|
--Non-GAAP Revenue of $495 million (increase of six percent year-over-year); GAAP Revenue of $489 million (increase of four percent year-over-year)
--Non-GAAP Earnings Per Share of $0.63 (increase of five percent year-over-year); GAAP Earnings Per Share of $0.25 (increase of 39 percent year-over-year)
--Deferred Revenue of $1.4 billion (increase of five percent year-over-year)
--Cash Flow from Operations of $134 million (increase of 152 percent year-over-year)
McAfee, Inc. (MFE) today reported financial results for the second
quarter ended June 30, 2010.
Second Quarter 2010 Financial Highlights:
--
Non-GAAP and GAAP revenue was $495 million and $489 million,
respectively. Non-GAAP revenue was a second quarter record and an
increase of six percent year-over-year.
--
Deferred revenue reached a second quarter record of $1.4 billion, an
increase of five percent year-over-year
--
Cash flow from operations reached $134 million, an increase of 152
percent year-over-year, bringing the total of cash and marketable
securities to $804 million at quarter end
--
Currency fluctuations had a negative impact on revenue of $12 million
quarter-over-quarter and $5 million year-over-year. Currency
fluctuations had a negative impact on deferred revenue of $46 million
quarter-over-quarter and $66 million year-over-year.
--
Non-GAAP and GAAP earnings per diluted share were $0.63 and $0.25,
respectively. Non-GAAP earnings per diluted share was a second quarter
record and represented an increase of five percent year-over-year.
Executive Commentary:
"For the second quarter we’re proud to report another strong quarter and
are especially pleased to see the solid non-GAAP earnings per share,
strong operating cash flow, coupled with solid consumer and corporate
bookings," said McAfee president and chief executive officer Dave DeWalt.
"Despite foreign currency headwinds, we improved operating leverage
resulting in better than expected non-GAAP earnings per share of $0.63
and we generated operating cash flow of $134 million, attesting to the
strength of our business model. Our financial foundation is set for
continued growth with leading solutions, a world class sales force and
the strongest partner relationships in our history. We also saw an all
time record of consumer revenue in the quarter. We were extremely
pleased to be able to extend our relationship with our two largest OEM
partners and to see a near record quarter of multi-million dollar orders
from our corporate customers," continued DeWalt.
Second Quarter 2010 Financial Summary and Operational Metrics:
$ in Millions, except per share and % data Q2 2010 Q2 2009 % Change % Change
Constant
Currency
Change ***
------------------------------------------ -------- -------- -------- ----------
Non-GAAP Revenue* $495.3 $468.7 6% 7%
------------------------------------------ -------- -------- -------- ----------
GAAP Revenue $489.2 $468.7 4% 5%
------------------------------------------ -------- -------- -------- ----------
Non-GAAP Operating Income* $129.4 $125.4 3% 8%
------------------------------------------ -------- -------- -------- ----------
Non-GAAP Net Income* $98.2 $94.7 4% 9%
------------------------------------------ -------- -------- -------- ----------
Non-GAAP Net Income Per Share* (Diluted) $0.63 $0.60 5% 10%
------------------------------------------ -------- -------- -------- ----------
GAAP Operating Income $55.1 $55.9 (1)% 9%
------------------------------------------ -------- -------- -------- ----------
GAAP Net Income $39.4 $28.7 38% 52%
------------------------------------------ -------- -------- -------- ----------
GAAP Net Income Per Share (Diluted) $0.25 $0.18 39% 54%
------------------------------------------ -------- -------- -------- ----------
Deferred Revenue $1,366.5 $1,307.6 5% 10%
------------------------------------------ -------- -------- -------- ----------
Cash & Marketable Securities $804.3 $886.1 (9)%
------------------------------------------ -------- -------- --------
*A complete reconciliation of GAAP to non-GAAP results is set
forth in the attachment to this press release.
***Management evaluates and reviews growth rates adjusted for
the impact of foreign currency fluctuations to provide a framework
for assessing how our underlying business performed. Current
period GAAP and non-GAAP results are converted using the
comparable average prior-period exchange rates. The current period
deferred revenue balance has been adjusted for foreign currency
impacts over the last 12 months.
