Proofpoint Announces Third Quarter 2020 Financial Results

Irene L. Joffman

Third Quarter Highlights

  • Total revenue of $266.7 million, up 17% year-over-year

  • Billings of $294.4 million, up 6% year-over-year

  • GAAP EPS of $(0.55) per share, Non-GAAP EPS of $0.59 per share

  • Operating cash flow of $86.0 million and free cash flow of $64.6 million

  • Increasing FY20 guidance for revenue, Non-GAAP net income and free cash flow

SUNNYVALE, Calif., Oct. 29, 2020 (GLOBE NEWSWIRE) — Proofpoint, Inc. (NASDAQ: PFPT), a leading next-generation security and compliance company, today announced financial results for the third quarter ended September 30, 2020.

“Our strong third quarter results represent another great example of our team’s consistent execution and dedicated focus on protecting our customers from advanced threats and compliance risks,” stated Gary Steele, chief executive officer of Proofpoint. “We are also proud to announce that these results make Proofpoint the first SaaS-based cybersecurity company to surpass $1 billion in revenue on a trailing twelve month basis. The compelling investments we’re making in broadening our product suite provide further opportunity to extend this growth and increase our share of the over $19 billion total addressable market opportunity in the years ahead.” 

Third Quarter 2020 Financial Highlights

  • Revenue: Total revenue for the third quarter of 2020 was $266.7 million, an increase of 17%, compared to $227.4 million for the third quarter of 2019.

  • Billings: Total billings for the third quarter of 2020 were $294.4 million, an increase of 6%, compared to $277.8 million for the third quarter of 2019.

  • Gross Profit: GAAP gross profit for the third quarter of 2020 was $197.7 million, compared to $167.5 million for the third quarter of 2019. Non-GAAP gross profit for the third quarter of 2020 was $215.0 million, compared to $181.0 million for the third quarter of 2019. GAAP gross margin for the third quarter of 2020 was 74%, compared to 74% for the third quarter of 2019. Non-GAAP gross margin for the third quarter of 2020 was 81%, compared to 80% for the third quarter of 2019.

  • Operating Income (Loss): GAAP operating loss for the third quarter of 2020 was $(21.1) million, compared to a loss of $(24.4) million for the third quarter of 2019. Non-GAAP operating income for the third quarter of 2020 was $46.9 million, compared to $33.9 million for the third quarter of 2019.

  • Net Income (Loss): GAAP net loss for the third quarter of 2020 was $(31.9) million, or $(0.55) per share, based on 57.6 million weighted average shares outstanding. This compares to a GAAP net loss of $(44.3) million, or $(0.79) per share, based on 56.0 million weighted average shares outstanding for the third quarter of 2019. Non-GAAP net income for the third quarter of 2020 was $38.4 million, or $0.59 per share, based on 65.8 million weighted average diluted shares outstanding. This compares to a Non-GAAP net profit of $29.8 million, or $0.49 per share, based on 61.2 million weighted diluted shares outstanding for the third quarter of 2019. Non-GAAP earnings per share for the third quarter of 2020 included the 6.0 million shares associated with the company’s convertible notes, and cash interest expense (net of tax) of $0.5 million was added back to net income as the “If-Converted” threshold during this period was achieved.  

  • Cash and Cash Flow: As of September 30, 2020, Proofpoint had cash, cash equivalents, and short-term investments of $1,019.5 million. The company generated $86.0 million in net cash from operations for the third quarter of 2020, compared to $68.6 million during the third quarter of 2019. This result included $8.9 million received as leasehold improvement reimbursement related to the Company’s new corporate headquarters and also a $11.7 million cash tax payment associated with the transfer of certain intellectual property from Israel to the United States associated with the Company’s acquisition of ObserveIT. Capital expenditures were $21.5 million, including $11.6 million related to the Company’s new corporate headquarters. The company’s free cash flow for the third quarter of 2020 was $64.6 million, compared to $58.6 million for the third quarter of 2019.

  • Stock Repurchase Plan: The Company repurchased approximately 112,000 shares at an average price of $104.82 per share during the third quarter of 2020.

