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Proofpoint Announces Second Quarter 2020 Financial Results

Jul 30, 2020

Second Quarter Highlights

  • Total revenue of $258.4 million, up 21% year-over-year
  • Billings of $250.0 million, up 8% year-over-year
  • GAAP EPS of $(0.39) per share, Non-GAAP EPS of $0.51 per share
  • Operating cash flow of $30.6 million and free cash flow of $18.8 million
  • Increasing FY20 guidance for revenue, Non-GAAP net income and free cash flow

SUNNYVALE, Calif., July 30, 2020 (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, 2020.

“The second quarter was a compelling example of our team’s disciplined execution in a very challenging operating environment,” stated Gary Steele, chief executive officer of Proofpoint. “We were pleased to exceed guidance on all key metrics, which was driven by strong customer interest in our people-centric cybersecurity and compliance services, our world-class efficacy in identifying and blocking advanced threats and our strong focus in protecting our customers from an increasingly active threat landscape during current work-from-home requirements.” 

Second Quarter 2020 Financial Highlights

  • Revenue: Total revenue for the second quarter of 2020 was $258.4 million, an increase of 21%, compared to $214.4 million for the second quarter of 2019.

  • Billings: Total billings for the second quarter of 2020 were $250.0 million, an increase of 8%, compared to $232.1 million for the second quarter of 2019.

  • Gross Profit: GAAP gross profit for the second quarter of 2020 was $190.9 million, compared to $156.6 million for the second quarter of 2019. Non-GAAP gross profit for the second quarter of 2020 was $207.5 million, compared to $169.4 million for the second quarter of 2019. GAAP gross margin for the second quarter of 2020 was 74%, compared to 73% for the second quarter of 2019. Non-GAAP gross margin for the second quarter of 2020 was 80%, compared to 79% for the second quarter of 2019.

  • Operating Income (Loss): GAAP operating loss for the second quarter of 2020 was $(10.8) million, compared to a loss of $(29.3) million for the second quarter of 2019. Non-GAAP operating income for the second quarter of 2020 was $41.2 million, compared to $28.4 million for the second quarter of 2019.
  • Net Income (Loss): GAAP net loss for the second quarter of 2020 was $(22.6) million, or $(0.39) per share, based on 57.4 million weighted average shares outstanding. This compares to a GAAP net loss of $(28.9) million, or $(0.52) per share, based on 55.8 million weighted average shares outstanding for the second quarter of 2019. Non-GAAP net income for the second quarter of 2020 was $32.8 million, or $0.51 per share, based on 65.5 million weighted average diluted shares outstanding. This result included a $6.7 million income tax expense, calculated using an effective rate of 17%, by applying the SEC’s Non-GAAP Financial Measures Compliance and Disclosure Interpretations (C&DI 102.11). Non-GAAP earnings per share for the second 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 June 30, 2020, Proofpoint had cash, cash equivalents, and short-term investments of $973.3 million. The company generated $30.6 million in net cash from operations for the second quarter of 2020, compared to $43.4 million during the second quarter of 2019. This result included $4.0 million received as leasehold improvement reimbursement related to the Company’s new corporate headquarters. The company’s free cash flow for the second quarter of 2020 was $18.8 million, compared to $35.0 million for the second quarter of 2019. 

“Our solid second quarter results demonstrate our disciplined approach to managing the business to drive growth and profitability during the current COVID-19 crisis,” stated Paul Auvil, chief financial officer of Proofpoint. “The investments we’ve made in our broad product portfolio and team represent strong competitive differentiators and reinforce our ability to emerge from these uncertain times in an even stronger position when recovery takes place.”

Financial Outlook

This financial outlook is based on information known as of July 30, 2020, and on assumptions that we believe to be reasonable as of today. 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 third quarter 2020 guidance as follows:

  • Total revenue is expected to be in the range of $260.0 million to $262.0 million.

