CGFW Cyberguard Corp (MM)

CyberGuard Reports Third Quarter Financial Results Revenue and Non-GAAP EPS within Guidance; 11th Quarter of Sequential Revenue Growth; Company Provides Guidance for Fourth Quarter BOCA RATON, Fla., April 28 /PRNewswire-FirstCall/ -- CyberGuard Corporation (NASDAQ:CGFW), a global provider of security solutions that protect the critical components of the largest and most complex information networks for Global 2000 enterprises and government organizations, today reported revenues of $16.7 million for the quarter ended March 31, 2005, an increase of $3.7 million, or 28%, over revenues of $13.0 million for the quarter ended March 31, 2004. This is the eleventh consecutive quarter of sequential revenue growth for the Company. For the first nine months of fiscal 2005, revenues were $48.9 million, up $15.6 million, or 47%, compared to revenues of $33.3 million for the first nine months of last year. On a GAAP basis, inclusive of acquisition-related costs, the Company reported a net income of $473,000, or $0.01 per diluted share, for the third quarter of fiscal 2005, compared to a net loss of $2.1 million, or $0.09 per diluted share, for the same quarter of the prior year. For the first nine months of fiscal 2005, GAAP net income totaled $1.2 million versus GAAP net income of $1.4 million for the same period of fiscal 2004. GAAP earnings per diluted share for the first nine months of fiscal 2005 were $0.04 compared to $0.05 for the first nine months of last year. On a non-GAAP basis, exclusive of acquisition-related costs, net income for the third quarter of fiscal year 2005 was $1.6 million, or $0.05 per diluted share, compared to $1.9 million, or $0.07 per diluted share, for the third quarter of fiscal year 2004. For the first nine months of fiscal year 2005, non-GAAP net income totaled $4.4 million, or $0.14 per diluted share, versus $5.3 million, or $0.19 per diluted share, for the same period a year ago. The attached table presents a reconciliation of GAAP to non-GAAP income for the third quarter and first nine months of fiscal 2005 and 2004. The Company also reported that it had just identified a cost of $209,000 that needed to be reclassified into the 2005 second quarter, due to an error in the automatic posting of cost of goods sold. The impact reduced net income for the quarter and six months ended December 31, 2004, by $209,000, but had no impact on quarterly diluted earnings per share. For the six months ended December 31, 2004, diluted earnings per share were reduced by $0.01. According to Pat Clawson, chairman and chief executive officer, "Although we met our guidance for the quarter, we experienced a setback when two key OEM customers collapsed, which cost us about $500,000 in third quarter revenues. Going forward, we expect to build back the OEM business by the end of the calendar year and in the meantime, growth from our other areas should more than offset the slowdown in OEM revenues." Clawson continued, "Our core business remains strong, and we continue to see evidence that our key initiatives are gaining traction. For example, one of our objectives was to increase our share of content security business, and the acquisition of Zix Corporation's 1,600 enterprise customers has substantially expanded our base in the North American market. This acquisition is also providing us with excellent cross-selling opportunities, as a large number of former Zix enterprise customers will benefit from our world-class Webwasher(R) content security product suite, as well as our leading firewall solutions. And we continue to look at additional acquisitions targets that would fill out our integrated product offering with anti-virus, scan and block, and vulnerability remediation capabilities. "Another goal has been to expand our channel partner relationships, particularly in North America, and in the third quarter we added Forsythe Solutions Group as a value-added reseller. Forsythe, ranked 86 on the VAR 500 list, will initially start with the Webwasher(R) product line, but with the goal of expanding to other product categories over time. We also signed deals with seven new international partners and expanded relationships with three other existing partners. "Our solid channel relationships and cross-selling success are translating into a growing list of customer wins, primarily in Japan, Europe and North America. Our integrated product suite and new product