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Net income for the third quarter of 2009 calculated in accordance with U.S. generally accepted accounting principles (GAAP) was $3.0 million, or $0.05 per diluted share. In comparison, GAAP net income for the third quarter of 2008 was $569,000, or $0.01 per diluted share.
The company reported third quarter operating margin of 9.6%, calculated on a GAAP basis. In comparison, GAAP operating margin in the third quarter of 2008 was 3.2%. GAAP gross margin in the third quarter was 71.6%, compared to 69% in the same period of 2008.
Non-GAAP net income for the third quarter of 2009 was $5.4 million or $0.10 per diluted share. In comparison, non-GAAP net income for the third quarter of 2008 was $4.1 million, or $0.08 per diluted share. Non-GAAP net income excludes amortization of purchased intangible assets, restructuring charges, and share-based compensation expense primarily associated with the expensing of stock options. An explanation of our use of non-GAAP measures is included in the section in this press release entitled "Use of Non-GAAP Financial Measures."
The Company reported third quarter non-GAAP operating margin of 16%. In comparison, non-GAAP operating margin for the third quarter of 2008 was 10%. Non-GAAP gross margin in the third quarter was 73%, compared to 71% in the third quarter of 2008.
"It was a solid third quarter for SonicWALL," said Matt Medeiros, CEO. "We were pleased by the traction we are achieving in mid-tier and enterprise accounts, demonstrating that customers are recognizing our technology differentiation and leadership, as well as our ability to deliver higher-performance solutions at a lower total cost of ownership."
Guidance for Q4 2009
SonicWALL expects fourth quarter 2009 revenue to be in the range of $50 million to $53 million. The Company expects GAAP gross margin to be in the range of 70%-71%, and non-GAAP gross margin to be in the range of 71.5%-72.5% of revenue. Inclusive of a total of approximately $3.0 million, before taxes, in combined amortization of purchased intangible assets, and share-based compensation expense, the Company expects GAAP earnings per share to be in the range of $0.05 to $0.06. Share-based compensation expense associated with the expensing of stock options is estimated to be approximately $2.0 million for the fourth quarter of 2009.
SonicWALL expects non-GAAP earnings per share in the fourth quarter of 2009 to be in the range of $0.09-$0.10 per diluted share.
This is the only statement SonicWALL will be giving during the quarter with respect to guidance, unless a decision is made to provide an update.
Conference Call
A conference call to discuss third quarter 2009 results will take place today, October 22, 2009, at 1:15 p.m. PT (4:15 p.m. ET). SonicWALL President and CEO Matt Medeiros and SonicWALL CFO Rob Selvi will host the call. A web cast of the live call can be found at http://www.sonicwall.com/us/company/2518.html. A replay of the call will be available beginning at approximately 5:00 p.m. PT (8:00 p.m. ET) today at the Company's website or by telephone until 5:00 p.m. PT on October 27 at 888-203-1112 (toll-free) or 719-457-0820 (International), passcode 1074484.
About SonicWALL, Inc.
Founded in 1991, SonicWALL is committed to improving the performance and productivity of businesses of all sizes by engineering the cost and complexity out of running a secure network. Over one million SonicWALL appliances have been shipped through its global network of ten thousand channel partners to keep tens of millions of worldwide business computer users safe and in control of their data. SonicWALL's award-winning solutions include network security, secure remote access, content security, backup and recovery, and policy and management technology. For more information, visit the company web site at http://www.sonicwall.com/.
Use of Non-GAAP Financial Measures
To supplement our consolidated financial statements presented in accordance with GAAP, SonicWALL presents certain non-GAAP financial measures. Management regularly uses these non-GAAP financial measures to evaluate aspects of the company's operating performance with respect to business objectives and planning targets. These non-GAAP financial measures also facilitate comparisons of our operating performance to other companies in our industry, which may also disclose similar non-GAAP financial measures to supplement their GAAP results. We also believe that investors benefit from this additional disclosure as it provides transparency into financial information used by management in our assessment of operating performance.
A reconciliation of each non-GAAP financial measure used in this earnings release to the most directly comparable GAAP financial measure is presented in tables immediately following the Condensed Consolidated Statements of Cash Flows. These non-GAAP measures should not be viewed as a substitute for the company's GAAP results.