  • GAAP gross margin is expected to be approximately 74%. Non-GAAP gross margin is expected to be approximately 80%.

  • GAAP net loss is expected to be in the range of $(50.6) million to $(45.2) million, or $(0.88) to $(0.78) per share, based on approximately 57.6 million weighted average shares outstanding. Non-GAAP net income is expected to be in the range of $24.0 million to $26.0 million, or $0.37 to $0.40 per share, using 65.9 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 $16.0 to $21.0 million, and includes approximately $10.0 million of expected leasehold improvement reimbursement related to the Company’s new corporate headquarters. Capital expenditures are expected to be approximately $25.0 million, including $16.0 million associated with the Company’s new headquarters build-out. This guidance also assumes a 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, now estimated to be no more than $15.0 million as compared to the Company’s prior estimate of $20.0 million.

Proofpoint is providing its full year 2020 guidance as follows:

  • Total revenue is expected to be in the range of $1,035.0 million to $1,037.0 million.

  • GAAP gross margin is expected to be approximately 74%. Non-GAAP gross margin is expected to be 80%.

  • GAAP net loss is expected to be in the range of $(198.8) million to $(189.0) million, or $(3.46) to $(3.29) per share, based on approximately 57.5 million weighted average shares outstanding. Non-GAAP net income is expected to be in the range of $106.0 million to $110.0 million, or $1.64 to $1.70 per share, using 65.9 million weighted average diluted shares outstanding, and based on our reporting in accordance with C&DI 102.11.

  • Free cash flow is expected to be in the range of $130.0 million to $140.0 million.  This includes the aforementioned cash tax payment associated with the transfer of certain intellectual property and $24.0 million in net cash used in the build-out of the Company’s new corporate headquarters. Capital expenditures are expected to be approximately $75.0 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, 2020. To access this call, dial (800) 458-4121 for the U.S. or Canada, or (929) 477-0324 for international callers, with conference ID #698797. 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 13, 2020, by dialing (844) 512-2921 for the U.S. or Canada or (412) 317-6671 for international callers, and entering passcode #698797.

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 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 March 31, 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 six months ended June 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
June 30,
  Six Months Ended
June 30,
      2020       2019       2020       2019  
Revenue:                
Subscription   $ 254,892     $ 210,780     $ 498,961     $ 410,364  
Hardware and services     3,546       3,659       9,251       7,012  
Total revenue     258,438       214,439       508,212       417,376  
Cost of revenue:(1)(2)                
Subscription     59,193       50,648       119,041       98,900  
Hardware and services     8,382       7,180       17,465       14,171  
Total cost of revenue     67,575       57,828       136,506       113,071  
Gross profit     190,863       156,611       371,706       304,305  
Operating expense:(1)(2)                
Research and development     70,602       55,185       140,497       108,434  
Sales and marketing     116,279       102,837       239,441       199,841  
General and administrative     14,812       27,881       44,367       53,706  
Total operating expense     201,693       185,903       424,305       361,981  
Operating loss     (10,830 )     (29,292 )     (52,599 )     (57,676 )
Interest expense     (9,013 )     -       (17,933 )     -  
Other (expense) income, net     (1,092 )     659       3,529       1,385  
Loss before income taxes     (20,935 )     (28,633 )     (67,003 )     (56,291 )
Provision for income taxes     (1,660 )     (280 )     (29,829 )     (900 )
Net loss   $ (22,595 )   $ (28,913 )   $ (96,832 )   $ (57,191 )
Net loss per share, basic and diluted   $ (0.39 )   $ (0.52 )   $ (1.69 )   $ (1.03 )
Weighted average shares outstanding, basic and diluted     57,369       55,768       57,168       55,553  
                 
