MARKHAM, ON – April 29, 2010 – McAfee, Inc. (NYSE:MFE) today reported financial results for the first quarter ended March 31, 2010.
First Quarter 2010 Financial Highlights:
• Revenue reached a first quarter record of $502.7 million, an increase of 12 per cent year-over-year
• Deferred revenue reached a first quarter record of $1.4 billion, an increase of nine per cent year-over-year
• Cash flow from operations reached an all time record of $157 million, an increase of eight per cent year-over-year, bringing the total of cash and marketable securities to $902 million at quarter end
• Currency fluctuations had a negative impact on revenue of $12 million quarter-over-quarter and a negative impact on deferred revenue of $34 million quarter-over-quarter. Currency fluctuations had a positive impact of $11 million on revenue year-over-year and a positive impact of $9 million on deferred revenue year-over-year
• GAAP and non-GAAP earnings per diluted share were $0.23 and $0.60, respectively. Non-GAAP earnings per diluted share was a first quarter record and represented an increase of six percent year-over-year.
“This quarter marked our 17th consecutive quarter of double-digit, year-over-year revenue growth and we delivered solid operating profitability and record operating cash flow. Demand for McAfee’s comprehensive security solutions continues to be driven by dramatic growth in the evolving threat landscape, coupled with increasing regulatory requirements. Partners and customers choose McAfee for unique, leading suite solutions that span the endpoint to the network and offer increased manageability and return on investment,” said Dave DeWalt, McAfee’s president and chief executive officer.
“In the first quarter of 2010, we were especially pleased with our record consumer business performance which has been an area of strategic investment for us,” continued DeWalt. “At the same time, we experienced delays in the closing of certain large deals, modest growth in the midmarket segment and foreign currency headwinds that were greater than we anticipated. Looking ahead, we believe that the diversification of our business model and the breadth of our portfolio of security solutions strongly positions us in the security marketplace. We continue to focus on delivering strong performance and achieving continued growth in market share.”
First Quarter 2010 Financial Summary and Operational Metrics:
$ in Millions, except per share and % data Q1 2010 Q1 2009 % Change
Total Net Revenue $502.7 $447.7 12%
GAAP Operating Income $51.6 $51.8 0%
GAAP Net Income $37.6 $53.5 (30)%
GAAP Net Income Per Share (Diluted) $0.23 $0.34 (32)%
Non-GAAP Operating Income* $126.8 $113.6 12%
Non-GAAP Net Income* $96.4 $88.6 9%
Non-GAAP Net Income Per Share* (Diluted) $0.60 $0.57 6%
Deferred Revenue $1,378.5 $1,269.4 9%
Cash & Marketable Securities $901.5 $801.5 12%
*A complete reconciliation of GAAP to non-GAAP results is set forth in the attachment to this press release.
First Quarter 2010 Corporate Business:
• Revenue grew 13 per cent year-over-year to a first quarter record of $313 million
• McAfee closed 376 deals greater than $100,000 in value, including 56 deals greater than $500,000 in value and 19 deals greater than $1 million in value
First Quarter 2010 Consumer Business:
• Revenue grew 11 per cent year-over-year to a record $190 million
• McAfee signed or extended 24 agreements and launched 72 new or enhanced online partnerships, representing more than 200 brand name partners worldwide
First Quarter 2010 North America:
• Revenue grew 12 per cent year-over-year to a first quarter record of $284 million
• North American revenue accounted for 57 per cent of total revenue for the first quarter of 2010 and for the first quarter of 2009
First Quarter 2010 International:
• Revenue grew 13 per cent year-over-year to a first quarter record of $219 million
• Currency fluctuations had a negative impact of $12 million on revenue quarter-over-quarter and a positive impact of $11 million year-over-year
• As reported in U.S. dollars, year-over-year revenue grew 14 percent in Europe, the Middle East and Africa, 22 percent in Asia Pacific, three per cent in Japan and 17 percent in Latin America
• International revenue accounted for 43 percent of total revenue for the first quarter of 2010 and for the first quarter of 2009
First Quarter 2010 Balance Sheet and Cash Flow Summary:
• Cash and marketable securities was $902 million
• The company repurchased approximately 3.7 million shares of its common stock for $150 million under its stock repurchase program
• Cash flow from operations reached a record $157 million
• Days sales outstanding (DSOs) were 41 days, down seven days compared to the same period last year
• Deferred revenue reached a first quarter record of $1.379 billion, despite a negative foreign currency impact of approximately $34 million quarter-over-quarter
• Approximately 79 per cent of revenue during the first quarter of 2010 came from prior period deferred revenue
McAfee Key Announcements Included:
• Its next generation firewall, Firewall Enterprise version 8. With this new release, McAfee has expanded existing application protection delivered by its enterprise firewall appliance product line.