“We were pleased to exceed our guidance on all metrics in the third quarter as we continue to execute well against our updated 2020 operating plan by driving attractive growth and profitability through a challenging economic environment,” stated Paul Auvil, chief financial officer of Proofpoint. “Our strong free cash flow generation for the quarter was driven by strong cash collections as a result of exceptional billings linearity during the quarter, and serves as a clear reminder of the operating leverage intrinsic to our business model.”

Financial Outlook

This financial outlook is based on information and assumptions known as of October 29, 2020. We undertake no obligation to update these forward-looking statements as a result of new information or future events. It is Proofpoint’s policy neither to reiterate nor adjust the financial guidance provided in this release unless it is also done through another public disclosure, such as a subsequent press release or filing on Form 8-K. 

Proofpoint is providing its fourth quarter 2020 guidance as follows:

  • Total revenue is expected to be in the range of $268.0 million to $270.0 million.

  • GAAP gross margin is expected to be approximately 73%. Non-GAAP gross margin is expected to be approximately 80%.

  • GAAP net loss is expected to be in the range of $(51.0) million to $(45.6) million, or $(0.89) to $(0.80) per share, based on approximately 57.3 million weighted average shares outstanding. Non-GAAP net income is expected to be in the range of $26.0 million to $28.0 million, or $0.41 to $0.44 per share, using 65.3 million weighted average diluted shares outstanding.

  • Free cash flow is expected to be in the range of $3.0 million to $5.0 million, and includes approximately $1.5 million of expected leasehold improvement reimbursement related to the Company’s new corporate headquarters. Capital expenditures are expected to be approximately $27.0 million, including $19.4 million associated with the Company’s new headquarters build-out.

Proofpoint is providing its full year 2020 guidance as follows:

  • Total revenue is expected to be in the range of $1,042.9 million to $1,044.9 million.

  • GAAP gross margin is expected to be approximately 73%. Non-GAAP gross margin is expected to be 80%.

  • GAAP net loss is expected to be in the range of $(179.7) million to $(174.3) million, or $(3.14) to $(3.04) per share, based on approximately 57.3 million weighted average shares outstanding. Non-GAAP net income is expected to be in the range of $121.6 million to $123.6 million, or $1.88 to $1.91 per share, using 65.7 million weighted average diluted shares outstanding.

  • Free cash flow is expected to be in the range of $166.2 million to $168.2 million. This includes the aforementioned cash tax payment of $11.7 million associated with the transfer of certain intellectual property and approximately $15.7 million of leasehold improvement reimbursement related to the Company’s new corporate headquarters. Capital expenditures are expected to be approximately $72.6 million, including $37.6 million associated with the Company’s new headquarters build-out.

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, 2020. To access this call, dial (888) 220-8451 for the U.S. or Canada, or (646) 828-8193 for international callers, with conference ID 9071818. 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 November 12, 2020, by dialing (844) 512-2921 for the U.S. or Canada or (412) 317-6671 for international callers, and entering passcode 9071818.

About Proofpoint, Inc.

Proofpoint, Inc. (NASDAQ: PFPT) is a leading cybersecurity and compliance 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 for people-centric security and compliance solutions that mitigate their most critical 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: the potential direct and indirect impact of events beyond our control such as the current coronavirus (COVID-19) pandemic on our business, financial condition and operations, including on our customers’ spending and on our expenses, supply chain, and employees; failure to maintain or increase renewals 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, 2020, 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 on our investor relations website at https://investors.proofpoint.com/investors/financials-and-filings/quarterly-and-annual-reports/default.aspx. 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.

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, the amortization of intangibles, costs associated with acquisitions, litigations and facility exit costs related to the relocation of our corporate headquarters. 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 it excludes the effect of stock-based compensation expense and the amortization of intangibles and costs associated with acquisitions, litigations and facility exit costs 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, litigations, facility exit costs related to the relocation of our corporate headquarters, non-cash interest expense related to the convertible debt discount and issuance costs for the convertible debt offering, 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.