innovations are really beginning to set us apart from the competition. Webwasher 1000 product sales and Global Command Center licenses were well ahead of our goal for the quarter." Clawson concluded, "Another priority has been our marketing and global branding effort, and the addition of John Doyle as vice president of marketing will accelerate our efforts." Company Highlights * Acquired Zix Corporation's anti-spam, anti-virus and URL filtering assets for $2.1 million in cash and signed a promissory note for an additional $1.5 million. The transaction significantly expands the Company's base of content security customers in the U.S. and Canada and is expected to be immediately accretive to earnings. * Signed significant international deals with Cegetel, the second largest ISP in France, which will resell CyberGuard's Webwasher Suite on a managed service basis, and with Stadtwerke Munchen (Munich City Utilities), where our Webwasher suite displaced two competitors. Also in Germany, RBA, the service center for district banks, adopted Webwasher for its modular solution. * Upgraded several large long-term customers, including OTTO Gmbh, an international trade and services group, which uses the Company's products for 4,800 users, and Stadtwerke Bielefeld (Bielefeld City Utilities), which uses Webwasher AntiVirus for 5,000 users. * Displaced competitors' products in the United Kingdom Government National Health Service Authority and with a major government department in the Netherlands. * Signed deals in Australia, including Powercor, the electricity distributor for the state of Victoria, and Unitab, a government organization that manages all on- and off-course betting and gambling in Queensland. Both deals were won in highly competitive situations. * Signed major contracts in Japan, including customers within the defense, banking and power industries. * Signed major U.S. customers, including deals with Aladdin's Casino and with First NLC, a mortgage company with 80 remote offices, which selected CyberGuard's full product suite. * Added a new North American Distributor, Interwork Technologies, as well as Forsythe Solutions Group. Interwork is a value-added specialty distributor of security products which will carry the entire product line. * Signed new international partnerships with Netmarks, Inc. in Japan, Alstor in Poland, MD5 S.A. in Greece, GNT in Latvia, Estonia and Lithuania, Sinfonika in Croatia, Bosnia and Serbia, Biodata IT in South Africa, and Instada Nordic in Scandinavia. * Expanded distribution of the company's product line with existing partners, including EXER and ITWAY, which both added CyberGuard's products to their Webwasher offering, and SINTEL, which expanded Webwasher to its firewall offering. * Hired John Doyle as vice president of marketing, who will lead CyberGuard's strategic product and global marketing, including building out the channel partner program, as well as managing product management, communications, and market development. Doyle was formerly the director of product marketing for Nortel Networks. Financial Highlights * Results were within guidance both for quarterly revenues and pro-forma earnings per diluted share. * Non-GAAP gross profit for the quarter increased to $11.9 million, or 71% of fiscal third quarter 2005 revenues, versus $8.7 million, or 66% of third quarter fiscal 2004 revenues. * The Company paid $2.1 million in cash and signed a promissory note for an additional $1.5 million in the acquisition of certain assets of Zix Corporation. As part of the transaction, the Company acquired $3.6 million in Zix assets. * Cash related balances were $12.9 million and total current assets were $34.2 million at the end of March 31, 2005. * Current and long-term liabilities were $36.6 million at the end of March 31, 2005. Financial Outlook The following statements are based on current expectations. These statements are forward-looking, and actual results may differ materially. The Company estimates that its revenues for the quarter ending June 30, 2005, will be in the range of $16.7 million to $17.2 million and anticipates that its pro forma earnings per diluted share, excluding acquisition related charges, will be between $0.03 and $0.05. The investor conference call will take place today at 10.00 a.m. Eastern Daylight Time via live web cast on CyberGuard's web site at http://www.cyberguard.com/. To participate by telephone, the dial-in number is 877-560-3200 