Corporate Business:
--
GAAP revenue grew two percent year-over-year to $298 million in the
second quarter of 2010, up three percent constant currency
--
McAfee closed 474 deals greater than $100,000 in value, including 78
deals greater than $500,000 in value and 30 deals greater than $1
million in value
Consumer Business:
--
GAAP revenue grew eight percent year-over-year to a record $191
million in the second quarter of 2010, up nine percent constant
currency
--
McAfee signed or extended 25 agreements and launched 67 new or
enhanced online partnerships, bringing the total to over 200 brand
name partners worldwide
North America:
--
GAAP revenue grew eight percent year-over-year to $286 million in the
second quarter of 2010
--
GAAP revenue accounted for 58 percent of total revenue for the second
quarter of 2010 and 57 percent for the second quarter of 2009
International:
--
GAAP revenue reached $203 million in the second quarter of 2010, flat
when compared to the same period last year, up two percent constant
currency
--
Currency fluctuations had a negative impact of $5 million on revenue
year-over-year and $12 million quarter-over-quarter
Balance Sheet and Cash Flow Summary:
--
Cash and marketable securities was $804 million at the end of the
second quarter of 2010, reflecting a net cash outlay of $33 million
for the acquisition of Trust Digital which closed June 2010
--
The company repurchased approximately 4.6 million shares of its common
stock for $150 million under its $500 million stock repurchase program
with $200 million remaining available under our current Board approved
authorization
--
Cash flow from operations reached $134 million
--
Days sales outstanding (DSOs) were 45 days, down six days compared to
the same period last year primarily due to strong cash collections
--
Deferred revenue reached $1.4 billion at the end of the second quarter
of 2010, including a negative foreign currency impact of approximately
$46 million quarter-over-quarter
--
Approximately 80 percent of revenue during the second quarter of 2010
came from prior period deferred revenue
Key Announcements:
--
Jonathan Chadwick has joined the company as chief financial officer
--
Earlier this quarter, McAfee acquired privately owned Trust Digital.
With Trust Digital’s strong foot-hold in the mobile security market,
McAfee will extend its endpoint market and address a wide range of
mobile operating systems including iPhone OS, Android, Web OS, Windows
Mobile and Symbian.
--
Today McAfee announced it has agreed to acquire privately owned
tenCube, provider of WaveSecure mobile security service. Adding
WaveSecure’s locate, lock, back-up and wipe technology to Trust
Digital’s enterprise mobility management and McAfee’s mobile security
technology gives McAfee the capabilities it needs to deliver the
industry’s most complete next generation mobility platform.
--
McAfee opened its new state-of-the-art facility in Cork, Ireland and
announced third quarter plans to open a new McAfee Labs facility in
Santiago, Chile
--
McAfee released its McAfee(R) SaaS Web Protection, a new
Software-as-a-Service Web security solution that combines the robust
enterprise-grade reporting capabilities and features from McAfee
solutions
--
McAfee now has original equipment manufacturer relationships to
provide antivirus technology to two-thirds of world’s secured
universal serial bus (USB) device manufacturers
--
McAfee launched McAfee(R) Internet Security and McAfee(R) Family
Protection for Mac. McAfee Internet Security empowers consumers to
surf the web safely, while McAfee Family Protection allows parents to
filter inappropriate content for their children.