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 nine months ended September 30, 2020 and 2019. We use an annual projected tax rate in a computation of the non-GAAP income tax provision, and exclude the impact of stock-based compensation, intangible amortization expenses, costs associated with acquisitions, litigations, facility exit costs related to the relocation of our corporate headquarters, and non-cash interest expense related to the debt discount and issuance costs for the convertible notes. 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 and customer prepayments 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
September 30,

 

 

Nine Months Ended
September 30,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Subscription

 

$

260,672

 

 

$

224,275

 

 

$

759,633

 

 

$

634,639

 

Hardware and services

 

 

5,997

 

 

 

3,110

 

 

 

15,248

 

 

 

10,122

 

Total revenue

 

 

266,669

 

 

 

227,385

 

 

 

774,881

 

 

 

644,761

 

Cost of revenue:(1)(2)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Subscription

 

 

60,144

 

 

 

52,308

 

 

 

179,185

 

 

 

151,208

 

Hardware and services

 

 

8,777

 

 

 

7,573

 

 

 

26,242

 

 

 

21,744

 

Total cost of revenue

 

 

68,921

 

 

 

59,881

 

 

 

205,427

 

 

 

172,952

 

Gross profit

 

 

197,748

 

 

 

167,504

 

 

 

569,454

 

 

 

471,809

 

Operating expense:(1)(2)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

 

71,743

 

 

 

60,060

 

 

 

212,240

 

 

 

168,494

 

Sales and marketing

 

 

121,294

 

 

 

105,502

 

 

 

360,735

 

 

 

305,343

 

General and administrative

 

 

25,821

 

 

 

26,388

 

 

 

70,188

 

 

 

80,094

 

Total operating expense

 

 

218,858

 

 

 

191,950

 

 

 

643,163

 

 

 

553,931

 

Operating loss

 

 

(21,110

)

 

 

(24,446

)

 

 

(73,709

)

 

 

(82,122

)

Interest expense

 

 

(9,106

)

 

 

(3,698

)

 

 

(27,039

)

 

 

(3,698

)

Other (expense) income, net

 

 

(119

)

 

 

2,180

 

 

 

3,410

 

 

 

3,565

 

Loss before income taxes

 

 

(30,335

)

 

 

(25,964

)

 

 

(97,338

)

 

 

(82,255

)

Provision for income taxes

 

 

(1,540

)

 

 

(18,376

)

 

 

(31,369

)

 

 

(19,276

)

Net loss

 

$

(31,875

)

 

$

(44,340

)

 

$

(128,707

)

 

$

(101,531

)

Net loss per share, basic and diluted

 

$

(0.55

)

 

$

(0.79

)

 

$

(2.25

)

 

$

(1.82

)

Weighted average shares outstanding, basic and diluted

 

 

57,616

 

 

 

56,014

 

 

 

57,321

 

 

 

55,708

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1) Includes stock-based compensation expense as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of subscription revenue

 

$

5,132

 

 

$

4,519

 

 

$

15,909

 

 

$

12,663

 

Cost of hardware and services revenue

 

 

1,402

 

 

 

1,043

 

 

 

4,181

 

 

 

3,003

 

Research and development

 

 

16,462

 

 

 

13,735

 

 

 

48,498

 

 

 

37,756

 

Sales and marketing

 

 

19,963

 

 

 

16,515

 

 

 

55,529

 

 

 

46,068

 

General and administrative

 

 

7,948

 

 

 

9,871

 

 

 

14,816

 

 

 

32,864

 

Total stock-based compensation expense

 

$

50,907

 

 

$

45,683

 

 

$

138,933

 

 

$

132,354

 

(2) Includes intangible amortization expense as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of subscription revenue

 

$

10,756

 

 

$

7,886

 

 

$

30,686

 

 

$

22,153

 

Sales and marketing

 

 

3,947

 

 

 

3,632

 

 

 

12,407

 

 

 

10,803

 

Total intangible amortization expense

 

$

14,703

 

 

$

11,518

 

 

$

43,093

 

 

$

32,956

 

Proofpoint, Inc.
Consolidated Balance Sheets
(In thousands, except per share amounts)
(Unaudited)

 

 

September 30,

 

 

December 31,

 

 

 

2020

 

 

2019

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

1,019,523

 

 

$

847,555

 

Short-term investments

 

 