and the conference ID number is 5492542; the international dial- in is 706-645-9750 and the conference ID number is 5492542. Investors are advised to dial-in at least five minutes prior to the call to register. The web cast will be archived for seven days: from 12:00 p.m. Thursday, April 28, until 12.00 p.m. Thursday, May 5, 2005. The archived recording may also be accessed by dialing 800-642-1687 or 706-645-9291 (international) and requesting conference ID number 5492542. Additional financial information can be found at http://www.cyberguard.com/investors/reports.cfm. About CyberGuard Corporation CyberGuard Corporation (NASDAQ:CGFW) delivers a suite of integrated information security solutions to provide Global 2000 enterprises and government organizations with the confidence that their critical information assets are protected. Based on the company's Total Stream Protection framework and managed via its Global Command Center, CyberGuard's products go beyond network-level security to provide protection against the most dangerous application-layer vulnerabilities and avoid potential damage, securing the entire data stream. With a growing and satisfied number of brand-name customers, CyberGuard has deployed more than 250,000 products across the globe. Headquartered near Boca Raton, Fl., the company has offices and training centers around the world. For more information visit http://www.cyberguard.com/. Forward-Looking Statement Statements regarding estimates, expectations and future prospects contained in this press release are forward-looking statements. These statements are based upon assumptions and analyses made by the Company in light of current conditions, future developments, and other factors the Company believes are appropriate in the circumstances, or information obtained from third parties, and are subject to a number of assumptions, risks and uncertainties. Readers are cautioned that forward-looking statements are not guarantees and that actual results might differ materially from those suggested in the forward-looking statements. Some of the factors that might cause future actual events to differ from those predicted or assumed include: future advances in technologies and computer security; the Company's history of losses; the Company's ability to execute on its business plans and to integrate recent acquisitions; the Company's dependence on outside parties such as its key customers and alliance partners; competition from major computer hardware, software, and networking companies; uncertainties in availability of expansion capital in the future and other risks associated with capital markets; overall network security spending; global economic conditions; and litigation against the Company. For a more complete discussion regarding forward-looking statements, the reader is referred to the Company's periodic reports filed with the Securities and Exchange Commission under the Securities Exchange Act of 1934, including the Form 10-K for the fiscal year ended June 30, 2004, and other information filed with the Commission. CyberGuard(R) and Webwasher(R) are registered trademarks and Total Stream Protection(TM) and Global Command Center(TM) are trademarks of CyberGuard Corporation. All other trademarks are property of their respective owners. CYBERGUARD CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF OPERATIONS (Amounts in thousands, except per share data) (Unaudited) Three Months Ended March 31, 2005 GAAP Proforma Proforma Presentation Adjustments Presentation Revenues: Products $12,645 $- $12,645 Services 4,059 - 4,059 Total revenues 16,704 - 16,704 Cost of revenues: Products 4,321 (508)(1) 3,813 Services 1,029 - 1,029 Total cost of revenues 5,350 (508) 4,842 Gross profit 11,354 508 11,862 Operating expenses: Research and development 2,406 - 2,406 Selling, general and administrative 8,190 (572)1 7,618 Compensation expense related to unearned restricted stock in the SnapGear acquisition - - - Total operating expenses 10,596 (572) 10,024 Operating income / (loss) 758 1,080 1,838 Other income Interest income, net 84 - 84 Other (expense) / income (285) - (285) Total other (expense) / income (201) - (201) Income / (loss) before income taxes 557 1,080 1,637 Income tax (expense) / benefit (84) - (84) Net income / (loss) $473 $1,080 $1,721 Basic earnings per common share $0.02 $0.05 Basic weighted average number of common shares outstanding 30,666 30,666 Diluted