TMWD Tumbleweed Communications Corp (MM)

2005 Revenue Increased to a Record $50 Million, up 15% Year-Over-Year REDWOOD CITY, Calif., Feb. 1 /PRNewswire-FirstCall/ -- Tumbleweed(R) Communications Corp. (NASDAQ:TMWD), a leading provider of email security, secure file transfer, and identity validation appliance and software products, today reported results for the fourth quarter and year ended December 31, 2005. Financial Results For the year 2005, Tumbleweed reported record annual revenue of $50.0 million, up 15% from $43.4 million in 2004; a net loss of $3.9 million, compared to a net loss of $7.5 million in 2004; and non-GAAP net loss, which excludes certain items described below, of $171,000, compared to non-GAAP net loss of $2.5 million for 2004. Net loss per share for 2005 was $(0.08), compared to a net loss per share of $(0.16) in 2004. Non-GAAP net loss per share for 2005 was $(0.00), compared to a non-GAAP net loss per share of $(0.05) in 2004. Cash and cash equivalents were approximately $27.0 million at December 31, 2005, compared to $21.4 million as of December 31, 2004. Tumbleweed reported Q4-05 revenue of $11.8 million, compared to $12.1 million in Q4-04; a net loss of $1.4 million, compared to a net loss of $923,000 in Q4-04; and a non-GAAP net loss of $549,000, compared to non-GAAP net income of $102,000 in Q4-04. Net loss per share for Q4-05 was $(0.03), compared to $(0.02) in Q4-04. Non-GAAP net loss per share for Q4-05 was $(0.01), compared to non-GAAP net earnings per share of $0.00 in Q4-04. The Company previously announced that it experienced a delay in closing a handful of major orders during the fourth quarter. The most significant of these orders closed in the first half of January 2006. 2005 Key Results: * Revenues increased to a record $50.0 million, up 15% from 2004. * Deferred revenue at December 31, 2005 increased to $22.9 million, a 26% increase from December 31, 2004. * Non-GAAP net loss was $171,000, or $(0.00) per share, an improvement from a non-GAAP net loss of $2.5 million, or $(0.05) per share, in 2004. * Cash flow from operations was $4.7 million, an increase from $433,000 in 2004. * Cash and cash equivalents increased by $5.5 million to $27.0 million, up 26% from $21.4 million at December 31, 2004. "Despite a challenging fourth quarter, the opportunity ahead remains significant and positive," said James P. Scullion, chief executive officer of Tumbleweed. "The markets we address are growing, as secure communications continues to be a major concern to enterprise customers, whether over email or file transfer protocols. We believe our products and customer base will allow us to strongly participate in this growth, growing our revenue and improving our bottom line performance in 2006," Scullion concluded. Customer Wins and Distribution Tumbleweed continued to execute on its goal of attracting new customers while expanding penetration into its existing customer base. During the fourth quarter, Tumbleweed entered into more than 500 customer contracts including approximately 100 with new customers. New customers were primarily in the financial services, health care, and government markets. Approximately 150 customers entered into contracts for repeat business, exclusive of maintenance renewals. Tumbleweed now has more than 1,600 enterprise customers. Tumbleweed continued its efforts to expand its market reach through a reseller distribution channel. The Company had 90 channel partners at the end of 2005, an increase from 60 at the end of 2004. Recent Announcements * Tumbleweed announced its MailGate(R) Appliance 5550 received the best-of-group "Recommended" rating from the editors of SC Magazine based on the results of a recent anti-spam appliance group test. SC Magazine reviewed the performance of anti-spam appliances from nine different vendors including those of Tumbleweed's principal competitors. The goal of the SC Magazine test was to look at each appliance and its ability to filter email, both in-bound and out-bound, as well as the overall functionality of each appliance. * Tumbleweed announced the release of MailGate Appliance(TM) 3.0, the latest version of Tumbleweed's award-winning email security solution. MailGate Appliance 3.0 delivers protection from spam, viruses and other inbound content threats, while adding new network layer edge defenses and bi-directional content filtering and policy management, all delivered on new 64-bit appliance architecture. This added functionality moves the MailGate Appliance 3.0 well beyond a dedicated anti-spam point-product, to a comprehensive email security solution. * Tumbleweed announced being selected as a finalist in four of SC Magazine's award categories including: Best Email Security Solution, Best Email Content Filtering Solution, Best Intellectual Property Solution, and Best Security Solution in Healthcare. * Tumbleweed announced the release of the MailGate Email Firewall(TM) 6.2, the latest version of its award-winning email security suite offering comprehensive anti-spam, anti-virus, policy management, outbound content filtering, monitoring and encryption. With the addition of OpenPGP encryption, MailGate Email Firewall 6.2 now offers the most comprehensive set of gateway email encryption options on the market. And with added support for multiple LDAP directories and enhanced clustering capabilities, MailGate Email Firewall 6.2 can be integrated into the industry's broadest set of enterprise IT environments. * Tumbleweed announced being selected as one of IT Week's Top 50 Technology Innovators of 2005. First Quarter 2006 Financial Outlook Tumbleweed's outlook for the first quarter of 2006: * Tumbleweed currently estimates that revenue in the first quarter of 2006 will be between $12.0 million and $13.0 million. * Net loss for the first quarter of 2006 is currently expected to be approximately $3.0 million to $2.0 million, or $(0.06) to $(0.04) per share. * Non-GAAP results are currently expected to range from a net loss of $600,000 to net income of $200,000, or $(0.01) to $0.00 per share. Per share amounts are based on approximately 49.5 million basic and 52.5 million diluted shares. Non-GAAP net loss excludes amortization of intangible assets and stock-based compensation expense estimated to be approximately $2.4 million combined. Conference Call Information Tumbleweed management will host a conference call at 2:00 p.m. PST (5:00 p.m. EST) today to discuss these results. The call can be accessed by dialing 800-218-8862 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: 11050476#. Also, the conference call together with supplemental financial information 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 costs (credits). 