 

 

 

43,385

 

Accounts receivable, net

 

 

180,914

 

 

 

265,741

 

Inventory

 

 

345

 

 

 

1,249

 

Deferred product costs

 

 

2,847

 

 

 

2,723

 

Deferred commissions

 

 

51,779

 

 

 

47,250

 

Prepaid expenses and other current assets

 

 

29,550

 

 

 

22,081

 

Total current assets

 

 

1,284,958

 

 

 

1,229,984

 

Property and equipment, net

 

 

101,250

 

 

 

73,512

 

Operating lease right-of-use assets

 

 

65,248

 

 

 

51,852

 

Long-term deferred product costs

 

 

410

 

 

 

581

 

Goodwill

 

 

688,454

 

 

 

687,517

 

Intangible assets, net

 

 

144,804

 

 

 

186,023

 

Long-term deferred commissions

 

 

96,071

 

 

 

90,305

 

Other assets

 

 

15,017

 

 

 

17,737

 

Total assets

 

$

2,396,212

 

 

$

2,337,511

 

Liabilities and Stockholders Equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

6,012

 

 

$

16,311

 

Accrued liabilities

 

 

140,311

 

 

 

119,423

 

Operating lease liabilities

 

 

23,368

 

 

 

20,202

 

Deferred revenue

 

 

613,107

 

 

 

615,874

 

Total current liabilities

 

 

782,798

 

 

 

771,810

 

Convertible senior notes

 

 

774,934

 

 

 

749,620

 

Long-term operating lease liabilities

 

 

45,464

 

 

 

36,223

 

Other long-term liabilities

 

 

37,127

 

 

 

19,172

 

Long-term deferred revenue

 

 

180,537

 

 

 

168,189

 

Total liabilities

 

 

1,820,860

 

 

 

1,745,014

 

Stockholders equity

 

 

 

 

 

 

 

 

Common stock, $0.0001 par value; 200,000 shares authorized; 57,740 shares issued and 57,628 shares outstanding at September 30, 2020; 56,784 shares issued and outstanding at December 31, 2019

 

 

6

 

 

 

6

 

Additional paid-in capital

 

 

1,441,384

 

 

 

1,318,084

 

Treasury stock, at cost; 112 shares at September 30, 2020

 

 

(11,737

)

 

 

 

Accumulated other comprehensive income

 

 

 

 

 

1

 

Accumulated deficit

 

 

(854,301

)

 

 

(725,594

)

Total stockholders’ equity

 

 

575,352

 

 

 

592,497

 

Total liabilities and stockholders’ equity

 

$

2,396,212

 

 

$

2,337,511

 

Proofpoint, Inc.
Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)

 

 

Three Months Ended
September 30,

 

 

Nine Months Ended
September 30,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Cash flows from operating activities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

$

(31,875

)

 

$

(44,340

)

 

$

(128,707

)

 

$

(101,531

)

Adjustments to reconcile net loss to net cash provided by operating activities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

24,801

 

 

 

20,220

 

 

 

71,261

 

 

 

58,457

 

Stock-based compensation

 

 

50,907

 

 

 

45,683

 

 

 

138,933

 

 

 

132,354

 

Amortization of debt issuance costs and accretion of debt discount

 

 

8,531

 

 

 

3,455

 

 

 

25,314

 

 

 

3,455

 

Amortization of deferred commissions

 

 

16,049

 

 

 

12,763

 

 

 

46,052

 

 

 

36,434

 

Noncash lease costs

 

 

6,352

 

 

 

5,869

 

 

 

19,270

 

 

 

17,216

 

Deferred income taxes

 

 

(575

)

 

 

(1,884

)

 

 

(1,267

)

 

 

(2,494

)

Other

 

 

412

 

 

 

627

 

 

 

680

 

 

 

1,594

 

Changes in assets and liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(7,888

)

 

 

(34,069

)

 

 

84,174

 

 

 

(6,209

)

Inventory

 

 

22

 

 

 

(69

)

 

 

903

 

 

 

55

 

Deferred product costs

 

 

(28

)

 

 

(229

)

 

 

48

 

 

 

(324

)

Deferred commissions

 