(1) Includes stock‑based compensation expense as follows:                
Cost of subscription revenue   $ 5,235     $ 4,269     $ 10,777     $ 8,144  
Cost of hardware and services revenue     1,408       1,054       2,779       1,960  
Research and development     16,431       12,522       32,036       24,021  
Sales and marketing     17,047       15,799       35,566       29,553  
General and administrative     (3,660 )     12,006       6,868       22,993  
  Total stock-based compensation expense   $ 36,461     $ 45,650     $ 88,026     $ 86,671  
(2) Includes intangible amortization expense as follows:                
Cost of subscription revenue   $ 9,992     $ 7,505     $ 19,930     $ 14,267  
Sales and marketing     3,947       3,634       8,460       7,171  
  Total intangible amortization expense   $ 13,939     $ 11,139     $ 28,390     $ 21,438  
                 

 

Proofpoint, Inc.
Consolidated Balance Sheets
(In thousands, except per share amounts)
(Unaudited)
         
    June 30,   December 31,
      2020       2019  
Assets        
Current assets:        
Cash and cash equivalents   $ 961,356     $ 847,555  
Short-term investments     11,988       43,385  
Accounts receivable, net     173,086       265,741  
Inventory     367       1,249  
Deferred product costs     2,846       2,723  
Deferred commissions     49,818       47,250  
Prepaid expenses and other current assets     27,835       22,081  
Total current assets     1,227,296       1,229,984  
Property and equipment, net     84,863       73,512  
Operating lease right-of-use assets     67,128       51,852  
Long-term deferred product costs     382       581  
Goodwill     688,461       687,517  
Intangible assets, net     159,507       186,023  
Long-term deferred commissions     93,687       90,305  
Other assets     15,808       17,737  
Total assets   $ 2,337,132     $ 2,337,511  
Liabilities and Stockholders’ Equity        
Current liabilities:        
Accounts payable   $ 5,451     $ 16,311  
Accrued liabilities     120,867       119,423  
Operating lease liabilities     23,755       20,202  
Deferred revenue     593,451       615,874  
Total current liabilities     743,524       771,810  
Convertible senior notes     766,403       749,620  
Long-term operating lease liabilities     46,290       36,223  
Other long-term liabilities     35,187       19,172  
Long-term deferred revenue     169,360       168,189  
Total liabilities     1,760,764       1,745,014  
Stockholders’ equity        
Common stock, $0.0001 par value; 200,000 shares authorized; 57,588 and 56,784 shares issued and outstanding at June 30, 2020 and December 31, 2019, respectively     6       6  
Additional paid-in capital     1,398,786       1,318,084  
Accumulated other comprehensive income     2       1  
Accumulated deficit     (822,426 )     (725,594 )
Total stockholders’ equity     576,368       592,497  
Total liabilities and stockholders’ equity   $ 2,337,132     $ 2,337,511  
         

 

