* Record Q2 revenue of
* All-time record non-GAAP operating income, net income, and earnings per share1
* All-time record annualized recurring revenue of
* Continued shift to cloud-based solutions as Platform, cloud subscription and managed services annualized recurring revenue of
"The steps we have taken to accelerate our transformation to a security-as-a-service company resulted in record second quarter revenue and our highest ever non-GAAP profitability," said
"Cyber security remains a top spending priority for organizations worldwide, and the uncertainty of the current environment is creating opportunities for solutions that allow customers to purchase exactly what they need, when they need it," added Mandia. "We know more about cyber threats and threat actors than any other company in our industry, and we continue to invest in solutions that make our knowledge and expertise available on demand and immediately actionable for our customers." Second Quarter 2020 Financial Results
Q2 2020
Q2 2019
Y/Y change
Revenue
+6%
Annualized recurring revenue2
+8%
GAAP gross margin
65%
64%
+1 pt
Non-GAAP gross margin1
72%
72%
-
GAAP operating margin
(17)%
(26)%
+9 pts
Non-GAAP operating margin1
10%
(1)%
+11 pts
GAAP net income (loss) per share, basic and diluted
Non-GAAP net income (loss) per share, basic and diluted1
Cash flow provided (used) by operating activities
Capital expenditures
1 A reconciliation of GAAP to non-GAAP financial measures is provided in the financial statement tables included in this press release. An explanation of these measures is also included under the heading "Non-GAAP Financial Measures."
2 Annualized recurring revenue is defined as the annualized run-rate of active term licenses, subscriptions, and support contracts at the end of a reporting period. Third Quarter and Updated 2020 Outlook
Q3 2020 Outlook
Updated 2020 Outlook
Revenue
Non-GAAP gross margin
70% - 71%
70.5% - 71.5%
Non-GAAP operating margin
7.5% - 8.5%
6.5% - 7.5%
Net interest income (expense)
Provision for non-GAAP income taxes
Weighted average shares outstanding, diluted
227 million
227 million
Non-GAAP net income per share, diluted
Capital expenditures
~
Guidance for non-GAAP financial measures excludes stock-based compensation, amortization of stock-based compensation expense capitalized in software development costs, amortization of intangible assets, restructuring charges, non-cash interest expense related to the company's convertible senior notes, and other non-recurring items. A reconciliation of non-GAAP guidance measures to the most directly comparable GAAP financial measures is not available on a forward-looking basis due to the uncertainty regarding, and the potential variability of, the amounts of stock-based compensation expense, amortization of intangible assets, and non-recurring expenses that may be incurred in the future. Stock-based compensation expense is impacted by the company's future hiring and retention needs, as well as the future fair market value of the company's common stock, all of which are difficult to predict and subject to constant change. The actual amount of stock-based compensation expense in the third quarter of 2020 and full year 2020 will have a significant impact on the company's GAAP operating margin and net loss per share. Further, amortization of intangible assets, as well as other non-recurring expenses, if any, will also impact results. Accordingly, a reconciliation of the non-GAAP financial measure guidance to the most directly comparable GAAP financial measures for future periods is not available without unreasonable effort. Conference Call Information
This press release contains forward-looking statements, including statements related to future financial results for the third quarter and full year 2020, including revenue, non-GAAP gross margin, non-GAAP operating margin, net interest income and expense, provision for non-GAAP income taxes, weighted average shares outstanding, non-GAAP net income per share, and capital expenditures in the section entitled "Third Quarter and Updated 2020 Outlook" above, as well as statements regarding opportunities and continued investments.
These forward-looking statements involve risks and uncertainties, as well as assumptions which, if they do not fully materialize or prove incorrect, could cause
All forward-looking statements in this press release are based on information available to the company as of the date hereof, and
In this release
Non-GAAP financial measures are not meant to be considered in isolation or as a substitute for comparable financial information prepared in accordance with GAAP and should be read only in conjunction with the company's consolidated financial statements prepared in accordance with GAAP. A reconciliation of the company's non-GAAP financial measures to their most directly comparable GAAP measures has been provided in the financial statement tables included in this press release, and investors are encouraged to review the reconciliation.
Non-GAAP gross margin, operating income (loss), operating margin, net income (loss), and net income (loss) per basic and diluted share.