 

(20,394

)

 

 

(20,036

)

 

 

(56,347

)

 

 

(51,014

)

Prepaid expenses

 

 

2,331

 

 

 

2,199

 

 

 

(4,442

)

 

 

(5,496

)

Other current assets

 

 

(219

)

 

 

55

 

 

 

(399

)

 

 

514

 

Long-term assets

 

 

(114

)

 

 

(253

)

 

 

(173

)

 

 

(876

)

Accounts payable

 

 

(58

)

 

 

559

 

 

 

(9,571

)

 

 

(2,607

)

Accrued liabilities

 

 

13,491

 

 

 

38,401

 

 

 

33,613

 

 

 

28,030

 

Operating lease liabilities

 

 

(6,555

)

 

 

(6,477

)

 

 

(20,116

)

 

 

(17,925

)

Deferred revenue

 

 

30,833

 

 

 

46,124

 

 

 

9,581

 

 

 

76,474

 

Net cash provided by operating activities

 

 

86,023

 

 

 

68,598

 

 

 

208,807

 

 

 

166,107

 

Cash flows from investing activities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Proceeds from maturities of short-term investments

 

 

11,906

 

 

 

26,853

 

 

 

63,093

 

 

 

81,902

 

Purchase of short-term investments

 

 

 

 

 

(25,268

)

 

 

(19,876

)

 

 

(67,036

)

Purchase of property and equipment

 

 

(21,473

)

 

 

(10,006

)

 

 

(45,622

)

 

 

(23,856

)

Receipts from escrow account

 

 

 

 

 

 

 

 

154

 

 

 

 

Acquisition of businesses, net of cash acquired

 

 

 

 

 

 

 

 

(2,720

)

 

 

(104,503

)

Net cash used in investing activities

 

 

(9,567

)

 

 

(8,421

)

 

 

(4,971

)

 

 

(113,493

)

Cash flows from financing activities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Proceeds from issuance of common stock

 

 

437

 

 

 

827

 

 

 

18,980

 

 

 

15,518

 

Withholding taxes related to restricted stock net share settlement

 

 

(5,763

)

 

 

(6,585

)

 

 

(40,908

)

 

 

(41,590

)

Proceeds from issuance of convertible senior notes, net of costs

 

 

 

 

 

901,293

 

 

 

 

 

 

901,293

 

Purchase of capped calls

 

 

 

 

 

(84,640

)

 

 

 

 

 

(84,640

)

Repurchases of common stock

 

 

(14,004

)

 

 

 

 

 

(14,004

)

 

 

 

Net cash (used in) provided by financing activities

 

 

(19,330

)

 

 

810,895

 

 

 

(35,932

)

 

 

790,581

 

Effect of exchange rate changes on cash, cash equivalents and restricted cash

 

 

1,024

 

 

 

(584

)

 

 

850

 

 

 

(505

)

Net increase in cash, cash equivalents and restricted cash

 

 

58,150

 

 

 

870,488

 

 

 

168,754

 

 

 

842,690

 

Cash, cash equivalents and restricted cash

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning of period

 

 

968,511

 

 

 

158,354

 

 

 

857,907

 

 

 

186,152

 

End of period

 

$

1,026,661

 

 

$

1,028,842

 

 

$

1,026,661

 

 

$

1,028,842

 

Reconciliation of Non-GAAP Measures
(In thousands, except per share amounts)
(Unaudited) 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

GAAP gross profit

 

$

197,748

 

 

$

167,504

 

 

$

569,454

 

 

$

471,809

 

GAAP gross margin

 

 

74

%

 

 

74

%

 

 

73

%

 

 

73

%

Plus:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation expense

 

 

6,534

 

 

 

5,562

 

 

 

20,090

 

 

 

15,666

 

Intangible amortization expense

 

 

10,756

 

 

 

7,886

 

 

 

30,686

 

 

 

22,153

 

Non-GAAP gross profit

 

 

215,038

 

 

 

180,952

 

 

 

620,230

 

 

 

509,628

 

Non-GAAP gross margin

 

 

81

%

 

 

80

%

 

 

80

%

 

 

