RSA Security Announces First Quarter Results20 April 2006
RSA Security Inc. (Nasdaq: RSAS) today reported financial results for the first quarter ended March 31, 2006.
Revenue for the first quarter of 2006 increased 16% to $87.5 million from $75.6 million for the first quarter of 2005. Net income in accordance with Generally Accepted Accounting Principles (GAAP) for the first quarter of 2006 was $5.3 million, or $0.07 per diluted share. GAAP net income of $7.2 million, or $0.10 per diluted share, for the comparable period a year ago, did not include stock-based compensation charges. Non-GAAP net income for the first quarter of 2006 was $10.5 million, or $0.14 per diluted share (refer to the "Use of Non-GAAP Financial Measures" section and accompanying financial tables for reconciliations of GAAP to non-GAAP financial information).
"The first quarter of 2006 was a record quarter for RSA Security. In addition to generating the highest ever quarterly revenue in the Company's history, we had our best ever first quarter in terms of bookings," said Art Coviello, president and chief executive officer of RSA Security. "We built on our strong fourth quarter results in the enterprise and consumer businesses, and we generated significant traction from the successful integration of the Cyota acquisition. With increasing awareness and global regulation driving the continued adoption of strong authentication, I am excited about our prospects for the year to come."
First-Quarter 2006 Financial Highlights
* Revenue and Bookings: RSA Security generated $87.5 million in revenue
for the first quarter of 2006, compared to $75.6 million in revenue for
the first quarter of 2005. RSA Security's book-to-bill ratio for the
first quarter was approximately 1.1 to 1, compared to a book-to-bill
ratio of 1.0 to 1 during the first quarter of 2005.
* Net Income: For the first quarter of 2006, the Company generated GAAP
net income of $5.3 million, or $0.07 per diluted share, and non-GAAP net
income of $10.5 million, or $0.14 per diluted share.
* Backlog, Deferred Revenue and Estimated Unrecognized Revenue from
Managed Service Contracts: The Company closed the quarter with $119.1
million in combined deferred revenue, backlog and estimated unrecognized
revenue from managed service contracts, a 8% increase from the $110.8
million balance at December 31, 2005.
* Cash Position and Share Repurchase: Cash, cash equivalents, and
marketable securities increased to $208.2 million at March 31, 2006 from
$187.8 million at December 31, 2005. During the quarter, in accordance
with the Company's approved stock buyback plan, RSA Security repurchased
82,300 shares of its common stock for $1.2 million. Under the board
approved share repurchase plan, RSA Security can repurchase an
additional 6.4 million shares of RSA Security common stock through June
30, 2006.
First Quarter 2006 Operational Highlights
* Customers: RSA Security closed business with more than 6,000 customers
in the first quarter, including approximately 800 new customers. The
Company shipped over 1.7 million authentication credentials during the
first quarter, up 11% from the fourth quarter of 2005, the Company's
previous record quarter for credential shipments. Of the authentication
credentials shipped during the quarter, approximately 620,000
credentials were consumer related.
* Partners: RSA Security introduced a strategy to enable ubiquitous
strong authentication by integrating RSA SecurID(R) authentication into
everyday devices and software such as mobile phones, PDAs, USB thumb
drives and mobile flash memory cards. By transforming these devices into
strong authentication platforms, RSA SecurID authentication can move
beyond self-contained hardware tokens to an unprecedented array of
devices. In the first quarter of 2006, RSA Security announced
relationships with several flagship partners including M-Systems,
Motorola, SanDisk, Research in Motion (RIM) and others.
* Products and Solutions: In February, RSA Security announced RSA(R)
SecurID(R) Appliance 2.0, which scales to 50,000 users, making it
possible to meet the demands of enterprise customers seeking an
appliance-based solution. During the first quarter the Company sold
approximately 300 RSA SecurID Appliances, of which 50 percent were to
new customers. Since the appliance can be deployed in as few as 15
minutes, with few IT resources, it is becoming a significant driver of
growth in the capture of new customers.
The Company also launched the RSA SecurID Toolbar Token, an easy-to-use
strong authentication option delivered in the familiar Web browser
toolbar format. With the toolbar, users navigate to the Web site
protected by RSA SecurID technology, and then utilize the token code
appearing in the toolbar, offering consumer-facing organizations a
simple way to arm their customers with stronger protection online.