Proofpoint, Inc.
Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
                 
    Three Months Ended
June 30,
  Six Months Ended
June 30,
      2020       2019       2020       2019  
Cash flows from operating activities                
Net loss   $ (22,595 )   $ (28,913 )   $ (96,832 )   $ (57,191 )
Adjustments to reconcile net loss to net cash provided by operating activities:                
Depreciation and amortization     22,990       19,577       46,460       38,237  
Stock-based compensation     36,461       45,650       88,026       86,671  
Amortization of debt issuance costs and accretion of debt discount     8,438       -       16,783       -  
Amortization of deferred commissions     15,370       12,400       30,003       23,671  
Noncash lease costs     6,492       5,713       12,918       11,347  
Deferred income taxes     (367 )     (550 )     (692 )     (610 )
Other     1,449       233       268       967  
Changes in assets and liabilities:                
Accounts receivable     (1,391 )     (7,756 )     92,062       27,860  
Inventory     9       255       881       124  
Deferred product costs     134       (195 )     76       (95 )
Deferred commissions     (20,783 )     (18,063 )     (35,953 )     (30,978 )
Prepaid expenses     (483 )     (1,326 )     (6,773 )     (7,695 )
Other current assets     102       237       (180 )     459  
Long-term assets     37       (154 )     (59 )     (623 )
Accounts payable     (3,496 )     1,139       (9,513 )     (3,166 )
Accrued liabilities     5,402       2,176       20,122       (10,371 )
Operating lease liabilities     (6,402 )     (5,260 )     (13,561 )     (11,448 )
Deferred revenue     (10,757 )     18,247       (21,252 )     30,350  
Net cash provided by operating activities     30,610       43,410       122,784       97,509  
Cash flows from investing activities                
Proceeds from maturities of short-term investments     11,955       22,776       51,187       55,049  
Purchase of short-term investments     -       (15,395 )     (19,876 )     (41,768 )
Purchase of property and equipment     (11,790 )     (8,373 )     (24,149 )     (13,850 )
Receipts from escrow account     154       -       154       -  
Acquisitions of businesses, net of cash acquired     (2,720 )     (104,503 )     (2,720 )     (104,503 )
Net cash (used in) provided by investing activities     (2,401 )     (105,495 )     4,596       (105,072 )
Cash flows from financing activities                
Proceeds from issuance of common stock     15,577       13,586       18,543       14,691  
Withholding taxes related to restricted stock net share settlement     (7,545 )     (10,382 )     (35,145 )     (35,005 )
Net cash provided by (used in) financing activities     8,032       3,204       (16,602 )     (20,314 )
Effect of exchange rate changes on cash, cash equivalents and restricted cash     733       (127 )     (174 )     79  
Net increase (decrease) in cash, cash equivalents and restricted cash     36,974       (59,008 )     110,604       (27,798 )
Cash, cash equivalents and restricted cash                
Beginning of period     931,537       217,362       857,907       186,152  
End of period   $ 968,511     $ 158,354     $ 968,511     $ 158,354  
                 

 

Reconciliation of Non-GAAP Measures
(In thousands, except per share amounts)
(Unaudited)
               
  Three Months Ended   Six Months Ended
  June 30,   June 30,
    2020       2019       2020       2019  
               
GAAP gross profit $ 190,863     $ 156,611     $ 371,706     $ 304,305  
GAAP gross margin   74 %     73 %     73 %     73 %
Plus:              
Stock-based compensation expense   6,643       5,323       13,556       10,104  
Intangible amortization expense   9,992       7,505       19,930       14,267  
Non-GAAP gross profit   207,498       169,439       405,192       328,676  
Non-GAAP gross margin   80 %     79 %     80 %     79 %
               
GAAP operating loss   (10,830 )     (29,292 )     (52,599 )     (57,676 )
Plus:              
Stock-based compensation expense   36,461       45,650       88,026       86,671  
Intangible amortization expense   13,939       11,139       28,390       21,438  
Acquisition-related expenses   457       853       764       853  
Litigation-related expenses   962       -       1,779       -  
Facility exit costs   194       -       194       -  
Non-GAAP operating income   41,183       28,350       66,554       51,286  
               
GAAP net loss   (22,595 )     (28,913 )     (96,832 )     (57,191 )
Plus:              
Stock-based compensation expense   36,461       45,650       88,026       86,671  
Intangible amortization expense   13,939       11,139       28,390       21,438  
Acquisition-related expenses   457       853       764       853  
Litigation-related expenses   962       -       1,779       -  
Facility exit costs   194       -       194       -  
Interest expense - debt discount and issuance costs   8,438       -       16,783       -  
Income tax expense (1)   (5,058 )     (4,652 )     18,110       (8,054 )
Non-GAAP net income   32,798       24,077       57,214       43,717  
Add interest expense of convertible senior notes, net of tax (2)   477       -       954       -  
Numerator for non-GAAP EPS calculation $ 33,275     $ 24,077     $ 58,168     $ 43,717  
Non-GAAP net income per share - diluted $ 0.51     $ 0.41     $ 0.89     $ 0.75  
               