--
McAfee launched McAfee(R) Identity Protection, one of the most
comprehensive and easy to use identity protection services on the
market
--
The company released McAfee(R) Family Protection iPhone, iPod touch and
iPad Edition, which provide strong parental controls to keep children
safe when they are browsing the Internet on an Apple mobile device
Financial Outlook:
--
McAfee expects GAAP net revenue in the third quarter of 2010 of $505
million to $520 million
--
The company expects third quarter 2010 GAAP net income of $0.29 to
$0.33 per diluted share and non-GAAP net income of $0.62 to $0.66 per
diluted share
--
This guidance reflects an assumed 29 percent annual GAAP tax rate and
a 24 percent annual non-GAAP tax rate for 2010
Conference Call Information:
--
The company will host a conference call today at 1:30 P.M. Pacific,
4:30 P.M. Eastern to discuss its quarterly results. Participants
should call (800) 809-7467 (U.S. toll-free) or (706) 679-4671
(international). The passcode is 45021797
--
Attendees should dial in at least 15 minutes prior to the conference
call
--
A replay of the call will be available until August 12 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 the
McAfee 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 net revenue, gross
profit, operating income and net income, which we refer to as "non-GAAP
net revenue," "non-GAAP gross profit," "non-GAAP operating income" and
"non-GAAP net income." In calculating non-GAAP net revenue, non-GAAP
gross profit, non-GAAP operating income and non-GAAP net income,
management adjusts for 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 net revenue primarily includes prior period deferred revenue
that was originally scheduled to be recognized in the second quarter of
2010 from the balance sheet but became delayed until future periods
because of the remediation actions taken related to the antivirus
signature file update we released on April 21, 2010 that impacted some
of our customers’ computers ("DAT 5958").
Non-GAAP gross profit excludes expenses related to our DAT 5958
remediation actions, amortization of purchased technology, stock-based
compensation expense and certain other items. Non-GAAP net income and
non-GAAP operating income exclude expenses related to our DAT 5958
remediation actions, 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 net revenue because we believe it provides
supplemental information that shows the financial impact of the
remediation actions taken related to DAT 5958. 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 adjusts for 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 net revenue, 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 net revenue, 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 net revenue, GAAP gross profit, GAAP operating income and GAAP 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 net revenue, 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.
Forward-Looking Statements:
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 June
30, 2010; guidance on expected results for the third quarter of 2010;
and tax rates for 2010. Forward looking statements also include
statements about the demand for and value of McAfee’s security solutions
and McAfee’s financial foundation, business strategy, business model,
market positioning, relationships, opportunities, and continued growth.
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 McAfee’s release in the second quarter of an antivirus
signature file update that impacted some of its customers’ computers may
have some residual impact that exceeds 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.
McAfee 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 quarterly
report on Form 10-Q for the period ended March 31, 2010. McAfee does not
undertake to update any forward looking statements.
About McAfee, Inc.:
McAfee, Inc., headquartered in Santa Clara, California, is the world’s
largest dedicated security technology company. McAfee is relentlessly
committed to tackling the world’s toughest security challenges. The
company delivers proactive and proven solutions and services that help
secure systems and networks around the world, allowing users to safely
connect to the Internet, browse and shop the web more securely. Backed
by an award-winning research team, McAfee creates innovative products
that empower home users, businesses, the public sector and service
providers by enabling them to prove compliance with regulations, protect
data, prevent disruptions, identify vulnerabilities, and continuously
monitor and improve their security. http://www.mcafee.com
McAfee and/or other noted McAfee related products contained herein are
registered trademarks or trademarks of McAfee, Inc., and/or its
affiliates in the U.S. and/or other countries. McAfee Red in connection
with security is distinctive of McAfee brand products. Any other
non-McAfee related products, registered and/or unregistered trademarks
contained herein are only by reference and are the sole property of
their respective owners. (C) 2010 McAfee, Inc. All rights reserved.
MCAFEE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
(Unaudited)
June 30, December 31,
2010 2009
------------------- --------------------
Assets:
Cash and marketable securities $ 804,322 $ 950,168
Accounts receivable, net 244,333 294,315
Prepaid expenses, deferred costs of revenue and other current assets 276,323 263,891
(A)
Property and equipment, net 129,768 133,016
Deferred income taxes 606,886 604,737
Goodwill, intangibles and other long-term assets, net (A) 1,676,743 1,717,059
---------- ---------
Total assets $ 3,738,375 $ 3,963,186
=== ========== ==== =========
Liabilities:
Accounts payable $ 44,121 $ 55,104
Accrued liabilities 329,732 312,299
Deferred revenue 1,366,458 1,407,473
Accrued taxes and other long-term liabilities 64,264 70,772
---------- ---------
Total liabilities 1,804,575 1,845,648
Stockholders’ Equity:
Common stock 1,893 1,868
Treasury stock (1,167,084 ) (845,118 )
Additional paid-in capital 2,336,463 2,251,916
Accumulated other comprehensive loss (26,615 ) (3,291 )
Retained earnings 789,143 712,163
---------- ---------
Total stockholders’ equity 1,933,800 2,117,538
---------- ---------
Total liabilities and stockholders’ equity $ 3,738,375 $ 3,963,186
=== ========== ==== =========
(A) Deferred costs of revenue and prepaid expenses primarily associated
with revenue-sharing and royalty arrangements were $299.5M and
$271.8M as of June 30, 2010 and December 31, 2009, respectively.