* Industry Leadership: RSA Security hosted the 15th annual RSA(R)
Conference in San Jose in February. This industry-leading conference
drew scores of exhibitors and over 14,000 attendees, with full
conference attendance up over 10% from the prior year. Keynote speakers
included industry leaders such as John Chambers, president and chief
executive officer, Cisco Systems; Bill Gates, chairman of the board and
chief software architect, Microsoft Corp.; Scott McNealy, chairman and
chief executive officer, Sun Microsystems; and John Thompson, chairman
of the board and chief executive officer, Symantec Corporation.
Additional conferences to be held during the year include RSA Conference
Japan, in Tokyo April 26 and 27, RSA Conference China, in Beijing in
November and RSA Conference Europe in Nice, France October 23 through
October 25. For more information about RSA Conferences, visit
http://www.RSAConference.com.
Business Outlook
Guidance for the second quarter of 2006 is only current as of today, Monday April 17, 2006; the Company undertakes no obligation to update its estimates.
Second Quarter 2006 Financial Update
* The Company anticipates revenue for the second quarter of 2006 to be in
the range of $88 million to $92 million.
* The Company anticipates non-GAAP earnings per diluted share for the
second quarter of 2006 to be in the range of $0.14 to $0.16.
* The Company anticipates GAAP earnings per diluted share for the second
quarter of 2006 to be in the range of $0.06 to $0.10.
* Included in GAAP earnings per diluted share, the Company anticipates the
following charges in the second quarter of 2006:
-- A stock-based compensation charge in accordance with SFAS 123R in the
range of $4 million to $5 million, or $(0.04) to $(0.05) per diluted
share.
-- Restructuring charges in the range of $500,000 to $1 million, or
$(0.00) to $(0.01) per diluted share, related to the Company's
restructuring of its engineering resources.
-- Amortization charges of intangible assets primarily associated with
our acquisition of Cyota of $1.3 million, or $(0.01) per diluted
share.
Use of Non-GAAP Financial Measures
The Company is providing non-GAAP financial measures as the Company believes that these figures are helpful in allowing investors to more accurately assess the ongoing nature of RSA Security's core operations. Further, management from time to time provides guidance with regard to future expectations of the business; both these GAAP and non-GAAP measures will assist investors in reconciling this forward looking guidance to actual results. Additionally, the Company is providing GAAP and non-GAAP measures in order to illustrate the impact of recent changes in accounting regulations, and to assist investors with the comparison of current and prior period results.
The presentation of this non-GAAP financial information is not intended to be considered in isolation or as a substitute for the financial information prepared and presented in accordance with GAAP. Management uses both GAAP and non-GAAP measures when evaluating the business internally and therefore felt it important to make these same metrics available to investors. GAAP earnings per share for the first quarter of 2006 include pre-tax charges as follows: a restructuring charge of $2.6 million related to the Company's previously announced restructuring of its engineering resources, stock based compensation charges of $2.8 million related to the Company's adoption of Statement of Financial Accounting Standards No. 123R, "Share Based Payment" (SFAS 123R) and $1.3 million of amortization of intangible assets primarily related to intangible assets acquired as a result of the Company's acquisition of Cyota.
First Quarter 2006 Financial Results:
Reconciliation of Earnings per Diluted Share GAAP to Non-GAAP*
(Per diluted share)
Earnings per diluted share (GAAP) $0.07
Restructuring charge $0.03
SFAS 123R stock option expense $0.03
Amortization of intangible assets $0.01
Earnings per diluted share (non-GAAP)* $0.14
* Figures are per diluted share and are post-tax assuming a GAAP effective tax rate.
Conference Call and Web Cast Information
RSA Security will host a conference call today at 4:30 p.m. ET. A live Web cast of this conference call will be available on the "Investor" page of the Company's Web site; http://www.RSASecurity.com. To access this call by telephone, dial (866) 592-8995 or (706) 634-1223. A replay will be available through midnight on Friday, April 21, 2006 at (800) 642-1687 or (706) 645- 9291. Both live and replay numbers have a pass code of 7584087.
About RSA Security Inc.