79

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

GAAP operating loss

 

 

(21,110

)

 

 

(24,446

)

 

 

(73,709

)

 

 

(82,122

)

Plus:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation expense

 

 

50,907

 

 

 

45,683

 

 

 

138,933

 

 

 

132,354

 

Intangible amortization expense

 

 

14,703

 

 

 

11,518

 

 

 

43,093

 

 

 

32,956

 

Acquisition-related expenses

 

 

79

 

 

 

56

 

 

 

843

 

 

 

909

 

Litigation-related expenses

 

 

1,752

 

 

 

1,127

 

 

 

3,531

 

 

 

1,127

 

Facility exit costs

 

 

595

 

 

 

 

 

 

789

 

 

 

 

Non-GAAP operating income

 

 

46,926

 

 

 

33,938

 

 

 

113,480

 

 

 

85,224

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

GAAP net loss

 

 

(31,875

)

 

 

(44,340

)

 

 

(128,707

)

 

 

(101,531

)

Plus:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation expense

 

 

50,907

 

 

 

45,683

 

 

 

138,933

 

 

 

132,354

 

Intangible amortization expense

 

 

14,703

 

 

 

11,518

 

 

 

43,093

 

 

 

32,956

 

Acquisition-related expenses

 

 

79

 

 

 

56

 

 

 

843

 

 

 

909

 

Litigation-related expenses

 

 

1,752

 

 

 

1,127

 

 

 

3,531

 

 

 

1,127

 

Facility exit costs

 

 

595

 

 

 

 

 

 

789

 

 

 

 

Interest expense – debt discount and issuance costs

 

 

8,531

 

 

 

3,455

 

 

 

25,314

 

 

 

3,455

 

Income tax expense (1)

 

 

(6,319

)

 

 

12,277

 

 

 

11,791

 

 

 

4,223

 

Non-GAAP net income

 

 

38,373

 

 

 

29,776

 

 

 

95,587

 

 

 

73,493

 

Add interest expense of convertible senior notes, net of tax (2)

 

 

477

 

 

 

243

 

 

 

1,431

 

 

 

243

 

Numerator for non-GAAP EPS calculation

 

$

38,850

 

 

$

30,019

 

 

$

97,018

 

 

$

73,736

 

Non-GAAP net income per share – diluted

 

$

0.59

 

 

$

0.49

 

 

$

1.48

 

 

$

1.25

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

GAAP weighted-average shares used to compute net loss per share, diluted

 

 

57,616

 

 

 

56,014

 

 

 

57,321

 

 

 

55,708

 

Dilutive effect of convertible senior notes (2)

 

 

5,975

 

 

 

2,533

 

 

 

5,975

 

 

 

854

 

Dilutive effect of employee equity incentive plan awards (3)

 

 

2,174

 

 

 

2,617

 

 

 

2,275

 

 

 

2,604

 

Non-GAAP weighted-average shares used to compute net income per share, diluted

 

 

65,765

 

 

 

61,164

 

 

 

65,571

 

 

 

59,166

 

(1) 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 nine months ended September 30, 2020 and 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, costs associated with acquisitions, litigations, facility exit costs related to the relocation of our corporate headquarters, and non-cash interest expense related to the debt discount and issuance costs for the convertible notes.

(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,

 

 

 

 

2020

 

 

 

2019

 

 

 

2020

 

 

 

2019

 

Total revenue

 

$

266,669

 

 

$

227,385

 

 

$

774,881

 

 

$

644,761

 

Deferred revenue and customer prepayments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ending

 

 

804,197

 

 

 

688,105

 

 

 

804,197

 

 

 

688,105

 

Beginning

 

 

776,255

 

 

 

635,450

 

 

 

797,173

 

 

 

605,073

 

Net Change

 

 

27,942

 

 

 

52,655

 

 

 

7,024

 

 

 

83,032

 

Unbilled accounts receivable

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ending

 

 

1,756

 

 

 

4,060

 

 

 

1,756

 

 

 

4,060

 

Beginning

 

 

1,542

 

 

 

1,861

 

 

 

2,255

 

 

 

1,276

 

Net Change

 

 

(214

)

 

 

