Category: Internet

ArcSight Inc ( ARST )

Published: 04 September 2009
Written by Editor
Nasdaq   Financial Results   Up on News   Security  

ArcSight Reports 25% Year-Over-Year Growth for Fiscal First Quarter Ended July 31, 2009

ArcSight, Inc. (NASDAQ: ARST), a leading global provider of security and compliance management solutions that protect enterprises and government agencies, today announced financial results for its fiscal first quarter ended July 31, 2009.

For the first quarter of fiscal 2010, ArcSight reported total revenues of $34.6 million compared to total revenues of $27.7 million reported in the first quarter of fiscal 2009. Net income on a GAAP basis for the first quarter of fiscal 2010 was $1.0 million, or $0.03 per diluted share, including $222,000 in amortization of intangible assets and $1.9 million in stock-based compensation expense. This compares to a GAAP net loss of $1.3 million, or $(0.04) per diluted share, reported in the first quarter of fiscal 2009, including $211,000 in amortization of intangible assets and $1.4 million in stock-based compensation expense.

Non-GAAP net income for the first quarter of fiscal 2010 was $3.2 million, or $0.09 per diluted share, excluding the above-mentioned amortization and stock-based compensation charges. This compares to a non-GAAP net income of $0.3 million, or $0.01 per diluted share, reported in the first quarter of fiscal 2009, excluding the above-mentioned charges.

During the first quarter of fiscal 2010, the company generated $9.0 million in cash from operations and closed the first quarter with cash and cash equivalents of $101.5 million.

“ArcSight’s strong first quarter reflects our continued execution of our three business imperatives for fiscal 2010, namely focusing on our customers’ success to drive follow-on product purchases, pursuing new high value opportunities by leveraging our platform for enterprise-wide threat and risk monitoring and extending our reach into the mid-market by leveraging our channel partners,”commented Tom Reilly, president and CEO of ArcSight. “We will continue to serve our customers effectively with a robust platform of product offerings that helps them mitigate risk and protect their most valuable assets in a constantly evolving regulatory and threat landscape.”

Business Outlook

The following forward-looking statements reflect expectations as of September 3, 2009. Results may be materially different and could be affected by the factors detailed in this release and in recent ArcSight SEC filings.

Second Quarter Expectations – Ending October 31, 2009

Based on current business trends and the visibility the company has from first quarter performance, including an anticipated seasonally higher second quarter relative to the company’s first quarter, ArcSight expects revenue for the second quarter of fiscal 2010 to be in the range of $38.5 million to $42.5 million, representing growth in the range of 17-30% over the same quarter of fiscal 2009.

ArcSight expects non-GAAP net income for the second quarter of fiscal 2010 to be in the range of $3.5 million to $4.9 million, or $0.10 to $0.14 per diluted share, which excludes stock-based compensation expense and amortization of intangibles.

Conference Call and Webcast Information

ArcSight will host a conference call and live webcast to discuss these financial results for investors and analysts at 2:00 p.m. Pacific Time on September 3, 2009. To access the conference call, dial 877-397-0284 for the U.S. or Canada and 719-325-4862 for international callers. The webcast will be available live on the Investor Relations section of the company’s website at www.arcsight.com. An audio replay of the call will also be available to investors by phone beginning at approximately 5:00 p.m. Pacific Time on September 3, 2009 until 9:00 p.m. Pacific Time on September 10, 2009, by dialing 888-203-1112 for the U.S. or Canada or 719-457-0820 for international callers, and entering passcode 9868484. In addition, an archived webcast will be available on the Investor Relations section of the company’s website at www.arcsight.com.

Use of Non-GAAP Financial Measures

ArcSight reports all financial information required in accordance with generally accepted accounting principles (GAAP). To supplement the ArcSight unaudited condensed consolidated financial statements presented in accordance with GAAP, ArcSight uses certain non-GAAP measures of financial performance. The presentation of these non-GAAP financial measures is not intended to be considered in isolation from, as a substitute for, or superior to, the financial information prepared and presented in accordance with GAAP, and may be different from non-GAAP financial measures used by other companies. In addition, these non-GAAP measures have limitations in that they do not reflect all of the amounts associated with the results of ArcSight operations as determined in accordance with GAAP. The non-GAAP financial measures used by ArcSight include historical non-GAAP net income (loss) and non-GAAP basic and diluted earnings (loss) per share. These non-GAAP financial measures exclude amortization of intangible assets and stock-based compensation from the ArcSight statement of operations.