• Data Loss Prevention technology, which provides comprehensive data protection from the USB drive to the firewall and beyond
• The release of its McAfee Cloud Secure program, a program for Software-as-a-Service providers to add additional security to their cloud deployments
• A partnership with Riverbed Technology that delivers a best-of-breed and comprehensive security and wide area network (WAN) optimization solution for organizations with remote offices
• The McAfee Security Innovation Alliance(TM) surpassing 100 partners, a significant milestone in the evolution of its technology partnering program
• Winning SC Magazine’s 2010 Awards in the following categories: Best Anti-Malware Solution and Best Security Solution
• The release of a major upgrade to its flagship consumer products that incorporates a new compelling user interface along with significant performance improvements. The new version of the product is already receiving industry leading reviews and accolades.
• The launch of its new consumer PC Setup and Security services offerings to complement McAfee’s highly successful Virus Removal service
• McAfee launched our new exclusive consumer security partnership with Facebook and have already attracted more than 175,000 fans
• The launch of new major ISP consumer partnerships with Verizon in the United States and Yahoo BB in Japan. McAfee also announced its partnership with SK Telecom, which marks the first time that McAfee is providing McAfee VirusScan Mobile as an Android application download
• Winning the Global Campaign of the Year Award from PR Week for its contribution to cyber security awareness and education with its “Most Dangerous Celebrity” campaign
• McAfee expects net revenue in the second quarter of 2010 of $500 million to $520 million
• The company expects second quarter 2010 GAAP net income of $0.29 to $0.33 per diluted share and non-GAAP net income of $0.58 to $0.62 per diluted share. Our Non-GAAP net income per share guidance includes an estimated $0.04 to $0.05 per share negative impact of foreign currency fluctuations when compared to our first quarter 2010 guidance, continuing repurchases under our stock repurchase plan and estimated $0.01 to $0.02 per share negative impact of our faulty antivirus signature update.
• This guidance reflects an assumed 27 per cent annual GAAP tax rate and a 24 percent annual non-GAAP tax rate for 2010
Conference Call Information:
• The company hosted a conference call today at 1:30 P.M. Pacific, 4:30 P.M. Eastern to discuss its quarterly results.
• A replay of the call will be available until May 13, by calling (800) 642-1687 (U.S. toll-free) or (706) 645-9291 (international)
• A Web cast of the call may also be found on the Internet through McAfee’s Investor Relations Web site at http://investor.mcafee.com
Disclosure Statements and Discussion of Non-GAAP Financial Measures:
Management evaluates and makes operating decisions using various performance measures. In addition to reporting financial results in accordance with GAAP, we also consider adjusted gross profit, operating income and net income, which we refer to as “non-GAAP gross profit,” “non-GAAP operating income” and “non-GAAP net income.” In calculating non-GAAP gross profit, non-GAAP operating income and non-GAAP net income, management excludes certain items to facilitate its review of the comparability of the company’s operating performance on a period-to-period basis because such items are not, in management’s review, related to the company’s ongoing operating performance.
Non-GAAP gross profit excludes amortization of purchased technology, stock-based compensation expense and certain other items. Non-GAAP net income and non-GAAP operating income exclude amortization of purchased technology and intangibles, stock-based compensation expenses, acquisition-related costs, restructuring charges, provision for income taxes and certain other items.
Management used a 24 percent non-GAAP effective tax rate to calculate non-GAAP net income in 2010 and 2009. Management believes the 24 percent effective tax rate is reflective of a long-term normalized tax rate under the global McAfee operating structure.
We present non-GAAP gross profit, non-GAAP operating income and non-GAAP net income because we consider each to be an important supplemental measure of our performance. Management uses these non-GAAP financial measures to make operational and investment decisions, to evaluate the company’s performance and to forecast and to determine compensation. Further, management utilizes these performance measures for purposes of comparison with its business plan and individual operating budgets and allocation of resources. In addition, when evaluating potential acquisitions, management excludes the items described above in its evaluation of target performance.