Cautionary Note Regarding Forward-looking Statements
Certain statements in this press release are "forward-looking statements." The forward-looking statements include without limitation statements regarding our expected revenue for the fourth quarter of 2009, gross margin on a GAAP and non-GAAP basis for the fourth quarter of 2009, earnings per share on a GAAP and non-GAAP basis for the fourth quarter of 2009, and share based compensation expense for the fourth quarter of 2009. These forward-looking statements are based on the opinions and estimates of management at the time the statements are made and are subject to certain risks and uncertainties that could cause actual results to differ materially from those anticipated in the forward-looking statements. Factors that could affect SonicWALL's actual results include, but are not limited to, increased competition in each of the geographic areas in which we do business; exchange rate fluctuations; global macroeconomic and geopolitical conditions; increased competition across all of the market segments in which SonicWALL participates; new product and service introductions by our competitors; significant turnover of our key employees; and unpredictability in the rate of growth of spending of our customers for products and services that SonicWALL provides. In addition, for a more detailed description of the risks and uncertainties that could cause our actual results to differ materially from those anticipated in the forward- looking statements, please see the "Risk Factors" described in our Securities and Exchange Commission filings, including our Annual Report on Form 10-K for the year ended December 31, 2008 and our interim reports on Form 10-Q for quarterly periods thereafter. All forward-looking statements included in this release are based upon information available to SonicWALL as of the date of the release, and we assume no obligation to update any such forward-looking statement.
NOTE: SonicWALL is a registered trademark of SonicWALL, Inc. Other product and company names mentioned herein may be trademarks and/or registered trademarks of their respective companies.
SonicWALL, Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
Three Months Nine Months
Ended Ended
September 30, September 30,
------------- --------------
2009 2008 2009 2008
---- ---- ---- ----
Revenues:
Product $19,248 $21,439 $51,219 $68,989
License and service 31,471 31,839 95,209 95,398
------ ------ ------ ------
Total revenues 50,719 53,278 146,428 164,387
------ ------ ------- -------
Cost of revenues:
Product 9,916 10,627 27,121 32,478
License and service 3,733 5,150 11,778 15,414
Amortization of purchased
technology 754 754 2,262 2,262
--- --- ----- -----
Total cost of revenues 14,403 16,531 41,161 50,154
------ ------ ------ ------
Gross profit 36,316 36,747 105,267 114,233
------ ------ ------- -------
Operating expenses:
Research and development 9,416 11,411 28,153 34,368
Sales and marketing 17,357 19,472 51,998 63,954
General and administrative 4,406 3,957 12,588 14,135
Amortization of purchased
intangible assets 274 274 822 840
Restructuring charges (reversals) - (87) - 1,683
-- --- -- -----
Total operating expenses 31,453 35,027 93,561 114,980
------ ------ ------ -------
Income (loss) from operations 4,863 1,720 11,706 (747)
----- ----- ------ ----
Interest income and other
expense, net 573 1,122 2,377 5,328
--- ----- ----- -----
Income before income taxes 5,436 2,842 14,083 4,581
Provision for income taxes (2,396) (2,273) (5,888) (3,153)
------ ------ ------ ------
Net income $3,040 $569 $8,195 $1,428
------ ---- ------ ------
Net income per share:
Basic $0.06 $0.01 $0.15 $0.03
----- ----- ----- -----
Diluted $0.05 $0.01 $0.15 $0.02
----- ----- ----- -----
Shares used in computing net
income per share:
Basic 53,946 53,412 53,806 56,906
Diluted 56,012 54,928 55,180 59,050
SonicWALL, Inc.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
September 30, December 31,
2009 2008 (1)
---- --------
(Unaudited)
ASSETS
Current Assets:
Cash and cash equivalents $99,080 $45,127
Short-term investments 88,579 60,327
Accounts receivable, net 21,174 20,945
Inventories 6,554 8,956
Deferred tax assets 9,423 9,423
Prepaid expenses and other current assets 8,530 11,861
----- ------
Total current assets 233,340 156,639
Property and equipment, net 9,906 9,543
Goodwill 138,470 138,470
Long-term investments 15,384 61,450
Deferred tax assets, non-current 18,406 18,406
Purchased intangibles and other assets, net 14,419 17,328
------ ------
Total assets $429,925 $401,836
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $7,277 $10,717
Accrued payroll and related benefits 13,333 11,554
Other accrued liabilities 8,232 10,307
Deferred revenue 93,213 88,415
------ ------
Total current liabilities 122,055 120,993
Deferred revenue, non current 23,501 15,072
------ ------
Total liabilities 145,556 136,065
------- -------
Shareholders' Equity:
Common stock, no par value 404,858 396,223
Accumulated other comprehensive loss, net (7,441) (9,209)
Accumulated deficit (113,048) (121,243)
-------- --------
Total shareholders' equity 284,369 265,771
------- -------
Total liabilities and
shareholders' equity $429,925 $401,836
======== ========
(1) December 31, 2008 balances have been derived from the audited
financial statements as of the same date.