For a description of these items, including the reasons why management adjusts for them, and reconciliations of these non-GAAP financial measures to the most directly comparable GAAP financial measures, please see the section of the accompanying tables titled "Use of Non-GAAP Financial Information" as well as the related tables that precede it. ArcSight may consider whether other significant non-recurring items that arise in the future should also be excluded in calculating the non-GAAP financial measures it uses.

ArcSight believes that these non-GAAP financial measures, when taken together with the corresponding GAAP financial measures, provide meaningful supplemental information regarding the performance of ArcSight by excluding certain items that may not be indicative of the company’s core business, operating results or future outlook. ArcSight management uses, and believes that investors benefit from referring to, these non-GAAP financial measures in assessing operating results of ArcSight, as well as when planning, forecasting and analyzing future periods. These non-GAAP financial measures also facilitate comparisons of the performance of ArcSight to prior periods.

Cautionary Statement Regarding Forward Looking Statements

This news release contains forward-looking statements, including without limitation those regarding ArcSight’s “Business Outlook” (“Second Quarter Expectations – Ending October 31, 2009”); ArcSight’s belief that continued execution against its three business imperatives for fiscal 2010 will result in continued financial performance; ArcSight’s belief that focusing on its customers’ success will drive follow-on product purchases; ArcSight’s intent to pursue new high value opportunities by leveraging its platform for enterprise-wide threat and risk monitoring and extend its reach into the mid-market by leveraging its channel partners; ArcSight’s intent to continue to serve its customers effectively with a robust platform of product offerings that helps them mitigate risk and protect their most valuable assets in a constantly evolving regulatory and threat landscape. These forward-looking statements are subject to material risks and uncertainties that may cause actual results to differ substantially from expectations. Investors should consider important risk factors, which include: the risk that demand for our security and compliance management solutions may not increase and may decrease; the risk that competitors may be perceived by customers to be better positioned to help handle compliance violations and security threats and protect their businesses from major risk; the risk that the growth of ArcSight may be lower than anticipated; and other risks detailed under the caption “Risk Factors” in the ArcSight Annual Report on Form 10-K filed with the Securities and Exchange Commission, or the SEC, on July 9, 2009 and the company’s other filings with the SEC. You can obtain copies of the company’s Annual Report on Form 10-K and its other SEC filings on the SEC’s website at www.sec.gov.

The foregoing information represents the company’s outlook only as of the date of this press release, and ArcSight undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information, new developments or otherwise.

About ArcSight

ArcSight (NASDAQ: ARST) is a leading global provider of security and compliance management solutions that protect businesses and government agencies. ArcSight identifies, assesses, and mitigates both internal and external cyber threats and risks across the organization for activities associated with critical assets and processes. With the market-leading ArcSight SIEM platform, organizations can proactively safeguard their assets, comply with corporate and regulatory policy and control the risks associated with cyber-theft, cyber-fraud, cyber-warfare and cyber-espionage. For more information, visit www.arcsight.com. (ARST-IR)

© 2009 ArcSight, Inc. All rights reserved. ArcSight and the ArcSight logo are trademarks of ArcSight, Inc.

ARCSIGHT, INC.
Condensed Consolidated Balance Sheets
(In thousands)
             
      As of     As of
      July 31,     April 30,
      2009     2009
      (Unaudited)      
Assets            
Current assets:            
Cash and cash equivalents   $ 101,460     $ 90,467  
Accounts receivable, net     23,122       34,184  
Capitalized software, current     2,303       -  
Other prepaid expenses and current assets     3,953       3,861  
Total current assets     130,838       128,512  
             
Property and equipment, net     5,326       4,416  
Goodwill     5,746       5,746  
Acquired intangibles assets, net     1,097       1,319  
Capitalized software licenses, non-current     1,913       -  
Other long-term assets     1,166       1,168  
Total assets   $ 146,086     $ 141,161  
             
Liabilities and stockholders’ equity            
Current liabilities:            
Accounts payable   $ 3,613     $ 1,432  
Accrued compensation and benefits     6,491       11,671  
Obligations for software licenses     2,599       363  
Other accrued liabilities     4,482       4,337  
Deferred revenues, current     34,569       36,160  
Total current liabilities     51,754       53,963  
             
Deferred revenues, non-current     7,254       8,888  
Obligations for software licenses, non-current     1,753       -  
Other long-term liabilities     1,763       1,637  
Total liabilities     62,524       64,488  
             
Stockholders’ equity:            
Additional paid-in capital     119,526       113,781  
Accumulated other comprehensive loss     (185 )     (314 )
Accumulated deficit     (35,779 )     (36,794 )
Total stockholders’ equity     83,562       76,673  
Total liabilities and stockholders’ equity   $ 146,086     $ 141,161  
                 