(2,199

)

 

 

499

 

 

 

(2,784

)

Less:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deferred revenue and customer prepayments contributed by acquisitions

 

 

 

 

 

 

 

 

 

 

 

 

Billings

 

$

294,397

 

 

$

277,841

 

 

$

782,404

 

 

$

725,009

 

Reconciliation of GAAP Cash Flows from Operations to Free Cash Flows
(In thousands)
(Unaudited)

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

GAAP cash flows provided by operating activities

 

$

86,023

 

 

$

68,598

 

 

$

208,807

 

 

$

166,107

 

Less:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Purchases of property and equipment

 

 

(21,473

)

 

 

(10,006

)

 

 

(45,622

)

 

 

(23,856

)

Non-GAAP free cash flows

 

$

64,550

 

 

$

58,592

 

 

$

163,185

 

 

$

142,251

 

Reconciliation of Non-GAAP Measures to Guidance
(In millions, except per share amount)
(Unaudited)

 

 

Three Months Ending

 

 

Year Ending

 

 

 

December 31,

 

 

December 31,

 

 

 

2020

 

 

2020

 

 

 

 

 

 

 

 

Total revenue

 

$268.0 – $270.0

 

 

$1,042.9 – $1,044.9

 

 

 

 

 

 

 

 

GAAP gross profit

 

195.9 – 197.9

 

 

765.4 – 767.4

 

GAAP gross margin

 

73%

 

 

73%

 

Plus:

 

 

 

 

 

 

Stock-based compensation expense

 

7.9 – 7.5

 

 

28.0 – 27.6

 

Intangible amortization expense

 

10.6

 

 

41.3

 

Non-GAAP gross profit

 

214.4 – 216.0

 

 

834.7 – 836.3

 

Non-GAAP gross margin

 

80%

 

 

80%

 

 

 

 

 

 

 

 

GAAP net loss

 

(51.0) – (45.6)

 

 

(179.7) – (174.3)

 

Plus:

 

 

 

 

 

 

Stock-based compensation expense

 

55.1 – 52.1

 

 

194.0 – 191.0

 

Intangible amortization expense

 

14.4

 

 

57.5

 

Acquisition-related expenses

 

 

 

0.8

 

Litigation-related expenses

 

1.9

 

 

5.4

 

Facility exit costs

 

0.6

 

 

1.5

 

Interest expense – debt discount and issuance costs

 

8.6

 

 

33.9

 

Income tax expense

 

(3.6) – (4.0)

 

 

8.2 – 7.8

 

Non-GAAP net income

 

26.0 – 28.0

 

 

121.6 – 123.6

 

Add interest expense of convertible senior notes, net of tax (if dilutive)

 

0.5

 

 

1.9

 

Numerator for non-GAAP EPS calculation

 

$26.5 – $28.5

 

 

$123.5 – $125.5

 

Non-GAAP net income per share – diluted

 

$0.41 – $0.44

 

 

$1.88 – $1.91

 

Non-GAAP weighted-average shares used to compute net income per share, diluted

 

65.3

 

 

65.7

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ending

 

 

Year Ending

 

 

 

December 31,

 

 

December 31,

 

 

 

2020

 

 

2020

 

 

 

 

 

 

 

 

GAAP cash flows provided by operating activities

 

$30.0 – $32.0

 

 

$238.8 – $240.8

 

Less:

 

 

 

 

 

 

Purchases of property and equipment

 

(27.0)

 

 

(72.6)

 

Non-GAAP free cash flows

 

$3.0 – $5.0

 

 

$166.2 – $168.2

 

Media Contact

Kristy Campbell
Proofpoint, Inc.
408-517-4710
[email protected]

Investor Contact

Jason Starr

Proofpoint, Inc.

408-585-4351

[email protected]

Next Post

Less traffic implies N.J. highways are getting paved faster

When traffic dropped mainly because of the international coronavirus pandemic, New Jersey freeway companies did the asphalt equivalent of generating lemonade from lemons – they accelerated paving and development jobs whilst coronavirus travel restrictions held automobiles off the road. Now, the emphasis is putting billions of dollars of building venture […]

Subscribe US Now