RSA Security Inc. is the expert in protecting online identities and digital assets. The inventor of core security technologies for the Internet, the company leads the way in strong authentication and encryption, bringing trust to millions of user identities and the transactions that they perform. RSA Security's portfolio of award-winning identity & access management solutions helps businesses to establish who's who online -- and what they can do.
With a strong reputation built on a 20-year history of ingenuity, leadership and proven technologies, we serve approximately 20,000 customers around the globe and interoperate with more than 1,000 technology and integration partners. For more information, please visit http://www.rsasecurity.com
RSA, BSAFE, SecurWorld and SecurID are either registered trademarks or trademarks of RSA Security Inc. in the United States and/or other countries. Microsoft and Outlook are either registered trademarks or trademarks of Microsoft Corporation in the United States and/or other countries. All other products and services mentioned are trademarks of their respective companies. This press release contains forward-looking statements regarding RSA Security's financial performance for the second quarter of 2006. These statements involve a number of risks and uncertainties. Some of the important factors that could cause actual results to differ materially from those indicated by the forward-looking statements are our ability to successfully integrate Cyota's employees and operations, the ability to realize anticipated synergies and cost savings as a result of the Cyota acquisition, general global economic conditions, changes in our operating expenses, the long and unpredictable nature of the sales cycle for some of our products, the timing of the introduction or enhancement of our products and our competitors' and strategic partners' products, changes in product pricing, including changes in competitors' pricing policies, development and performance of our direct and indirect distribution channels, delays in product development, competitive pressures, changes in customer and market requirements and standards, market acceptance of new products and technologies, technological changes in the computer industry, and the risk factors detailed from time to time in RSA Security's periodic reports and registration statements filed with the Securities and Exchange Commission, including, without limitation, RSA Security's Annual Report on Form 10-K filed on March 16, 2006.
Press contact: Financial contact:
Matt Buckley Jeremiah Sisitsky
RSA Security Inc. RSA Security Inc.
(781) 515-6212 (781) 515-6065
mbuckley@rsasecurity.com jsisitsky@rsasecurity.com
Condensed Consolidated Statements of Operations
(Unaudited)
(In thousands, except per share data)
Three Months Ended March 31,
2006 2005
Revenue
Products $61,508 $54,634
Maintenance and professional services 25,999 20,984
Total revenue 87,507 75,618
Cost of revenue
Products 12,744 8,532
Maintenance and professional services 7,369 6,092
Amortization of technology related intangible
assets 1,020 183
Total cost of revenue 21,133 14,807
Gross profit 66,374 60,811
Costs and expenses
Research and development 17,268 15,954
Marketing and selling 29,303 29,142
General and administrative 11,519 8,347
Amortization of intangible assets 254 --
Restructurings 2,624 --
Total 60,968 53,443
Income from operations 5,406 7,368
Interest income and other 1,460 1,891
Income before provision for income taxes 6,866 9,259
Provision for income taxes 1,536 2,037
Net income $5,330 $7,222
Basic earnings per share
Per share amount $0.07 $0.10
Weighted average shares 71,829 71,462
Diluted earnings per share
Per share amount $0.07 $0.10
Weighted average shares 71,829 71,462
Effect of dilutive equity instruments 1,838 2,973
Adjusted weighted average shares 73,667 74,435
Condensed Consolidated Balance Sheets
(Unaudited)
(In thousands, except share data)
March 31, December 31,
2006 2005
ASSETS
Current assets
Cash and cash equivalents $57,226 $69,050
Marketable securities 150,996 118,702
Accounts receivable (less allowance for
doubtful accounts of $1,565 in 2006 and
$1,600 in 2005) 49,556 55,738
Inventory 6,143 4,813
Prepaid expenses and other assets 13,411 14,211
Total current assets 277,332 262,514