Non-GAAP net income and net income per diluted share in the second quarter of 2020 excluded stock-based compensation expense, amortization of intangible assets, amortization of stock-based compensation expense capitalized in software development costs, restructuring charges, non-cash interest expense related to convertible senior notes issued in
Non-GAAP net loss and net loss per share in the second quarter of 2019 excluded stock-based compensation expense, amortization of intangible assets, amortization of stock-based compensation expense capitalized in software development costs, acquisition related expenses, non-cash interest expense related to convertible senior notes issued in
There are a number of limitations related to the use of these non-GAAP financial measures versus their nearest GAAP equivalents. First, these non-GAAP financial measures exclude stock-based compensation expense. Stock-based compensation is an important part of
© 2020
Media
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Investors
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CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited, in thousands)
ASSETS
Current assets:
Cash and cash equivalents
Short-term investments
509,858
704,955
Accounts receivable, net
119,842
171,459
Inventories
5,440
5,892
Prepaid expenses and other current assets
94,654
96,827
Total current assets
1,134,140
1,313,736
Property and equipment, net
87,405
93,812
Operating lease right-of-use assets, net
54,572
58,758
1,213,454
1,205,292
Intangible assets, net
116,864
134,420
Deposits and other long-term assets
74,998
84,468
TOTAL ASSETS
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable
Operating lease liabilities, current
18,545
18,437
Accrued and other current liabilities
19,726
24,496
Accrued compensation
71,423
59,513
Convertible senior notes, current, net
-
117,288
Deferred revenue, current
563,190
603,944
Total current liabilities
683,617
849,949
Convertible senior notes, non-current, net
938,536
893,273
Deferred revenue, non-current
329,656
370,623
Operating lease liabilities, non-current
64,611
70,481
Other long-term liabilities
4,654
4,494
Total liabilities
2,021,074
2,188,820
Stockholders' equity:
Common stock
22
22
Additional paid-in capital
3,470,503
3,457,359
(80,000)
(150,000)
Accumulated other comprehensive income (loss)
6,311
1,180
Accumulated deficit
(2,736,477)
(2,606,895)
Total stockholders' equity
660,359
701,666
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited, in thousands, except per share amounts)
Three Months Ended
Six Months Ended
2020
2019
2020
2019
Revenue:
Product, subscription and support
Professional services
52,595
43,506
103,234
84,147
Total revenue
229,900
217,608
454,622
428,152
Cost of revenue: (1)(2)(3)
Product, subscription and support
54,026
53,198
107,162
101,666
Professional services
26,967
24,195
55,417
47,295
Total cost of revenue
80,993
77,393
162,579
148,961
Total gross profit
148,907
140,215
292,043
279,191
Operating expenses:
Research and development (1)(2)(3)
60,596
67,538
128,099
134,933
Sales and marketing (1)(2)
90,042
101,494
190,242
205,390
General and administrative (1)
25,281
27,926
52,710
55,302
Restructuring charges (4)
12,558
-
23,532
3,799
Total operating expenses
188,477
196,958
394,583
399,424
Operating loss
(39,570)
(56,743)
(102,540)
(120,233)
Other expense, net (5)
(12,612)
(10,040)
(25,023)
(19,743)
Loss before income taxes
(52,182)
(66,783)
(127,563)
(139,976)
Provision for income taxes (6)
1,094
540
2,019
2,722
Net loss
Net loss per share, basic and diluted
Weighted average shares used in per share calculations, basic and diluted
221,352
204,109
219,570
201,001
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)
Six Months Ended
2020
2019
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization
47,738
48,102
Stock-based compensation
73,224
80,474
Non-cash interest expense related to convertible senior notes
24,367
23,700
Deferred income taxes
154
(18)
Other
6,608
637
Changes in operating assets and liabilities, net of assets acquired and liabilities assumed in business acquisitions:
Accounts receivable
50,320
32,860
Inventories
(15)
(243)
Prepaid expenses and other assets
13,137
3,959
Accounts payable
(12,971)
4,415
Accrued liabilities
(6,073)
(3,566)
Accrued compensation
11,910
(8,704)
Deferred revenue
(81,721)
(24,830)
Other long-term liabilities
(6,862)
(4,564)
Net cash provided by (used in) operating activities
(9,766)
9,524
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment and demonstration units
(17,556)
(28,240)
Purchases of short-term investments
(106,631)
(258,104)
Proceeds from maturities of short-term investments
277,749
311,905
Proceeds from sales of short-term investments
28,208
-
Business acquisitions, net of cash acquired
(12,948)
(127,249)
Purchase of investment in privately held company
(1,000)
-
Lease deposits
87
426
Net cash provided by (used in) investing activities
167,909
(101,262)
