Company Generates Record Quarterly Revenue of $87.5 Million; Growth
in Enterprise, Consumer and Developer Businesses Drives Sequential
Increase in Backlog and Deferred Revenue BEDFORD, Mass., April 17
/PRNewswire-FirstCall/ -- 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
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 DATASOURCE: RSA Security Inc. CONTACT: Press
contact: Matt Buckley, +1-781-515-6212, , or Financial contact:
Jeremiah Sisitsky, +1-781- 515-6065, , both of RSA Security Inc.
Web site: http://www.rsasecurity.com/
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