Property and equipment, net 71,064 69,764
Other assets
Deferred taxes 8,108 8,108
Intangible and other assets 40,327 41,534
Goodwill, net 274,456 275,864
Total other assets 322,891 325,506
Total assets $671,287 $657,784
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable, accrued expenses and
other liabilities $50,474 $53,212
Current portion of accrued restructurings 7,178 5,962
Income taxes accrued and payable 15,503 18,442
Deferred revenue 47,391 47,453
Total current liabilities 120,546 125,069
Accrued restructurings, long-term 8,765 9,793
Deferred revenue, long-term 8,649 7,429
Other 6,079 8,633
Total liabilities 144,039 150,924
Stockholders' equity 527,248 506,860
Total liabilities and shareholders'
equity $671,287 $657,784
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(In thousands)
Three Months Ended
March 31,
2006 2005
Cash flows from operating activities
Net income $5,330 $7,222
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 4,072 2,895
Tax benefit from exercise of stock options -- 819
Stock-based compensation 2,784 --
Deferred taxes (504) --
Increase (decrease) in cash from changes in:
Accounts receivable 6,131 7,333
Inventory (1,337) (98)
Prepaid expenses and other assets (709) 727
Accounts payable, accrued expenses and
other liabilities (2,378) (9,571)
Accrued restructurings 188 (1,305)
Refundable income taxes and income taxes
accrued and payable (2,948) (781)
Deferred revenue 1,195 (2,397)
Net cash provided by operating activities 11,824 4,844
Cash flows from investing activities
Purchase of marketable securities (66,903) (64,325)
Sale/maturities of marketable securities 34,674 57,234
Purchases of property and equipment (3,904) (2,209)
Other (983) (636)
Net cash used for investing activities (37,116) (9,936)
Cash flows from financing activities
Share repurchase (1,216) (12,441)
Proceeds from exercise of stock options and
purchase plans 10,224 3,620
Tax benefit from exercise of stock options 4,447 --
Net cash provided by (used for) financing
activities 13,455 (8,821)
Effect of exchange rate changes on cash
and cash equivalents 13 (134)
Net decrease in cash and cash equivalents (11,824) (14,047)
Cash and cash equivalents, beginning of period 69,050 68,210
Cash and cash equivalents, end of period $57,226 $54,163
Supplemental Financial Data
(Unaudited)
(In thousands, except per share data)
Three Months Ended
March 31, June 30, Sept 30, Dec 31, March 31,
2005 2005 2005 2005 2006
Revenue
Enterprise
solutions (1) $70,185 $68,700 $67,722 $74,543 $76,016
Developer solutions 5,433 7,828 8,515 5,688 6,117
Consumer
solutions (1) NR NR NR 1,501 5,374
Total $75,618 $76,528 $76,237 $81,732 $87,507
Products $54,634 $54,767 $53,774 $58,970 $61,508
Maintenance and
professional
services 20,984 21,761 22,463 22,762 25,999
Total $75,618 $76,528 $76,237 $81,732 $87,507
Domestic $41,117 $42,823 $42,968 $43,265 $46,845
International 34,501 33,705 33,269 38,467 40,662
Total $75,618 $76,528 $76,237 $81,732 $87,507
Other Financial Data
Total authentication
credentials (2) 1,039,000 1,031,000 1,051,219 1,551,076 1,723,526
Consumer
authentication
credentials (2) NR NR NR 516,195 623,398
Cash and cash
equivalents and
marketable
securities $282,289 $284,206 $302,689 $187,752 $208,222
Day sales
outstanding (DSO) 55 58 57 59 51
GAAP cash flow
from operations $4,844 $11,750 $24,023 $15,444 $11,824
Non-GAAP cash flow
from operations (3) $4,844 $11,750 $24,023 $15,444 $16,271
GAAP cash flow from
operations per
diluted share $0.06 $0.16 $0.33 $0.21 $0.16
Non-GAAP cash flow
from operations per
diluted share (4) $0.06 $0.16 $0.33 $0.21 $0.22
Book to bill
ratio (5) 1.0 1.0 1.0 1.3 1.1
Total deferred
revenue balance $48,784 $51,899 $48,846 $54,882 $56,040
Total estimated
unrecognized
revenue from
managed service
contracts (6) NR NR NR $24,224 $30,207
Total product and
services
backlog (7) $11,051 $10,304 $12,662 $31,673 $32,873
Total NR NR NR $110,779 $119,120
Short-term
deferred
revenue NR $44,317 $42,190 $47,453 $47,391
Short-term
estimated
unrecognized
revenue from
managed service
Contracts NR NR NR $11,399 $15,308
Short-term product
and services backlog NR NR NR $21,325 $23,114
Total (8) NR NR NR $80,177 $85,813
NR reflects metric not reported
(1) Consumer solutions previously reported as part of enterprise
solutions.