CASH FLOWS FROM FINANCING ACTIVITIES:
Repurchase of convertible senior notes
(96,392)
-
Payment related to shares withheld for taxes
(8,039)
-
Proceeds from employee stock purchase plan
12,300
12,315
Proceeds from exercise of equity awards
3,731
1,495
Net cash provided by (used in) financing activities
(88,400)
13,810
Net change in cash and cash equivalents
69,743
(77,928)
Cash and cash equivalents, beginning of period
334,603
409,829
Cash and cash equivalents, end of period
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
(Unaudited, in thousands, except per share amounts)
Three Months Ended
Six Months Ended
2020
2019
2020
2019
GAAP operating loss
Stock-based compensation expense (1)
37,046
40,151
73,224
80,474
Amortization of stock-based compensation capitalized in software development costs (3)
1,084
847
2,110
1,640
Amortization of intangible assets (2)
11,245
12,952
23,205
25,078
Acquisition related expenses (4)
-
597
-
597
Restructuring charges (5)
12,558
-
23,532
3,799
Non-GAAP operating income (loss)
GAAP gross margin
65
%
64
%
64
%
65
%
Stock-based compensation expense (1)
4
%
4
%
4
%
4
%
Amortization of intangible assets (2)
3
%
4
%
3
%
4
%
Non-GAAP gross margin
72
%
72
%
71
%
73
%
GAAP operating margin
(17)
%
(26)
%
(23)
%
(28)
%
Stock-based compensation expense (1)
17
%
19
%
16
%
19
%
Amortization of intangible assets (2)
5
%
6
%
5
%
6
%
Restructuring charges (5)
5
%
-
%
5
%
1
%
Non-GAAP operating margin
10
%
(1)
%
3
%
(2)
%
GAAP net loss
Stock-based compensation expense (1)
37,046
40,151
73,224
80,474
Amortization of stock-based compensation capitalized in software development costs (3)
1,084
847
2,110
1,640
Amortization of intangible assets (2)
11,245
12,952
23,205
25,078
Acquisition related expenses (4)
-
597
-
597
Restructuring charges (5)
12,558
-
23,532
3,799
Non-cash interest expense related to convertible senior notes (6)
12,002
11,922
24,367
23,700
Adjustment to provision (benefit) from income taxes (7)
-
(834)
(315)
(223)
Non-GAAP net income (loss)
GAAP net loss per common share, basic and diluted
Stock-based compensation expense (1)
0.17
0.20
0.33
0.40
Amortization of stock-based compensation capitalized in software development costs (3)
-
-
0.01
0.01
Amortization of intangible assets (2)
0.05
0.06
0.11
0.12
Acquisition related expenses (4)
-
-
-
-
Restructuring charges (5)
0.06
-
0.11
0.02
Non-cash interest expense related to convertible senior notes (6)
0.05
0.06
0.11
0.12
Adjustment to provision (benefit) from income taxes (7)
-
-
-
-
Non-GAAP net income (loss) per common share, basic
Non-GAAP net income (loss) per common share, diluted
Weighted average shares used in per share calculation for GAAP, basic and diluted
221,352
204,109
219,570
201,001
Weighted average shares used in per share calculation for Non-GAAP, basic
221,352
204,109
219,570
201,001
Weighted average shares used in per share calculation for Non-GAAP, diluted
223,263
204,109
222,664
201,001
(1) Includes stock-based compensation expense as follows:
Cost of product, subscription and support revenue
Cost of professional services revenue
4,450
3,641
8,351
7,350
Research and development expense
9,861
11,889
21,406
24,313
Sales and marketing expense
11,410
13,227
22,896
25,767
General and administrative expense
6,981
7,430
12,486
15,133
Restructuring charges
293
-
293
-
Total stock-based compensation expense
(2) Includes amortization of intangible assets as follows:
Cost of product, subscription and support revenue
Research and development expense
109
109
218
227
Sales and marketing expense
4,127
3,896
8,248
7,675
Total amortization of intangible assets
(3) Includes amortization of stock-based compensation capitalized in software development costs as follows:
Cost of product, subscription and support revenue
Cost of professional services revenue
30
97
57
199
Research and development expense
994
554
1,939
1,042
Total amortization of stock-based compensation capitalized in software development costs
(4) Includes acquisition related expenses as follows:
General and administrative expense
$-
$-
(5) Includes restructuring charges as follows:
Restructuring charges
$-
(6) Includes non-cash interest expense related to convertible senior notes as follows:
Other expense, net
(7) Includes income tax effect of non-GAAP adjustments as follows:
Benefit from income taxes
$-
REVENUE BREAKOUT
(Unaudited, in thousands)
Three Months Ended
Six Months Ended
2020
2019
2020
2019
Product and related subscription and support revenue
Platform, cloud subscription and managed services revenue
73,501
56,612
141,896
108,067
Product, subscription and support revenue
177,305
174,102
351,388
344,005
Professional services revenue
52,595
43,506
103,234
84,147
Total revenue
ANNUALIZED RECURRING REVENUE BREAKOUT
(Unaudited, in thousands)
As of
2020
2019
Product and related subscription and support
Platform, cloud subscription and managed services
302,231
238,724
Total annualized recurring revenue
$
551,859
.
(C) 2020 M2 COMMUNICATIONS, source