SonicWALL, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Three Months Nine Months
Ended Ended
September 30, September 30,
------------- -------------
2009 2008 2009 2008
---- ---- ---- ----
Cash flows from operating activities:
Net cash provided by
operating activities $13,434 $5,520 $30,832 $13,871
------- ------ ------- -------
Cash flows from investing activities:
Purchase of property and equipment (1,681) (1,009) (4,040) (3,827)
Change in restricted cash in escrow - (6) 5,104 1,376
Maturity and sale of
investments, net of purchases 2,867 (7,333) 19,754 66,054
----- ------ ------ ------
Net cash provided by (used in)
investing activities 1,186 (8,348) 20,818 63,603
----- ------ ------ ------
Cash flows from financing activities:
Issuance of common stock
under employee stock
option and purchase plans 1,338 1,473 2,303 5,306
Repurchase of common stock - (762) - (79,408)
Excess tax benefits from
share-based compensation - 1,198 - 1,987
-- ----- -- -----
Net cash provided by (used in)
financing activities 1,338 1,909 2,303 (72,115)
----- ----- ----- -------
Net increase (decrease) in cash
and cash equivalents 15,958 (919) 53,953 5,359
Cash and cash equivalents at
beginning of period 83,122 39,602 45,127 33,324
------ ------ ------ ------
Cash and cash equivalents
at end of period $99,080 $38,683 $99,080 $38,683
======= ======= ======= =======
SonicWALL, Inc.
RECONCILIATION of GAAP to NON-GAAP NET INCOME
(In thousands, except per share amounts)
(Unaudited)
Three Months Nine Months
Ended Ended
September 30, September 30,
------------- -------------
2009 2008 2009 2008
---- ---- ---- ----
GAAP net income $3,040 $569 $8,195 $1,428
------ ---- ------ ------
Share-based compensation 2,139 2,800 6,332 8,082
Amortization of purchased
intangible assets 1,028 1,028 3,084 3,102
Restructuring (charges) reversals - (87) - 1,683
Tax effect of adjustments (787) (163) (2,806) (3,303)
---- ---- ------ ------
Net effect of pro forma adjustments 2,380 3,578 6,610 9,564
----- ----- ----- -----
Non-GAAP net income $5,420 $4,147 $14,805 $10,992
====== ====== ======= =======
Diluted GAAP net income per share $0.05 $0.01 $0.15 $0.02
----- ----- ----- -----
Diluted Non-GAAP net income per share $0.10 $0.08 $0.27 $0.19
----- ----- ----- -----
SonicWALL, Inc.
RECONCILIATION of GAAP to NON-GAAP GROSS MARGIN
(In thousands)
(Unaudited)
Three Months
Ended Nine Months Ended
September 30, September 30,
------------- -------------
2009 2008 2009 2008
---- ---- ---- ----
GAAP gross margin $36,316 $36,747 $105,267 $114,233
Share-based compensation 123 145 358 396
Amortization of purchased
technology 754 754 2,262 2,262
--- --- ----- -----
Non-GAAP gross margin $37,193 $37,646 $107,887 $116,891
======= ======= ======== ========
Non-GAAP gross margin
percentage of revenue 73.3% 70.7% 73.7% 71.1%
SonicWALL, Inc.
RECONCILIATION of GAAP to NON-GAAP INCOME FROM OPERATIONS
(In thousands)
(Unaudited)
Three Months Nine Months
Ended Ended
September 30, September 30,
------------- -------------
2009 2008 2009 2008
---- ---- ---- ----
GAAP income (loss) from operations $4,863 $1,720 $11,706 $(747)
Cost of revenue - share-based
compensation 123 145 358 396
Cost of revenue - amortization of
purchased technology 754 754 2,262 2,262
Research and development - share-
based compensation 666 849 1,941 2,562
Sales and marketing - share-
based compensation 779 1,024 2,295 2,870
General and administrative - shared-
based compensation 571 782 1,738 2,254
Amortization of purchased
intangible assets 274 274 821 840
Restructuring charges (reversals) - (87) - 1,683
-- --- -- -----
Non-GAAP income from operations $8,030 $5,461 $21,121 $12,120
====== ====== ======= =======
Non-GAAP operating margin
percentage of revenue 15.8% 10.3% 14.4% 7.4%
SOURCE SonicWALL, Inc.
http://www.sonicwall.com
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