MCAFEE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
----------------------------- --------------------------
2010 2009 2010 2009
------------ ---------------- ----------- --------------
Net revenue $ 489,239 $ 468,686 $ 991,984 $ 916,395
Cost of net revenue (A) 109,731 96,783 221,813 190,445
Amortization of purchased technology 20,345 18,439 40,838 37,833
Impact of signature file update 725 - 725 -
Gross profit 358,438 353,464 728,608 688,117
Operating costs:
Research and development (A) 81,671 78,428 165,536 156,611
Sales and marketing (A) 155,236 157,429 321,464 306,060
General and administrative (A) 45,847 41,767 88,966 79,400
Restructuring charges 9,127 4,145 24,881 9,205
Amortization of intangibles 7,503 10,113 15,145 20,108
Acquisition-related costs 2,815 3,408 4,815 6,684
Impact of signature file update 1,093 - 1,093 -
Loss on sale/disposal of assets and technology 56 19 64 78
Investigation-related and other costs - 2,279 - 2,325
------- ------- ------- -------
Total operating costs 303,348 297,588 621,964 580,471
------- ------- ------- -------
Income from operations 55,090 55,876 106,644 107,646
Interest and other income, net 122 (797 ) 651 2,180
Impairment of marketable securities - - - (710 )
------- ------- ------- ------- --
Income before provision for income taxes 55,212 55,079 107,295 109,116
Provision for income taxes 15,808 26,426 30,315 27,007
Net income $ 39,404 $ 28,653 $ 76,980 $ 82,109
=== ======= === ======= == ======= == =======
Net income per share - basic $ 0.26 $ 0.18 $ 0.49 $ 0.53
=== ======= === ======= == ======= == =======
Net income per share - diluted $ 0.25 $ 0.18 $ 0.49 $ 0.52
=== ======= === ======= == ======= == =======
Shares used in per share calculation - basic 154,456 155,763 156,088 154,748
======= ======= ======= =======
Shares used in per share calculation - diluted 156,151 158,336 158,347 157,306
======= ======= ======= =======
(A) Stock-based compensation expense is included as follows:
Cost of net revenue $ 1,746 $ 1,637 $ 3,632 $ 2,808
Research and development 6,305 6,355 14,053 13,205
Sales and marketing 11,879 16,432 24,185 26,195
General and administrative 6,659 6,656 14,027 12,907
$ 26,589 $ 31,080 $ 55,897 $ 55,115
=== ======= === ======= == ======= == =======
MCAFEE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
Six Months Ended
June 30,
-----------------------------------
2010 2009
----------------- -----------------
Cash flows from operating activities:
Net income $ 76,980 $ 82,109
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 85,958 83,083
Stock-based compensation expense 55,897 49,057
Excess tax benefit from stock-based awards (4,314 ) (8,444 )
Deferred income taxes 9,730 11,590
Non-cash restructuring charge 19,076 1,589
Impairment of marketable securities - 710
Other non-cash items 2,367 2,594
Changes in assets and liabilities, net of acquisitions:
Accounts receivable, net 31,910 55,237
Prepaid expenses, deferred costs of revenue, and other assets (18,434 ) (65,868 )
Accounts payable (9,457 ) 18,262
Accrued taxes and other liabilities 3,167 (48,053 )
Deferred revenue 38,842 17,541
-------- --------
Net cash provided by operating activities 291,722 199,407
-------- --------
Cash flows from investing activities:
Purchase of marketable securities (180,476 ) (186,710 )
Proceeds from sales of marketable securities 142,931 14,831
Proceeds from maturities of marketable securities 186,607 44,778
Purchase of property and equipment (36,325 ) (23,479 )
Acquisitions, net of cash acquired (32,470 ) (33,697 )
Other investing activities 1,508 165
-------- --------
Net cash provided by (used in) investing activities 81,775 (184,112 )
-------- -------- -
Cash flows from financing activities:
Proceeds from issuance of common stock under our employee stock 25,404 54,302
benefit plans
Excess tax benefit from stock-based awards 4,314 8,444
Repurchase of common stock (321,966 ) (19,748 )