GAAP weighted-average shares used to compute net loss per share, diluted   57,369       55,768       57,168       55,553  
Dilutive effect of convertible senior notes (2)   5,975       -       5,975       -  
Dilutive effect of employee equity incentive plan awards (3)   2,111       2,305       2,196       2,459  
Non-GAAP weighted-average shares used to compute net income per share, diluted   65,455       58,073       65,339       58,012  
               
(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 six months ended June 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   Six Months Ended
  June 30,   June 30,
    2020       2019       2020       2019  
               
Total revenue $ 258,438     $ 214,439     $ 508,212     $ 417,376  
Deferred revenue and customer prepayments              
Ending   776,255       635,450       776,255       635,450  
Beginning   787,098       617,170       797,173       605,073  
Net Change   (10,843 )     18,280       (20,918 )     30,377  
Unbilled accounts receivable              
Ending   1,542       1,861       1,542       1,861  
Beginning   3,965       1,261       2,255       1,276  
Net Change   2,423       (600 )     713       (585 )
Less:              
Deferred revenue and customer prepayments contributed by acquisitions   -       -       -       -  
Billings $ 250,018     $ 232,119     $ 488,007     $ 447,168  
               

 

Reconciliation of GAAP Cash Flows from Operations to Free Cash Flows
(In thousands)
(Unaudited)
                 
    Three Months Ended   Six Months Ended
    June 30,   June 30,
      2020       2019       2020       2019  
                 
GAAP cash flows provided by operating activities   $ 30,610     $ 43,410     $ 122,784     $ 97,509  
Less:                
Purchases of property and equipment     (11,790 )     (8,373 )     (24,149 )     (13,850 )
Non-GAAP free cash flows   $ 18,820     $ 35,037     $ 98,635     $ 83,659  
                 



Reconciliation of Non-GAAP Measures to Guidance
(In millions, except per share amount)
(Unaudited)
         
    Three Months Ending   Year Ending
    September 30,   December 31,
    2020   2020
         
Total revenue   $260.0 - $262.0   $1,035.0 - $1,037.0
         
GAAP gross profit   191.1 - 192.9   763.9 - 766.1
GAAP gross margin   74%   74%
Plus:        
Stock-based compensation expense   6.1 - 5.9   22.8 - 22.2
Intangible amortization expense   10.8   41.3
Non-GAAP gross profit   208.0 - 209.6   828.0 - 829.6
Non-GAAP gross margin   80%   80%
         
GAAP net loss   (50.6) - (45.2)   (198.8) - (189.0)
Plus:        
Stock-based compensation expense   53.0 - 50.0   195.0- 190.0
Intangible amortization expense   14.7   57.5
Acquisition-related expenses   -   0.8
Litigation-related expenses   1.0   4.4
Facility exit costs   0.6   1.6
Interest expense - debt discount and issuance costs 8.5   33.9
Income tax expense   (3.2) - (3.6)   11.6 - 10.8
Non-GAAP net income   24.0 - 26.0   106.0 - 110.0
Add interest expense of convertible senior notes, net of tax (if dilutive)   0.5   1.9
Numerator for non-GAAP EPS calculation   $24.5 - $26.5   $107.9 - $111.9
Non-GAAP net income per share - diluted   $0.37 - $0.40   $1.64 - $1.70
Non-GAAP weighted-average shares used to compute net income per share, diluted   65.9   65.9
         
         
    Three Months Ending   Year Ending
    September 30,   December 31,
    2020   2020
         
GAAP cash flows provided by operating activities   $41.0 - $46.0   $205.0 - $215.0
Less:        
Purchases of property and equipment   (25.0)   (75.0)
Non-GAAP free cash flows   $16.0 - $21.0   $130.0 - $140.0
         

Media Contact

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

Investor Contact

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


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Source: Proofpoint, Inc.

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