earnings per common share $0.01 $0.05 Diluted weighted average number of common shares outstanding 32,511 32,511 Note 1 -- The proforma adjustment relates to amortization of acquisition related intangible assets. Three Months Ended March 31, 2004 GAAP Proforma Proforma Presentation Adjustments Presentation Revenues: Products $10,113 $- $10,113 Services 2,923 - 2,923 Total revenues 13,036 - 13,036 Cost of revenues: Products 3,671 (241)(1) 3,430 Services 947 - 947 Total cost of revenues 4,618 (241) 4,377 Gross profit 8,418 241 8,659 Operating expenses: Research and development 1,714 - 1,714 Selling, general and administrative 5,432 (177)(1) 5,255 Compensation expense related to unearned restricted stock in the SnapGear acquisition 4,113 (4,113) - Total operating expenses 11,259 (4,290) 6,969 Operating income / (loss) (2,841) 4,531 1,690 Other income Interest income, net 45 - 45 Other (expense) / income 206 - 206 Total other (expense) / income 251 - 251 Income / (loss) before income taxes (2,590) 4,531 1,941 Income tax (expense) / benefit 481 (481) - Net income / (loss) $(2,109) $4,050 $1,941 Basic earnings per common share $(0.09) $0.08 Basic weighted average number of common shares outstanding 23,757 23,757 Diluted earnings per common share $(0.09) $0.07 Diluted weighted average number of common shares outstanding 23,757 28,878 Note 1 -- The proforma adjustment relates to amortization of acquisition related intangible assets. CYBERGUARD CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF OPERATIONS (Amounts in thousands, except per share data) (Unaudited) Nine Months Ended March 31, 2005 GAAP Proforma Proforma Presentation Adjustments Presentation Revenues: Products $38,307 $- $38,307 Services 10,581 - 10,581 Total revenues 48,888 - 48,888 Cost of revenues: Products 12,730 (1,572)(1) 11,158 Services 2,992 - 2,992 Total cost of revenues 15,722 (1,572) 14,150 Gross profit 33,166 1,572 34,738 Operating expenses: Research and development 7,510 - 7,510 Selling, general and administrative 24,442 (1,606)(1) 22,836 Compensation expense related to unearned restricted stock in the SnapGear acquisition - - - Total operating expenses 31,952 (1,606) 30,346 Operating income / (loss) 1,214 3,178 4,392 Other income Interest income, net 151 - 151 Other (expense) / income (17) - (17) Total other income 134 - 134 Income before income taxes 1,348 3,178 4,526 Income tax (expense) / benefit (123) - (123) Net income $1,225 $3,178 $4,403 Basic earnings per common share $0.04 $0.15 Basic weighted average number of common shares outstanding 30,056 30,056 Diluted earnings per common share $0.04 $0.14 Diluted weighted average number of common shares outstanding 31,871 31,871 Note 1 -- The proforma adjustment relates to amortization of acquisition related intangible assets. Nine Months Ended March 31, 2004 GAAP Proforma Proforma Presentation Adjustments Presentation Revenues: Products $24,497 $- $24,497 Services 8,795 - 8,795 Total revenues 33,292 - 33,292 Cost of revenues: Products 7,651 (557)(1) 7,094 Services 2,716 - 2,716 Total cost of revenues 10,367 (557) 9,810 Gross profit 22,925 557 23,482 Operating expenses: Research and development 5,109 - 5,109 Selling, general and administrative 13,853 (264)(1) 13,589 Compensation expense related to unearned restricted stock in the SnapGear acquisition 4,387 (4,387) - Total operating expenses 23,349 (4,651) 18,698 Operating income / (loss) (424) 5,208 4,784 Other income Interest income, net 113 - 113 Other (expense) / income 358 - 358 Total other income 471 - 471 Income before income taxes 47 5,208 5,255 Income tax (expense) / benefit 1,348 (1,348) - Net income $1,395 $3,860 $5,255 Basic earnings per common share $0.06 $0.23 Basic weighted average number of common shares outstanding 22,431 22,431 Diluted earnings per common share $0.05 $0.19 Diluted weighted average number of common shares outstanding 28,110 28,110 Note 1 -- The proforma adjustment relates to amortization of acquisition related intangible assets. CYBERGUARD CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (Amounts in thousands) (Unaudited) March 31, June 30, 2005 2004 ASSETS Cash and cash equivalents $12,882 $12,447 Restricted cash 208 197 Accounts receivable, less allowance for uncollectible accounts of $1,068 at Mar 31, 2005 and $365 at June 30, 2004 16,258 9,461 Inventories 1,947 2,063 Other current assets 2,941 2,790 Total current assets 34,236 26,958 Property and equipment at cost, less