Bank borrowings - 100,000
Payment of accrued purchase price and contingent consideration (19,556 ) -
Other financing activities (3,157 ) -
-------- - --------
Net cash (used in) provided by financing activities (314,961 ) 142,998
-------- - --------
Effect of exchange rate fluctuations on cash (56,129 ) 5,091
-------- - --------
Net increase in cash and cash equivalents 2,407 163,384
Cash and cash equivalents at beginning of period 677,137 483,302
-------- --------
Cash and cash equivalents at end of period $ 679,544 $ 646,686
===== ======== ===== ========
MCAFEE, INC. AND SUBSIDIARIES
RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES
(in thousands, except per share data)
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
----------------------------- --------------------------
2010 2009 2010 2009
---------------- ------------ -------------- -----------
Net revenue:
GAAP net revenue $ 489,239 $ 468,686 $ 991,984 $ 916,395
Impact of signature file update (1) 6,105 - 6,105 -
------- ------- ------- -------
Non-GAAP net revenue $ 495,344 $ 468,686 $ 998,089 $ 916,395
--- ------- --- ------- -- ------- -- -------
Gross profit:
GAAP gross profit $ 358,438 $ 353,464 $ 728,608 $ 688,117
Impact of signature file update (1) 6,830 - 6,830 -
Stock-based compensation expense (2) 1,746 1,637 3,632 2,808
Amortization of purchased technology (3) 20,345 18,439 40,838 37,833
------- ------- ------- -------
Non-GAAP gross profit $ 387,359 $ 373,540 $ 779,908 $ 728,758
--- ------- --- ------- -- ------- -- -------
Operating income:
GAAP operating income $ 55,090 $ 55,876 $ 106,644 $ 107,646
Impact of signature file update (1) 7,923 - 7,923 -
Stock-based compensation expense (2) 26,589 31,080 55,897 55,115
Amortization of purchased technology (3) 20,345 18,439 40,838 37,833
Amortization of intangibles (3) 7,503 10,113 15,145 20,108
Restructuring charges (4) 9,127 4,145 24,881 9,205
Acquisition-related costs (5) 2,815 3,408 4,815 6,684
Loss on sale/disposal of assets and technology (6) 56 19 64 78
Investigation-related and other costs (7) - 2,279 - 2,325
Non-GAAP operating income $ 129,448 $ 125,359 $ 256,207 $ 238,994
=== ======= === ======= == ======= == =======
Net income:
GAAP net income $ 39,404 $ 28,653 $ 76,980 $ 82,109
Impact of signature file update (1) 7,923 - 7,923 -
Stock-based compensation expense (2) 26,589 31,080 55,897 55,115
Amortization of purchased technology (3) 20,345 18,439 40,838 37,833
Amortization of intangibles (3) 7,503 10,113 15,145 20,108
Restructuring charges (4) 9,127 4,145 24,881 9,205
Acquisition-related costs (5) 2,815 3,408 4,815 6,684
Loss on sale/disposal of assets and technology (6) 56 19 64 78
Investigation-related and other costs (7) - 2,279 - 2,325
Marketable securities (accretion) impairment (8) (401 ) - (829 ) 710
Provision for income taxes (9) 15,808 26,426 30,315 27,007
------- ------- ------- -------
Non-GAAP income before provision for income taxes 129,169 124,562 256,029 241,174
Non-GAAP provision for income taxes (10) 31,001 29,895 61,447 57,882
------- ------- ------- -------
Non-GAAP net income $ 98,168 $ 94,667 $ 194,582 $ 183,292
=== ======= === ======= == ======= == =======
Net income per share - diluted: *
GAAP net income per share - diluted $ 0.25 $ 0.18 $ 0.49 $ 0.52
Stock-based compensation expense per share (2) 0.17 0.20 0.35 0.35
Other adjustments per share (1), (3)-(10) 0.21 0.22 0.39 0.29
Non-GAAP net income per share - diluted * $ 0.63 $ 0.60 $ 1.23 $ 1.17
=== ======= === ======= == ======= == =======
Shares used to compute Non-GAAP net income per share - diluted 156,151 158,336 158,347 157,306
=== ======= === === ======= == ======= == == =======
*
Non-GAAP net income per share is computed independently for each
period presented. The sum of GAAP net income per share and
non-GAAP adjustments may not equal non-GAAP net income per share
due to rounding differences.
