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Press Release: Proofpoint Announces Fourth -3-

· 02/04/2021 16:05
Three Months Ended Twelve Months Ended December 31, December 31, -------------------- ------------------------- 2020 2019 2020 2019 --------- --------- ----------- ------------ Revenue: Subscription $271,412 $240,367 $1,031,045 $ 875,006 Hardware and services 3,717 3,062 18,965 13,184 ------- ------- --------- -------- Total revenue 275,129 243,429 1,050,010 888,190 Cost of revenue:(1)(2) Subscription 61,430 55,789 240,615 206,997 Hardware and services 8,602 7,473 34,844 29,217 ------- ------- --------- -------- Total cost of revenue 70,032 63,262 275,459 236,214 ------- ------- --------- -------- Gross profit 205,097 180,167 774,551 651,976 Operating expense:(1)(2) Research and development 71,559 61,969 283,799 230,463 Sales and marketing 127,500 111,374 488,235 416,717 General and administrative 27,525 29,633 97,713 109,727 ------- ------- --------- -------- Total operating expense 226,584 202,976 869,747 756,907 ------- ------- --------- -------- Operating loss (21,487) (22,809) (95,196) (104,931) Interest expense (9,202) (8,828) (36,241) (12,526) Other (expense) income, net (2,862) 3,544 548 7,109 ------- ------- --------- -------- Loss before income taxes (33,551) (28,093) (130,889) (110,348) Provision for income taxes (1,551) (641) (32,920) (19,917) ------- ------- --------- -------- Net loss $(35,102) $(28,734) $ (163,809) $(130,265) ======= ======= ========= ======== Net loss per share, basic and diluted $ (0.61) $ (0.51) $ (2.86) $ (2.33) Weighted average shares outstanding, basic and diluted 57,335 56,474 57,324 55,902 (1) Includes stock-based compensation expense as follows: Cost of subscription revenue $ 4,662 $ 4,303 $ 20,571 $ 16,966 Cost of hardware and services revenue 1,288 998 5,469 4,001 Research and development 15,006 12,983 63,504 50,739 Sales and marketing 19,039 15,790 74,568 61,858 General and administrative 7,771 9,897 22,587 42,761 ------- ------- --------- -------- Total stock-based compensation expense $ 47,766 $ 43,971 $ 186,699 $ 176,325 ======= ======= ========= ======== (2) Includes intangible amortization expense as follows: Cost of subscription revenue $ 10,591 $ 8,607 $ 41,277 $ 30,760 Sales and marketing 3,821 4,085 16,228 14,888 ------- ------- --------- -------- Total intangible amortization expense $ 14,412 $ 12,692 $ 57,505 $ 45,648 ======= ======= ========= ========

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 twelve months ended December 31, 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)

Proofpoint, Inc.

Consolidated Balance Sheets

(In thousands, except per share amounts)

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February 04, 2021 16:05 ET (21:05 GMT)