TMWD Tumbleweed Communications Corp (MM)

Tumbleweed Announces 18% Increase in Revenue for First Quarter of 2005 Operations Generate Positive Cash Flow; Deferred Revenue Grows $1.5 Million REDWOOD CITY, Calif., April 21 /PRNewswire-FirstCall/ -- Tumbleweed(R) Communications Corp. (NASDAQ:TMWD), a leading provider of email and file transfer security products for enterprises and government agencies, today reported results for the first quarter ended March 31, 2005. Financial Results Tumbleweed reported Q1-05 revenue of $12.0 million, up 18% from $10.1 million in Q1-04; a net loss of $1.1 million, compared to a net loss of $531,000 in Q1-04; and a non-GAAP loss, which excludes certain items described below, of $171,000, compared to non-GAAP income of $134,000 in Q1-04. Net loss per share was $(0.02). Non-GAAP loss per share was ($0.00). Cash balances grew by $0.4 million in the quarter to $21.8 million as of March 31, 2005. "The momentum we developed in the back half of 2004 carried over into the first quarter of 2005," said Jeffrey C. Smith, Chief Executive Officer of Tumbleweed. "New sales orders expanded 37% year over year, driving the growth in revenue and deferred revenue in a quarter that is traditionally our weakest. Patent licensing was also strong. The positive first quarter results give us increased confidence for the remainder of 2005." "Operations generated positive cash flow again, contributing to the growth in our cash balance this quarter," said Tim Conley, Chief Financial Officer of Tumbleweed. "With our cost structure in place, revenue growth realized in 2005 should demonstrate leverage in our operating model." New Customer Wins Tumbleweed's expanding customer base grew again in the first quarter, with 85 new customers purchasing products during this period. Tumbleweed entered into more than 400 customer contracts, including more than 100 with repeat customers, exclusive of maintenance renewals. Tumbleweed has more than 1,100 enterprise customers including eight of the top ten banks in the United States, six of the top ten banks in Europe, forty percent of the Blue Cross Blue Shield Companies, and all four branches of the United States Armed Forces. Financial Services Sector Tumbleweed's business in the financial services sector expanded with new contracts with First American Corp., Capitol Bancorp Limited, and Halifax Bank of Scotland. Healthcare Sector New contracts in the healthcare sector included OSF Healthcare System, Oregon Health & Sciences University, County of Orange Healthcare Agency, PeaceHealth, Adventist Health System, Ohio State University Medical Center, CareSource, and Blue Cross Blue Shield of Alabama. Government Sector During the first quarter, Tumbleweed executed contracts with state, federal, and international government agencies, including the U.S. Air Force, the Department of Energy, Defense Information Systems Agency (DISA) and E-Japan. Distribution and International Expansion Tumbleweed expanded the size and scope of its channel efforts during the first quarter. In addition to adding new resellers in North America and Europe, Tumbleweed broadened its coverage in Asia by adding new partners in Singapore and India. Tumbleweed now has a reseller presence in Australia, Hong Kong, India, Indonesia, Japan, Korea, New Zealand, China, Singapore, and Taiwan. Tumbleweed also broadened the product set sold through resellers beyond Mailgate and Mailgate Edge to include appliance versions of its popular Email Firewall, Secure Messenger, and Secure Transport products. As a result, the reach of Tumbleweed's resellers has expanded beyond the anti-spam market and into the growing market for messaging security and compliance solutions. Product and Technology News * The latest threat to email networks is "Dark Traffic," or network level Denial of Service (DoS) and Directory Harvest (DHA) attacks. In light of this trend, Tumbleweed released The Dark Traffic Report, the first industry report that provides detailed analysis of the evolving email security threats. According to Osterman Research, email-based Directory Harvest and Denial of Service Attacks are increasing, in addition to the more visible problems of Spam, Phishing, and Virus attacks. * To help organizations combat Dark Traffic, Tumbleweed introduced the industry's first Secure Email Relay, MailGate Edge. Mailgate Edge provides the first tier of defense against Dark Traffic, blocking this traffic at the perimeter of a network with a stateless, high performance