This presentation includes non-GAAP measures. Our non-GAAP
measures are not meant to be considered in isolation or as a
substitute for comparable GAAP measures, and should be read only
in conjunction with our consolidated financial statements prepared
in accordance with GAAP. For a detailed explanation of the
adjustments made to comparable GAAP measures, the reasons why
management uses these measures, the usefulness of these measures
and the material limitations of these measures, see items (1)
through (10).
Items (1) through (10) on the "Reconciliation of GAAP to Non-GAAP
Financial Measures" table are listed to the right of certain
categories under "Net Revenue", "Gross profit," "Operating income,"
"Net income" and "Net income per share - diluted" and correspond to
the categories explained in further detail below under paragraphs
(1) through (10).
The non-GAAP financial measures are non-GAAP net revenue, non-GAAP
operating income, non-GAAP net income and non-GAAP net income per
share -- diluted, which adjust for the following items: the impact of
signature file update, stock-based compensation expense,
amortization of purchased technology and intangibles, restructuring
charges, acquisition-related costs, loss on sale/disposal of assets
and technology, investigation-related and other costs, marketable
securities (accretion) impairment, income taxes and certain other
items. We believe that the presentation of these non-GAAP financial
measures is useful to investors, and such measures are used by our
management, for the reasons associated with each of the adjusting
items as described below:
(1)
Impact of signature file update primarily reflects the
negative impact related to prior-period deferred revenue and
additional costs incurred. The deferred revenue was originally
scheduled to be recognized from the balance sheet and was delayed
into future periods due to actions we took when providing customer
care packages to our customers related to our release in April of
an anti-virus signature file update that impacted some of our
customers. We consider our operating results without this impact
when evaluating our ongoing performance as we believe that the
exclusion allows for more accurate comparisons of our financial
results to previous periods. In addition, we believe it is useful
to investors to understand the specific impact of the signature
file update on our operating results.
(2)
Stock-based compensation expense consist of expense
relating to stock-based awards issued to employees and outside
directors including stock options, restricted stock awards and
units, restricted stock units with performance-based vesting and
our Employee Stock Purchase Plan. Because of varying available
valuation methodologies, subjective assumptions and the variety of
award types, the Company believes that the exclusion of
stock-based compensation expense allows for more accurate
comparisons of our operating results to our peer companies, and
for a more accurate comparison of our financial results to
previous periods. In addition, the Company believes it is useful
to investors to understand the specific impact of stock-based
compensation expense on our operating results.
(3)
Amortization of purchased technology and intangibles are
non-cash charges that can be impacted by the timing and magnitude
of our acquisitions. The Company considers its operating results
without these charges when evaluating its ongoing performance
and/or predicting its earnings trends, and therefore excludes such
charges when presenting non-GAAP financial measures. The Company
believes the assessment of its operations excluding these costs is
relevant to its assessment of internal operations and comparisons
to the performance of other companies in its industry.
(4)
Restructuring charges include excess facility and
asset-related restructuring charges and severance costs resulting
from reductions of personnel driven by modifications to the
Company’s business strategy, such as acquisitions or divestitures.
These costs may vary in size based on the Company’s restructuring
plan. In addition, the Company’s assumptions are continually
evaluated, which may increase or reduce the charges in a specific
period. The Company’s management excludes these costs when
evaluating its ongoing performance and/or predicting its earnings
trends, and therefore excludes these charges when presenting
non-GAAP financial measures.