We further believe that these non-GAAP financial measures are useful to investors in providing greater transparency to the information used by management in its operational decision making. We believe that calculating non-GAAP gross profit, non-GAAP operating income and non-GAAP net income also facilitates a comparison of McAfee’s underlying operating performance with that of other companies in our industry, which may from time to time use similar non-GAAP financial measures to supplement their GAAP results. However, non-GAAP gross profit, non-GAAP operating income and non-GAAP net income have limitations as analytical tools, and you should not consider these measures in isolation or as a substitute for GAAP gross profit, operating income and net income or any other performance measure determined in accordance with GAAP. In the future, we expect to continue to incur expenses similar to certain of the non-GAAP adjustments described above and exclusion of these items in the presentation of our non-GAAP financial measures should not be construed as an inference that all of these costs are unusual, infrequent or non-recurring. Investors and potential investors are cautioned that there are material limitations associated with the use of non-GAAP financial measures as analytical tools. Some of the limitations in relying on non-GAAP net income are:
• Amortization of purchased technology and intangibles, though not directly affecting our current cash position, represents the loss in value as the technology in our industry evolves, is advanced or is replaced over time. The expense associated with this loss in value is not included in the non-GAAP net income presentation and therefore does not reflect the full economic effect of the ongoing cost of maintaining our current technological position in our competitive industry, which is addressed through our research and development program.
• The company regularly engages in acquisition and integration activities as part of its ongoing business. Therefore, we expect to continue to experience acquisition and retention bonuses, direct acquisition costs and integration costs related to acquisition activity in future periods.
• The company’s income tax expense will ultimately be based on its GAAP taxable income and actual tax rates in effect, which may differ significantly from the 24 percent rate assumed in our non-GAAP financial measures for 2010 and 2009
• Other companies, including companies in our industry, may calculate non-GAAP net income differently than we do, limiting its usefulness as a comparative tool
In addition, many of the adjustments to our GAAP financial statements result in the exclusion of items that are recurring and will be reflected in the company’s financial results for the foreseeable future. The company compensates for these limitations by providing specific information regarding the GAAP amounts excluded from the non-GAAP financial measures. The company further compensates for the limitations of our use of non-GAAP financial measures by presenting comparable GAAP measures more prominently. The company evaluates the non-GAAP financial measures together with the most directly comparable GAAP financial measure.
Investors and potential investors are encouraged to review the reconciliation of non-GAAP financial measures contained within this press release with our GAAP gross profit, operating income and net income. For more information, see the consolidated statements of income and the “Reconciliation of GAAP to Non-GAAP Financial Measures” contained in this press release.
This release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward looking statements include statements regarding the preliminary results for the quarter ended March 31, 2010; guidance on expected results for the second quarter of 2010; the estimated impact on results for the second quarter of 2010 of foreign currency fluctuations, stock repurchases and our faulty antivirus signature update; tax rates for 2010; and statements about growth in the threat landscape, increasing regulations, the demand for McAfee’s security solutions, McAfee’s financial positioning, business strategy, business model, market positioning, market share gains, relationships, opportunities, and the value of McAfee’s security solutions. Actual results could vary, perhaps materially, and the expected results may not occur. In particular, actual results are subject to other risks, including that the negative impact of foreign currency fluctuations may exceed McAfee’s estimate; the financial impact and reputational harm associated with the faulty antivirus signature update may exceed McAfee’s estimate; McAfee may not achieve its planned revenue realization rates or sales targets, succeed in its efforts to grow its business or combat effectively the security threats of the future, build upon its technology leadership, leverage its relationships and opportunities to the degree expected, capture market share, notwithstanding related commitment or related investment, or successfully repurchase stock under its stock repurchase program. The company may not benefit from its acquisitions, strategic alliances, partnerships or stock repurchase program as anticipated; customers may not respond as favorably as anticipated to the company’s product or technical support offerings; the company’s product and service offerings may not continue to interoperate effectively with operating systems causing delayed or lost sales or increased expenses; the company may experience delays in product development or the release of previously announced products; the company may experience delayed or lost sales and revenue as a result of outages in integrated systems on which it is highly dependent; the company may not satisfactorily anticipate or meet its customers’ needs or expectations; or the industry shift to security suites may not be adopted to the extent anticipated. Actual results are also subject to a number of other factors, including customer and distributor demand fluctuations, currency fluctuations and macro and other economic conditions both in the United States and internationally, including the adverse global economic conditions. The Company may experience further declines in the fair value of its investment securities or realize losses relating to other than temporary declines in its investment securities given adverse global economic conditions. The forward-looking statements contained in this release are also subject to other risks and uncertainties, including those more fully described in McAfee’s filings with the SEC including its annual report on Form 10-K for the period ended December 31, 2009. McAfee does not undertake to update any forward looking statements.
McAfee, Inc. Reports Results for the First Quarter of 2010
MARKHAM, ON – April 29, 2010 – McAfee, Inc. (NYSE:MFE) today reported financial results for the first quarter ended March 31, 2010.