     $ 14,131     $ 43,717     $ 30,754    
Add interest expense of convertible senior notes, net of tax (2)     -       431       -       862    
Numerator for non-GAAP EPS calculation   $ 24,077     $ 14,562     $ 43,717     $ 31,616    
Non-GAAP net income per share - diluted   $ 0.41     $ 0.26     $ 0.75     $ 0.56    
                   
GAAP weighted-average shares used to compute net loss per share, diluted     55,768       50,935       55,553       50,721    
Dilutive effect of convertible senior notes (2)     -       2,831       -       2,831    
Dilutive effect of employee equity incentive plan awards (3)     2,305       3,056       2,459       3,082    
Non-GAAP weighted-average shares used to compute net income per share, diluted     58,073       56,822       58,012       56,634    
                   
(1) Starting January 1, 2019, the Company changed the calculation of its non-GAAP provision for income taxes in accordance with the SEC’s Non-GAAP Financial Measures Compliance and Disclosure Interpretations. The Company’s current and deferred income tax expense commensurate with the non-GAAP measure of profitability using non-GAAP tax rate of 17% for the three and six months ended June 30, 2019. The Company uses annual projected tax rate in its computation of the non-GAAP income tax provision, and excludes the direct impact of stock-based compensation, intangible amortization expenses and acquisition-related expenses.  The change has no impact on tax liability or cash flows. For the three and six months ended June 30, 2018, only GAAP deferred tax expenses or benefits related to the amortization of intangible assets and deferred tax benefits related to changes in the Company's valuation allowance resulting from business acquisitions were excluded from the non-GAAP income tax expense. The Non-GAAP income tax for the six months ended June 30, 2018, excluded $14,725 of deferred tax benefits related to a reduction in the Company’s deferred tax valuation allowance resulting from the Wombat Acquisition.
 
(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       Six Months Ended    
      June 30,       June 30,    
      2019       2018       2019       2018    
Total revenue   $ 214,439     $ 171,875     $ 417,376     $ 334,336    
Deferred revenue and customer prepayments                  
Ending     635,450       496,315       635,450       496,315    
Beginning     617,170       470,195       605,073       431,371    
Net Change     18,280       26,120       30,377       64,944    
Unbilled accounts receivable                  
Ending     1,861       1,090       1,861       1,090    
Beginning     1,261       966       1,276       603    
Net Change     (600 )     (124 )     (585 )     (487 )  
Less:                  
Deferred revenue contributed by acquisitions     -       -       -       (14,700 )  
Billings   $ 232,119     $ 197,871     $ 447,168     $ 384,093    
                   

 

Reconciliation of GAAP Cash Flows from Operations to Free Cash Flows
(In thousands)
(Unaudited)
                 
      Three Months Ended       Six Months Ended  
      June 30,       June 30,  
      2019       2018       2019       2018  
                 
GAAP cash flows provided by operating activities   $ 43,410     $ 30,064     $ 97,509     $ 64,986  
Less:                
Purchases of property and equipment     (8,373 )     (8,072 )     (13,850 )     (16,611 )
Non-GAAP free cash flows   $ 35,037     $ 21,992     $ 83,659     $ 48,375  
                 

 

Revenue by Solution
(In thousands)
(Unaudited)
                       
    Three Months Ended  
  June 30,
2019
  March 31,
2019
  December 31,
2018
  September 30,
2018
  June 30,
2018
  March 31,
2018
                       
Advanced Threat $ 156,569   $ 151,325   $ 147,367   $ 137,953   $ 129,208   $ 123,613
Compliance   57,870     51,612     51,112     46,226     42,667     38,848
Total revenue $ 214,439   $ 202,937   $ 198,479   $ 184,179   $ 171,875   $ 162,461
                       

 

Reconciliation of Non-GAAP Measures to Guidance
(In millions, except per share amount)
(Unaudited)
         
      Three Months Ending       Year Ending  
      September 30,       December 31,  
    2019    2019 
         
Total revenue   $223.0 - $225.0   $878.5 - $880.5
         
GAAP gross profit   162.7 - 164.5   642.6 - 646.2
GAAP gross margin   73%   73%
Plus:        
Stock-based compensation expense   5.6 - 5.4   19.9 - 19.5
Intangible amortization expense   7.9    29.9 
Non-GAAP gross profit   176.2 - 177.8   692.4 - 695.6
Non-GAAP gross margin   79%   79%
         
GAAP net loss   $(53.9) - $(50.0)   $(124.3) - $(118.9)
Plus:        
Stock-based compensation expense   47.5 - 46.0   170.0- 167.0
Intangible amortization expense   11.5    44.3 
Acquisition-related expenses   -   0.9
Income tax expense    16.4 - 16.0     3.1 - 2.7 
Non-GAAP net income    $21.5 - $23.5     $94.0 - $96.0 
Non-GAAP net income per share - diluted    $0.37 - $0.40     $1.61 - $1.64 
Non-GAAP weighted-average shares used to compute net income per share, diluted   58.6    58.5 
         
         
      Three Months
Ending
 
    Year Ending  
      September 30,       December 31,  
    2019    2019 
         
GAAP cash flows provided by operating activities    $50.0 - $52.0     $234.0 - $236.0 
Less:        
Purchases of property and equipment   (10.0)   (38.0)
Non-GAAP free cash flows    $40.0 - $42.0     $196.0 - $198.0 
         

Media Contact

Kristy Campbell
Proofpoint, Inc.
408-517-4710
kcampbell@proofpoint.com

Investor Contacts

Jason Starr
Proofpoint, Inc.
408-585-4351
jstarr@proofpoint.com

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