(5)
Acquisition-related costs include direct costs of the
acquisition and expenses related to acquisition integration
activities. Examples of costs directly related to an acquisition
include transactions fees, due diligence costs, acquisition
retention bonuses and severance, fair value adjustments related to
contingent consideration, amounts or recoveries subject to escrow
provisions, and certain legal costs related to acquired
litigation. These expenses vary significantly in size and amount
and are disregarded by the Company’s management when evaluating
and predicting earnings trends because these charges are unique to
specific acquisitions, and are therefore excluded by the Company
when presenting non-GAAP financial measures.
(6)
Loss on sale/disposal of assets and technology relate to
the sale or disposal of assets of the Company. These losses or
gains can vary significantly in size and amount. The Company’s
management excludes these losses or gains when evaluating its
ongoing performance and/or predicting its earnings trends, and
therefore excludes these items when presenting non-GAAP financial
measures. In addition, in periods where the Company realizes gains
or incurs losses on the sale of assets and/or technology, the
Company believes it is useful to investors to highlight the
specific impact of these amounts on its operating results.
(7)
Investigation-related and other costs are charges related
to discrete and unusual events where the Company has incurred
significant costs which, in the Company’s view, are not incurred
in the ordinary course of operations. Recent examples of such
charges include legal expenses related to the special committee
investigation into the Company’s past stock option granting
practices which was completed in December 2007. The Company’s
management excludes these costs when evaluating its ongoing
performance and/or predicting its earnings trends, and therefore
excludes these charges when presenting non-GAAP financial
measures. Further, the Company believes it is useful to investors
to understand the specific impact of these charges on its
operating results.
(8)
Marketable securities (accretion) impairment includes
"other than temporary" declines in the fair value of our
available-for-sale securities and subsequent recoveries of these
losses. The Company’s management excludes these losses/income when
evaluating the company’s ongoing performance and/or predicting
earning trends, and therefore excludes these losses/income when
presenting non-GAAP financial measures.
(9)
Provision for income taxes is our GAAP provision that must
be added back to GAAP net income to reconcile to non-GAAP income
before taxes.
(10)
Non-GAAP provision for income taxes reflects a 24% non-GAAP
effective tax rate in 2010 and 2009 which is used by the Company’s
management to calculate non-GAAP net income. Management believes
that the 24% effective tax rate is reflective of a long-term
normalized tax rate under the global McAfee legal entity and tax
structure as of the respective period end.
MCAFEE, INC. AND SUBSIDIARIES
PROJECTED GAAP REVENUE AND RECONCILIATION OF PROJECTED
GAAP NET INCOME PER SHARE TO PROJECTED NON-GAAP NET INCOME PER
SHARE
(Unaudited)
Q3 FY’10
---------------
Projected GAAP revenue range $505M - $520M
===============
Projected net income per share reconciliation:
Projected GAAP net income per share range - diluted $0.29 - $0.33
===============
Add back:
Projected stock-based compensation adjustment per share, net of tax $0.12 - $0.16
(A)
Projected other adjustments per share, net of tax (B) $0.13 - $0.17
Projected non-GAAP net income per share range - diluted* $0.62 - $0.66
===============
* We believe that providing a forecast of the non-GAAP items set forth
above is useful to investors, and such items are used by our
management, for the reasons associated with each of the adjusting
items as described below.
(A)
Stock-based compensation expense consist of expense
relating to stock-based awards issued to employees and outside
directors including stock options, restricted stock awards and
units, restricted stock units with performance-based vesting and
our Employee Stock Purchase Plan. Because of varying available
valuation methodologies, subjective assumptions and the variety of
award types, the Company believes that the exclusion of
stock-based compensation expense allows for more accurate
comparisons of our operating results to our peer companies, and
for a more accurate comparison of our financial results to
previous periods. In addition, the Company believes it is useful
to investors to understand the specific impact of stock-based
compensation expense on our operating results.