(2) Includes RSA SecurID tokens as well as software tokens, smart cards
and USB.
(3) Non-GAAP cash flow from operations includes the tax benefit from the
exercise of stock options.
(4) Non-GAAP cash flow from operations per diluted share is calculated as
non-GAAP cash flow from operations divided by dilutive weighted
average shares outstanding during the period.
(5) The book to bill ratio is equal to the ratio of total orders booked
for the period plus the expected change in value of estimated
unrecognized revenue from managed service contracts as compared to
total revenue for the period.
(6) * Total estimated unrecognized revenue from managed service contracts
is equal to contracted monthly fixed fees associated with the service
plus contracted monthly variable fees based on an estimated number of
units for the remaining term of the contract. Contract terms are
typically 1-3 years. Contracts are billed monthly and are therefore
excluded from deferred revenue. This metric primarily relates to
Cyota's managed service offerings.
(7) * Total product and services backlog is equal to contracted orders for
products and maintenance and professional services which have not been
fulfilled.
(8) * Short-term represents the portion of these metrics that is expected
to be recognized as revenue in the next 12 months.
* These metrics represent management's estimates. Certain of these
managed service contracts are terminable upon notice of the customer.
Condensed Consolidated Statements of Operations
(Unaudited)
(In thousands, except per share data)
Three Months Ended March 31, 2006
GAAP SFAS 123R Other Non-GAAP
Adjustment Adjustment
Revenue
Products $61,508 -- -- $61,508
Maintenance and
professional
services 25,999 -- -- 25,999
Total revenue 87,507 -- -- 87,507
Cost of revenue
Products 12,744 274 -- 12,470
Maintenance and
professional services 7,369 -- -- 7,369
Amortization of
technology related
intangible assets 1,020 -- 1,020 --
Total cost of revenue 21,133 274 1,020 19,839
Gross profit 66,374 274 1,020 67,668
Costs and expenses
Research and
development 17,268 373 -- 16,895
Marketing and selling 29,303 800 -- 28,503
General and
administrative 11,519 1,337 -- 10,182
Amortization of
intangible assets 254 -- 254 --
Restructurings 2,624 -- 2,624 --
Total 60,968 2,510 2,878 55,580
Income from operations 5,406 2,784 3,898 12,088
Interest income
and other 1,460 -- -- 1,460
Income before provision
for income taxes 6,866 2,784 3,898 13,548
Provision for income
taxes 1,536 624 873 3,033
Net income $5,330 2,160 3,025 $10,515
Diluted earnings per share
Per share amount $0.07 $0.14
Weighted average shares 71,829 71,829
Effect of dilutive
equity instruments 1,838 1,838
Adjusted weighted
average shares 73,667 73,667
Condensed Consolidated Statements of Operations
(Unaudited)
The following table sets forth certain consolidated financial data as a percentage of our total revenue:
For the three months ended,
March 31, 2006
GAAP Adjustment (a) Non-GAAP
Revenue
Products 70.3% --% 70.3%
Maintenance and professional
services 29.7 -- 29.7
Total revenue 100.0 -- 100.0
Cost of revenue
Products 14.6 0.3 (b) 14.3
Maintenance and professional
services 8.4 -- 8.4
Amortization of technology
related intangible assets 1.2 1.2 (c) --
Total cost of revenue 24.2 1.5 22.7
Gross margin 75.8 1.5 77.3
Costs and expenses
Research and development 19.7 0.4 (b) 19.3
Marketing and selling 33.5 0.9 (b) 32.6
General and administrative 13.1 1.5 (b) 11.6
Amortization of intangible assets 0.3 0.3 (c) --
Restructurings 3.0 3.0 (d) --
Total 69.6 6.1 63.5
Income from operations 6.2 7.6 13.8
Interest income and other 1.7 -- 1.7
Income before provision for
income taxes 7.9 7.6 15.5
Provision for income taxes 1.8 1.7 3.5
Net income 6.1% 5.9% 12.0%
(a) In absolute terms
(b) SFAS 123R stock option expense
(c) Amortization of intangible assets
(d) Restructuring charge
Source: prnewswire
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