accumulated depreciation of $5,455 at Mar 31,2005 and $4,619 at June 30, 2004 2,651 1,673 Capitalized software, less accumulated amortization of $2,417 at Mar 31, 2005 and $2,166 at June 30, 2004 2,139 1,530 Intangible assets, less accumulated amortization of $5,245 at Mar 31, 2005 and $2,055 at June 30, 2004 20,772 20,262 Other assets 958 104 Goodwill 43,274 40,625 Deferred tax asset, net 5,575 5,575 Total assets $109,605 $96,727 LIABILITIES AND SHAREHOLDERS' EQUITY Accounts payable $2,800 $2,951 Deferred revenue, current portion 15,012 10,760 Note payable 1,500 - Accrued expenses and other liabilities 5,636 5,750 Total current liabilities 24,948 19,461 Deferred tax liability 7,466 7,466 Deferred revenue, less current portion 4,221 3,758 Total long-term liabilities 11,687 11,224 Total liabilities 36,635 30,685 Commitments and Contingencies - - Shareholders' equity Preferred stock par value $0.01; authorized 5,000 shares; none issued - - Common stock par value $0.01; authorized 50,000 shares; issued and outstanding 30,712 at Mar 31, 2005and 28,528 at June 30, 2004 307 285 Additional paid-in capital 150,810 144,569 Accumulated deficit (77,547) (78,772) Accumulated other comprehensive income (600) (40) Total shareholders' equity 72,970 66,042 Total liabilities and shareholders' equity $109,605 $96,727 CYBERGUARD CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (Amounts in thousands) Nine Months Ended March 31, March 31, 2005 2004 Cash flows from operating activities: Net income $1,225 $1,395 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 836 1,113 Amortization 3,441 959 Compensation expense related to unearned restricted stock in the SnapGear acquisition - 4,387 Provision for inventory 127 - Deferred tax benefit - (1,348) Provision for uncollectible accounts receivable 703 269 Stock based compensation expense 573 494 Changes in assets and liabilities (excluding the effect of acquisitions) Increase in accounts receivable (7,500) (1,860) Increase in other current assets (62) (268) (Increase) / decrease in inventories (11) 804 Increase in other, net (854) (16) Decrease in accounts payable (149) (657) Increase in accrued expenses and other liabilities 687 1,015 Increase in deferred revenue 3,208 1,713 Decrease in litigation receivable - 6,500 Decrease in litigation payable - (10,400) Net cash provided by operating activities 2,224 4,100 Cash flows used in investing activities Increase in restricted cash (11) (21) Acquisition of SnapGear, net of cash acquired - 91 Acquisition of certain assets of Zix Corporation (2,126) - Capitalized software costs (860) (1,139) Purchase of property & equipment (1,782) (522) Net cash used in investing activities (4,779) (1,591) Cash flows provided by financing activities: Proceeds from stock options exercised 381 4,599 Proceeds from warrants exercised 3,169 145 Net cash provided by financing activities 3,550 4,744 Effect of exchange rate changes on cash (560) 12 Net increase in cash 435 7,265 Cash and cash equivalents at beginning of period 12,447 12,095 Cash and cash equivalents at end of period $12,882 $19,360 Supplemental disclosure of cash flow information Cash paid for interest $- $- Cash paid for income taxes $- $28 Supplemental disclosure of non-cash information In connection with the acquisition of certain assets from Zix Corporation, the Company paid Zix $2,126 in cash and signed a promissory note for $1,500. The following assets and liabilities were acquired: Current assets Other current assets $142 Total current assets 142 Non-current assets Property and equipment 32 Customer base 3,700 Goodwill 1,259 Total non-current assets 4,991 Current liabilites Deferred revenue 1,317 Total current liabilities 1,317 Deferred revenue, less current portion 190 Total assets acquired $3,626 In connection with the acquisition of SnapGear, 1,651 shares valued at $14,414 were issued and a contingent purchase consideration of $800 was accrued for during the quarter ended December 31, 2003. During the quarter ended December 31, 2004, 342 shares valued at $2,137 (which includes the $800 of contingent consideration previously recorded), were issued based on the attainment of revenues during the 12 months following the acquisition. Website: http://www.cyberguard.com DATASOURCE: CyberGuard Corporation CONTACT: Sally L. Beerbower of Qorvis Communications, +1-703-744-7803, or , for CyberGuard Corporation

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