(B)
Other adjustments include amortization of purchased technology and
intangibles, investigation-related and other costs, restructuring
charges, acquisition-related costs, loss/gain on sale/disposal of
assets and technology, income taxes and certain other items. We
exclude these items because we believe they are not directly
related to the operation of our business. A more detailed
explanation of the reasons why we exclude these categories from
our GAAP net income is contained in paragraphs (1) through (10)
above under the table entitled "Reconciliation of GAAP to Non-GAAP
Financial Measures."
For Q3 FY’10, this guidance reflects an assumed annual GAAP and
non-GAAP tax rate of 29% and 24%, respectively.
MCAFEE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED GAAP REVENUE BY PRODUCT GROUPS
(in thousands)
(Unaudited)
Three Months Ended Three Months Ended Three Months Ended Three Months Ended Three Months Ended
June 30, 2010 March 31, 2010 December 31, 2009 September 30, 2009 June 30, 2009
--------------------- --------------------- --------------------- --------------------- ---------------------
McAfee Corporate $ 298,449 61 % $ 312,507 62 % $ 337,910 64 % $ 308,573 64 % $ 291,409 62 %
McAfee Consumer 190,790 39 % 190,238 38 % 187,756 36 % 176,698 36 % 177,277 38 %
GAAP net revenue 489,239 100 % $ 502,745 100 % $ 525,666 100 % $ 485,271 100 % $ 468,686 100 %
=== === === ======= === === === ======= === === === ======= === === === ======= === ===
McAfee Corporate (1) 6,105
McAfee Consumer (1) -
Non-GAAP adjustments 6,105
McAfee Corporate 304,554 61 %
McAfee Consumer 190,790 39 %
Non-GAAP net revenue $ 495,344 100 %
=== ======= === ===
This presentation includes a non-GAAP net revenue measure. Our
non-GAAP net revenue measure is not meant to be considered in
isolation or as a substitute for a comparable GAAP net revenue
measure, and should be read only in conjunction with our
consolidated financial statements prepared in accordance with
GAAP. For a detailed explanation of the adjustment made to the
comparable GAAP net revenue measure, the reasons why management
uses this measure, the usefulness of this measure and the material
limitations of this measure, see item (1) on the Reconciliation of
GAAP to Non-GAAP Financial Measures.
MCAFEE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED GAAP REVENUE BY GEOGRAPHY
(in thousands)
(Unaudited)
Three Months Ended Three Months Ended Three Months Ended Three Months Ended Three Months Ended
June 30, 2010 March 31, 2010 December 31, 2009 September 30, 2009 June 30, 2009
--------------------- --------------------- --------------------- --------------------- ---------------------
McAfee North America $ 285,858 58 % $ 284,197 57 % $ 298,562 57 % $ 273,464 56 % $ 265,389 57 %
McAfee International 203,381 42 % 218,548 43 % 227,104 43 % 211,807 44 % 203,297 43 %
GAAP net revenue 489,239 100 % $ 502,745 100 % $ 525,666 100 % $ 485,271 100 % $ 468,686 100 %
=== === === ======= === === === ======= === === === ======= === === === ======= === ===
McAfee North America (1) 2,893
McAfee International (1) 3,212
Non-GAAP adjustments 6,105
McAfee North America 288,751 58 %
McAfee International 206,593 42 %
Non-GAAP net revenue $ 495,344 100 %
=== ======= === ===
This presentation includes a non-GAAP net revenue measure. Our
non-GAAP net revenue measure is not meant to be considered in
isolation or as a substitute for a comparable GAAP net revenue
measure, and should be read only in conjunction with our
consolidated financial statements prepared in accordance with
GAAP. For a detailed explanation of the adjustment made to the
comparable GAAP net revenue measure, the reasons why management
uses this measure, the usefulness of this measure and the material
limitations of this measure, see item (1) on the Reconciliation of
GAAP to Non-GAAP Financial Measures.
SOURCE: McAfee, Inc.
McAfee, Inc.
Investors:
Kate Scolnick, 408-346-5223
kate_scolnick@mcafee.com
or
Brandie Claborn, 972-987-2124
brandie_claborn@mcafee.com
or
Media:
Tracy Ross, 650-245-8466
tracy_ross@mcafee.com
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