appliance. * Tumbleweed released Secure Transport version 4.3 in the quarter, providing enhanced support for AS2, new support for SSH, and additional authentication options. * Tumbleweed announced support for Email Authentication and Validation for wireless devices including the Research In Motion Blackberry. Leading government agencies require more complete email security for wireless devices. Tumbleweed's validation engine is widely deployed across many such agencies. Patents Tumbleweed licensed its Email Firewall patents to two additional competitors during the quarter. Tumbleweed has now licensed its patents to fourteen competitors, reflecting the continued value and relevance of its intellectual property for the email security industry. Second Quarter Financial Outlook * Tumbleweed currently estimates that revenue will range from $11.5 million to $12.5 million. * GAAP net loss is currently expected to range from $1.7 million to $900,000, or $(0.04) to $(0.02) per share. * Non-GAAP results are currently expected to range from a loss of $750,000 to a slight profit, or $(0.02) to $0.00 per share. Per share amounts are based on approximately 48 million shares. Non-GAAP loss excludes amortization of intangibles and stock-based compensation expense estimated to be approximately $900,000. Conference Call Information Tumbleweed management will host a conference call at 2:00 p.m. PDT (5:00 p.m. EDT) today to discuss these results. The call can be accessed by dialing 800-240-7305 and giving the company name, "Tumbleweed." Participants are asked to call the assigned number approximately 10 minutes before the conference call begins. A replay of the conference call will be available two hours after the call for the following five business days by dialing 800-405-2236 and entering the following pass code: 11027765#. Also, the conference call will be available over the Internet at http://www.tumbleweed.com/ in the Investor Relations area of the site or by going to http://www.mkr-group.com/. Non-GAAP Information The non-GAAP financial information included in this press release is not prepared in accordance with generally accepted accounting principals ("GAAP") as it excludes amortization of intangible assets and stock-based compensation expense. Management believes that the presentation of non-GAAP information may provide useful information to investors because Tumbleweed has historically provided this information and understands that some investors consider it useful in evaluating Tumbleweed's expenses. Management also uses this non-GAAP information, along with GAAP information, in evaluating Tumbleweed's expenses. The non-GAAP results should not be considered a substitute for financial information presented in accordance with generally accepted accounting principles, and may be different from non-GAAP measures used by other companies. A reconciliation between net loss on a GAAP basis and non-GAAP net loss is provided in the attached financial statements. About Tumbleweed Communications Corp. Tumbleweed provides security solutions for email protection, file transfers, and identity validation that allow organizations to safely conduct business over the Internet. Tumbleweed offers these solutions in three comprehensive product suites: MailGate, SecureTransport and Valicert Validation Authority. MailGate provides protection against spam, viruses and attacks, and enables policy-based message filtering, encryption and routing. SecureTransport enables businesses to safely exchange large files and transactions without proprietary software. Valicert Validation Authority is the world-leading solution for determining the validity of digital certificates. Tumbleweed's enterprise and government customers include ABN Amro, Bank of America Securities, Catholic Healthcare West, JP Morgan Chase & Co., The Regence Group (Blue Cross/Blue Shield), St. Luke's Episcopal Healthcare System, the US Food and Drug Administration, the US Department of Defense, and all four branches of the US Armed Forces. Tumbleweed was founded in 1993 and is headquartered in Redwood City, Calif. For additional information about Tumbleweed go to http://www.tumbleweed.com/ or call 650-216-2000. Safe Harbor Statement Tumbleweed cautions that forward-looking statements contained in this press release are based on current plans and expectations, and that a number of factors could cause the actual results to differ materially from the guidance given at this time. These factors are described in the