ARCSIGHT, INC.
Consolidated Statement of Operations
(On a GAAP basis)
(In thousands, except per share amounts)
(Unaudited)
             
    For the Three Months Ended
    July 31,   July 31,
    2009   2008
             
Revenues:            
Products   $ 18,265     $ 15,802  
Maintenance     11,919       8,568  
Services     4,371       3,293  
Total revenues     34,555       27,663  
Cost of revenues:            
Products     1,944       1,655  
Maintenance(1)     1,925       1,631  
Services(1)     2,630       2,043  
Total cost of revenues     6,499       5,329  
Gross profit     28,056       22,334  
Operating expenses(1):            
Research and development     5,598       5,315  
Sales and marketing     14,785       14,868  
General and administrative     6,018       4,349  
Total operating expenses     26,401       24,532  
Income (loss) from operations     1,655       (2,198 )
Interest income     28       404  
Other income and expense, net     (117 )     (99 )
Income (loss) before provision for income taxes     1,566       (1,893 )
Provision (benefit) for income taxes     551       (563 )
Net income (loss)   $ 1,015     $ (1,330 )
             
Net income (loss) per common share, basic   $ 0.03     $ (0.04 )
Net income (loss) per common share, diluted   $ 0.03     $ (0.04 )
             
Shares used in computing basic net income (loss) per common share     32,685       30,992  
Shares used in computing diluted net income (loss) per common share     35,249       30,992  
             
(1) Stock-based compensation expense as included in above            
Cost of maintenance revenues     80       46  
Cost of services revenues     33       33  
Research and development     429       339  
Sales and marketing     612       751  
General and administrative     776       234  
                 
ARCSIGHT, INC.
Consolidated Statement of Operations
(GAAP to Non-GAAP Reconciliation)
(In thousands, except per share amounts)
(Unaudited)
             
    For the Three Months Ended
    July 31,   July 31,
    2009   2008
             
GAAP net income (loss)   $ 1,015   $ (1,330 )
Plus:            
a) Stock-based expenses     1,930     1,403  
b) Amortization of intangibles     222     211  
Non-GAAP net income   $ 3,167   $ 284  
             
             
GAAP net income (loss) per common share, basic   $ 0.03   $ (0.04 )
Plus:            
a) Stock-based expenses     0.06     0.04  
b) Amortization of intangibles     0.01     0.01  
             
Non-GAAP net income, basic   $ 0.10   $ 0.01  
Non-GAAP net income, diluted   $ 0.09   $ 0.01  
             
Shares used in computing basic net income (loss) per common share     32,685     30,992  
Shares used in computing diluted net income (loss) per common share     35,249     33,114  
               

Use of Non-GAAP Financial Information

In addition to the reasons stated above, which are generally applicable to each of the items ArcSight excludes from its non-GAAP financial measures, ArcSight believes it is appropriate to exclude certain items for the following reasons:

Amortization of Intangibles. When analyzing the operating performance of an acquired entity, ArcSight management focuses on the total return provided by the investment (i.e., operating profit generated from the acquired entity as compared to the purchase price paid) without taking into consideration any allocations made for accounting purposes. Because the purchase price for an acquisition necessarily reflects the accounting value assigned to intangible assets (including acquired in-process technology and goodwill), when analyzing the operating performance of an acquisition in subsequent periods, ArcSight management excludes the GAAP impact of the amortization of acquired intangible assets to its financial results. ArcSight believes that such an approach is useful in understanding the long-term return provided by an acquisition and that investors benefit from a supplemental non-GAAP financial measure that excludes the accounting amortization expense associated with acquired intangible assets.

In addition, in accordance with GAAP, ArcSight generally recognizes expenses for internally-developed intangible assets as they are incurred until technological feasibility is reached, notwithstanding the potential future benefit such assets may provide. Unlike internally developed intangible assets, however, and also in accordance with GAAP, ArcSight generally capitalizes the cost of acquired intangible assets and recognizes that cost as an expense over the useful lives of the assets acquired (other than goodwill, which is not amortized, and acquired in-process technology, which is expensed immediately, as required under GAAP). As a result of their GAAP treatment, there is an inherent lack of comparability between the financial performance of internally developed intangible assets and acquired intangible assets. Accordingly, ArcSight believes it is useful to provide, as a supplement to its GAAP operating results, a non-GAAP financial measure that excludes the amortization of acquired intangibles.

Stock-Based Compensation. When evaluating the performance of its consolidated results, ArcSight does not consider stock-based compensation charges. Likewise, the ArcSight management team excludes stock-based compensation expense from its operating plans. In contrast, the ArcSight management team is held accountable for cash-based compensation and such amounts are included in its operating plans. Further, when considering the impact of equity award grants, ArcSight places a greater emphasis on overall stockholder dilution rather than the accounting charges associated with such grants.

