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Proofpoint Announces Third Quarter 2020 Financial Results

Oct 29, 2020

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
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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