Safe Harbor statement below. Except for the historical information contained herein, the matters discussed in this press release may constitute forward-looking statements that involve risks and uncertainties that could cause actual results to differ materially from those projected, particularly with respect to Tumbleweed's financial outlook, revenue growth and model leverage, markets, products and services. In some cases, forward-looking statements can be identified by terminology such as "may," "will," "should," "potential," "continue," "expects," "anticipates," "intends," "plans," "believes," "estimates," and similar expressions. For further cautions about the risks of investing in Tumbleweed, we refer you to the documents Tumbleweed files from time to time with the Securities and Exchange Commission, particularly Tumbleweed's Form 10-K filed March 16, 2005. Tumbleweed assumes no obligation to update information contained in this press release, including for example its guidance regarding its future performance, which represents Tumbleweed's expectations only as of the date of this release and should not be viewed as a statement about Tumbleweed's expectations after such date. Although this release may remain available on Tumbleweed's website or elsewhere, its continued availability does not indicate that Tumbleweed is reaffirming or confirming any of the information contained herein. Tumbleweed Communications Corp. Condensed Consolidated Balance Sheets March 31, 2005 (in 000s) 03/31/2005 ASSETS (unaudited) 12/31/2004 CURRENT ASSETS Cash and cash equivalents $21,817 $21,435 Accounts receivable, net 8,613 7,459 Other current assets 1,513 1,544 TOTAL CURRENT ASSETS 31,943 30,438 Goodwill 48,074 48,074 Intangible assets, net 6,469 7,299 Property and equipment, net 1,349 1,316 Other assets 619 589 TOTAL ASSETS $88,454 $87,716 LIABILITIES & EQUITY CURRENT LIABILITIES Accounts payable $432 $324 Current installments of long-term debt 267 267 Accrued liabilities 5,301 5,006 Accrued merger-related and other costs 507 775 Deferred revenue 14,971 13,915 TOTAL CURRENT LIABILITIES 21,478 20,287 LONG TERM LIABILITIES Long-term debt, excluding current installments 133 200 Accrued merger-related and other costs, excluding current portion 427 430 Deferred revenue, excluding current portion 4,721 4,248 Other long term liabilities 153 147 TOTAL LONG TERM LIABILITIES 5,434 5,025 TOTAL LIABILITIES 26,912 25,312 STOCKHOLDERS' EQUITY Common stock 49 48 Additional paid-in capital 351,193 351,122 Treasury stock (796) (796) Deferred stock compensation expense (389) (525) Accumulated other comprehensive loss (583) (651) Accumulated deficit (287,932) (286,794) TOTAL STOCKHOLDERS' EQUITY 61,542 62,404 TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $88,454 $87,716 Tumbleweed Communications Corp. Consolidated Comparative Income Statements March 31, 2005 (in 000s, except per share data) Three Months Ended March 31, (unaudited) 2005 2004 REVENUES Product revenue $4,442 $3,973 Service revenue 6,115 5,582 Intellectual property and other revenue 1,400 570 TOTAL REVENUE 11,957 10,125 COSTS OF REVENUES Cost of product and service revenue 1,727 1,224 Amortization of intangible assets 510 244 COST OF REVENUES 2,237 1,468 GROSS PROFIT 9,720 8,657 OPERATING EXPENSES Research and development 2,875 2,913 Sales and marketing 6,239 4,708 General and administrative 1,503 1,322 Stock-based compensation 136 82 Amortization of intangible assets 321 339 TOTAL OPERATING EXPENSES 11,074 9,364 OPERATING LOSS (1,354) (707) Other Income, net 229 171 NET LOSS BEFORE TAXES (1,125) (536) Provision for income taxes 13 (5) NET LOSS $(1,138) $(531) Shares used in computing basic and diluted net loss per share 48,195 43,254 BASIC AND DILUTED NET LOSS PER SHARE $(0.02) $(0.01) Reconciliation to pro forma net income (loss) NET LOSS $(1,138) $(531) Stock-based compensation 136 82 Amortization of intangible assets 831 583 PRO FORMA NET INCOME (LOSS) $(171) $134 Shares used in computing basic and diluted pro forma net income (loss) per share 48,195 43,254 PRO FORMA BASIC AND DILUTED NET INCOME (LOSS) PER SHARE $(0.00) $0.00 DATASOURCE: Tumbleweed Communications Corp. CONTACT: Investors, Tim Conley, VP Finance & CFO of Tumbleweed Communications Corp., +1-650-216-2066, ; or Charles Messman or Todd Kehrli, both of MKR Group LLC, +1-818-556-3700, , for Tumbleweed Communications Corp. Web site: http://www.tumbleweed.com/ http://www.mkr-group.com/

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