TMWD Tumbleweed Communications Corp (MM)

Tumbleweed Announces Record Revenue for Second Quarter of 2005 Revenue Increase of 25%; Operations Continue to Generate Positive Cash Flow REDWOOD CITY, Calif., July 26 /PRNewswire-FirstCall/ -- Tumbleweed(R) Communications Corp. (NASDAQ:TMWD), a leading provider of email security, file transfer security, and identity validation software and appliances, today reported results for the second quarter ended June 30, 2005. Tumbleweed reported Q2-05 revenue of $12.5 million, up 25% from $10.0 million in Q2-04; a net loss of $791,000, compared to a net loss of $3.3 million in Q2-04; and non-GAAP income, which excludes certain items described below, of $37,000, compared to a non-GAAP loss of $1.6 million in Q2-04. Net loss per share was $(0.02). Non-GAAP income per share was $0.00. Cash balances grew by $497,000 in the quarter to $22.3 million at June 30, 2005. "I am very pleased to announce record revenue," said Craig Brennan, Chief Executive Officer of Tumbleweed. "Clearly, our initiatives and investments to strengthen our product offerings and channels are the right strategies to meet customer needs and grow our business. New orders increased more than 40% year over year, providing for top-line growth of $2.5 million as well as an increase in deferred revenue. I look forward to building on this success in the second half of 2005." "We continue to generate positive cash flow from operations," said Tim Conley, Chief Financial Officer of Tumbleweed. "As important, we demonstrated operating leverage with more than 65% of the year over year revenue increase directly contributing to an improvement in non-GAAP results." Quarterly Highlights Due to several recent, highly visible security breaches involving the loss of private consumer data, businesses and government agencies are increasingly aware of the need for secure, reliable communication methods. Tumbleweed leads the communication security market, with the industry's most comprehensive product portfolio for secure email and file exchanges. During the quarter Tumbleweed announced new features for both its MailGate email security suite and its SecureTransport managed file transfer solution, further enabling organizations to secure and protect confidential data as it moves across the Internet. Tumbleweed's customer base grew this quarter, with more than 100 new customers purchasing products during the period. Tumbleweed entered into more than 500 customer contracts, including 150 with repeat customers, exclusive of maintenance renewals. Tumbleweed now has more than 1,200 enterprise and government customers. Tumbleweed broadened its distribution and market reach by adding new channel partners and doubled the level of business received from resellers quarter over quarter. Third Quarter Financial Outlook * Tumbleweed currently estimates that revenue for the third quarter of 2005 will range from $12.5 million to $13.5 million. * GAAP net loss is currently expected to range from $1.0 million to $400,000, or $(0.02) to $(0.01) per share. * Non-GAAP results are currently expected to range from break-even to a profit of $500,000, or $(0.00) to $0.01 per share. Per share amounts are based on approximately 48.3 million shares. Non-GAAP loss excludes amortization of intangible assets, stock-based compensation expense and merger-related and other expenses estimated to be approximately $1.0 million. 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 800-219-6110 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: 11034150#. 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, stock-based compensation expense, and merger-related and other expenses. 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 business 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 and Form 10-Q filed May 10, 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 June 30, 2005 (in 000s) 06/30/2005 12/31/2004 ASSETS (unaudited) (unaudited) CURRENT ASSETS Cash and cash equivalents $22,314 $21,435 Accounts receivable, net 10,175 7,459 Other current assets 1,304 1,544 TOTAL CURRENT ASSETS 33,793 30,438 Goodwill 48,074 48,074 Intangible assets, net 5,638 7,299 Property and equipment, net 1,317 1,316 Other assets 621 589 TOTAL ASSETS $89,443 $87,716 LIABILITIES & EQUITY CURRENT LIABILITIES Accounts payable $1,118 $324 Current installments of long-term debt 267 267 Accrued liabilities 5,566 5,006 Accrued merger-related and other costs 386 775 Deferred revenue 15,751 13,915 TOTAL CURRENT LIABILITIES 23,088 20,287 LONG TERM LIABILITIES Long-term debt, excluding current installments 67 200 Accrued merger-related and other costs, excluding current portion 125 430 Deferred revenue, excluding current portion 5,033 4,248 Other long term liabilities 146 147 TOTAL LONG TERM LIABILITIES 5,371 5,025 TOTAL LIABILITIES 28,459 25,312 STOCKHOLDERS' EQUITY Common stock 49 48 Additional paid-in capital 351,313 351,122 Treasury stock (796) (796) Deferred stock compensation expense (293) (525) Accumulated other comprehensive loss (566) (651) Accumulated deficit (288,723) (286,794) TOTAL STOCKHOLDERS' EQUITY 60,984 62,404 TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $89,443 $87,716 Tumbleweed Communications Corp. Condensed Consolidated Statements of Operations June 30, 2005 (in 000s, except per share data) Three Months Six Months Ended Ended June 30, June 30, (unaudited) (unaudited) 2005 2004 2005 2004 REVENUE Product revenue $5,271 $4,544 $9,713 $8,517 Service revenue 6,434 5,134 12,549 10,716 Intellectual property and other revenue 841 362 2,241 932 NET REVENUE 12,546 10,040 24,503 20,165 COST OF REVENUE Cost of product and service revenue 2,056 1,426 3,783 2,650 Amortization of intangible assets 510 510 1,020 817 GROSS PROFIT 9,980 8,104 19,700 16,698 OPERATING EXPENSES Research and development 2,949 3,055 5,824 5,968 Sales and marketing 6,333 6,208 12,572 10,916 General and administrative 1,341 1,022 2,844 2,344 SUB-TOTAL OPERATING EXPENSES 10,623 10,285 21,240 19,228 Stock-based compensation 93 299 229 381 Amortization of intangible assets 321 440 642 716 Merger-related and other costs (96) 469 (96) 469 TOTAL OPERATING EXPENSES 10,941 11,493 22,015 20,794 OPERATING LOSS (961) (3,389) (2,315) (4,096) NON-OPERATING INCOME Other income, net 176 83 405 254 NET LOSS BEFORE TAXES (785) (3,306) (1,910) (3,842) Provision for income taxes 6 6 19 1 NET LOSS $(791) $(3,312) $(1,929) $(3,843) Shares used in computing basic and diluted net loss per share 48,288 47,746 48,241 45,479 BASIC AND DILUTED NET LOSS PER SHARE $(0.02) $(0.07) $(0.04) $(0.08) Reconciliation to non-GAAP net income (loss) NET LOSS $(791) $(3,312) $(1,929) $(3,843) Stock-based compensation 93 299 229 381 Amortization of intangible assets 831 950 1,662 1,533 Merger-related and other costs (96) 469 (96) 469 NON-GAAP NET INCOME (LOSS) $37 $(1,594) $(134) $(1,460) NON-GAAP BASIC AND DILUTED NET INCOME (LOSS) PER SHARE $0.00 $(0.03) $(0.00) $(0.03) DATASOURCE: Tumbleweed Communications Corp. CONTACT: Investors, Tim Conley, VP Finance & CFO of Tumbleweed Communications Corp., +1-650-216-2000, ; or Charles Messman, or Todd Kehrli, both of MKR Group LLC, +1-818-556-3700, , for Tumbleweed Communications Corp. Web site: http://www.mkr-group.com/ Web site: http://www.tumbleweed.com/

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