ArcSight believes it is useful to provide a non-GAAP financial measure that excludes stock-based compensation in order to better understand the long-term performance of its business.

ARCSIGHT, INC.
Condensed Consolidated Balance Sheets
(In thousands)
             
      As of     As of
      July 31,     April 30,
      2009     2009
      (Unaudited)      
Assets            
Current assets:            
Cash and cash equivalents   $ 101,460     $ 90,467  
Accounts receivable, net     23,122       34,184  
Capitalized software, current     2,303       -  
Other prepaid expenses and current assets     3,953       3,861  
Total current assets     130,838       128,512  
             
Property and equipment, net     5,326       4,416  
Goodwill     5,746       5,746  
Acquired intangibles assets, net     1,097       1,319  
Capitalized software licenses, non-current     1,913       -  
Other long-term assets     1,166       1,168  
Total assets   $ 146,086     $ 141,161  
             
Liabilities and stockholders’ equity            
Current liabilities:            
Accounts payable   $ 3,613     $ 1,432  
Accrued compensation and benefits     6,491       11,671  
Obligations for software licenses     2,599       363  
Other accrued liabilities     4,482       4,337  
Deferred revenues, current     34,569       36,160  
Total current liabilities     51,754       53,963  
             
Deferred revenues, non-current     7,254       8,888  
Obligations for software licenses, non-current     1,753       -  
Other long-term liabilities     1,763       1,637  
Total liabilities     62,524       64,488  
             
Stockholders’ equity:            
Additional paid-in capital     119,526       113,781  
Accumulated other comprehensive loss     (185 )     (314 )
Accumulated deficit     (35,779 )     (36,794 )
Total stockholders’ equity     83,562       76,673  
Total liabilities and stockholders’ equity   $ 146,086     $ 141,161  
                 
ARCSIGHT, INC.
Consolidated Statement of Operations
(On a GAAP basis)
(In thousands, except per share amounts)
(Unaudited)
             
    For the Three Months Ended
    July 31,   July 31,
    2009   2008
             
Revenues:            
Products   $ 18,265     $ 15,802  
Maintenance     11,919       8,568  
Services     4,371       3,293  
Total revenues     34,555       27,663  
Cost of revenues:            
Products     1,944       1,655  
Maintenance(1)     1,925       1,631  
Services(1)     2,630       2,043  
Total cost of revenues     6,499       5,329  
Gross profit     28,056       22,334  
Operating expenses(1):            
Research and development     5,598       5,315  
Sales and marketing     14,785       14,868  
General and administrative     6,018       4,349  
Total operating expenses     26,401       24,532  
Income (loss) from operations     1,655       (2,198 )
Interest income     28       404  
Other income and expense, net     (117 )     (99 )
Income (loss) before provision for income taxes     1,566       (1,893 )
Provision (benefit) for income taxes     551       (563 )
Net income (loss)   $ 1,015     $ (1,330 )
             
Net income (loss) per common share, basic   $ 0.03     $ (0.04 )
Net income (loss) per common share, diluted   $ 0.03     $ (0.04 )
             
Shares used in computing basic net income (loss) per common share     32,685       30,992  
Shares used in computing diluted net income (loss) per common share     35,249       30,992  
             
(1) Stock-based compensation expense as included in above            
Cost of maintenance revenues     80       46  
Cost of services revenues     33       33  
Research and development     429       339  
Sales and marketing     612       751  
General and administrative     776       234  
                 
ARCSIGHT, INC.
Consolidated Statement of Operations
(GAAP to Non-GAAP Reconciliation)
(In thousands, except per share amounts)
(Unaudited)
             
    For the Three Months Ended
    July 31,   July 31,
    2009   2008
             
GAAP net income (loss)   $ 1,015   $ (1,330 )
Plus:            
a) Stock-based expenses     1,930     1,403  
b) Amortization of intangibles     222     211  
Non-GAAP net income   $ 3,167   $ 284  
             
GAAP net income (loss) per common share, basic   $ 0.03   $ (0.04 )
Plus:            
a) Stock-based expenses     0.06     0.04  
b) Amortization of intangibles     0.01     0.01  
             
Non-GAAP net income, basic   $ 0.10   $ 0.01  
Non-GAAP net income, diluted   $ 0.09   $ 0.01  
             
Shares used in computing basic net income (loss) per common share     32,685     30,992  
Shares used in computing diluted net income (loss) per common share     35,249     33,114  

 

 

FD
Robert Dougherty, 415-293-4427 (Investor Relations)
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