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 exclusive of specific, non-recurring events. Management also uses this non-GAAP information, along with GAAP information, in evaluating Tumbleweed's expenses and to compare Tumbleweed's performance with that of its competitors. 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. The non-GAAP financial information included in this press release excludes expenses for the amortization of intangible assets, stock-based compensation expense, and merger-related and other costs (credits) of $893,000 and $1.0 million for Q4-05 and Q4-04, respectively, and $3.7 million and $5.0 million for 2005 and 2004, respectively. 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 its expectations about Tumbleweed's financial outlook for the first quarter of 2006, as well as its beliefs about Tumbleweed's opportunity ahead, the growth of the markets it addresses, its ability to participate in the growth of those markets, and its ability to regain its revenue momentum and achieve improved bottom line performance in 2006. As noted, these results are preliminary and therefore subject to change as Tumbleweed completes its review of the fourth quarter as well as the audit for the year. 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 November 2, 2005. Tumbleweed assumes no obligation to update information contained in this press release. 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 as of a later date. About Tumbleweed Communications Corp. Tumbleweed provides 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(TM), and Validation Authority(TM). 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. Validation Authority is the world-leading solution for determining the validity of digital certificates. Tumbleweed's enterprise and government customers include ABN Amro, Banc of America Securities, Catholic Healthcare West, JP Morgan Chase & Co., The Regence Group (Blue Cross/Blue Shield), St. Luke's Episcopal Healthcare System, the U.S. Food and Drug Administration, the U.S. Department of Defense, and all four branches of the U.S. 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. Tumbleweed, the Arrows logo, MailGate, MailGate Appliance, MailGate Email Firewall, SecureTransport and Validation Authority are registered trademarks or trademarks of Tumbleweed Communications Corp. in the United States and/or other countries. All other trademarks are the properties of their respective owners. Tumbleweed Communications Corp. Condensed Consolidated Balance Sheets December 31, 2005 and 2004 (in 000s) 12/31/2005 12/31/2004 ASSETS (unaudited) (unaudited) CURRENT ASSETS Cash and cash equivalents $26,952 $21,435 Accounts receivable, net 9,068 7,459 Other current assets 1,311 1,544 TOTAL CURRENT ASSETS 37,331 30,438 Goodwill 48,074 48,074 Intangible assets, net 3,978 7,299 Property and equipment, net 1,076 1,316 Other assets 645 589 TOTAL ASSETS $91,104 $87,716 LIABILITIES & EQUITY CURRENT LIABILITIES Accounts payable $527 $324 Current installments of long-term debt -- 267 Accrued liabilities 6,058 5,006 Accrued merger-related and other costs 178 775 Deferred revenue 17,935 13,915 TOTAL CURRENT LIABILITIES 24,698 20,287 LONG TERM LIABILITIES Long-term debt, excluding current installments -- 200 Accrued merger-related and other costs, excluding current portion 55 430 Deferred revenue, excluding current portion 5,011 4,248 Other long term liabilities 123 147 TOTAL LONG TERM LIABILITIES 5,189 5,025 TOTAL LIABILITIES 29,887 25,312 STOCKHOLDERS' EQUITY Common stock 50 48 Additional paid-in capital 353,424 351,122 Treasury stock (796) (796) Deferred stock compensation expense (165) (525) Accumulated other comprehensive loss (593) (651) Accumulated deficit (290,703) (286,794) TOTAL STOCKHOLDERS' EQUITY 61,217 62,404 TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $91,104 $87,716 Tumbleweed Communications Corp. Condensed Consolidated Statements of Operations (in 000s, except per share data) Three Months Twelve Months Ended Ended December 31, December 31, (unaudited) (unaudited) 2005 2004 2005 2004 REVENUES Product revenue $4,496 $5,925 $20,945 $19,628 Service revenue 6,961 5,790 26,103 21,934 Intellectual property and other revenue 361 360 2,953 1,876 NET REVENUE 11,818 12,075 50,001 43,438 COSTS OF REVENUES Cost of product and service revenue 2,243 1,971 8,325 6,112 Amortization of intangible assets 510 510 2,040 1,837 GROSS PROFIT 9,065 9,594 39,636 35,489 OPERATING EXPENSES Research and development 2,923 2,735 11,888 11,563 Sales and marketing 5,961 5,722 25,026 23,125 General and administrative 1,567 1,630 5,892 5,319 SUB-TOTAL OPERATING EXPENSES 10,451 10,087 42,806 40,007 Stock-based compensation expense 62 118 510 640 Amortization of intangible assets 321 321 1,284 1,458 Merger-related and other costs (credits) -- 76 (96) 1,078 TOTAL OPERATING EXPENSES 10,834 10,602 44,504 43,183 OPERATING LOSS (1,769) (1,008) (4,868) (7,694) NON-OPERATING INCOME Other income, net 327 72 982 213 NET LOSS BEFORE TAXES (1,442) (936) (3,886) (7,481) Provision for income taxes -- (13) 23 16 NET LOSS $(1,442) $(923) $(3,909) $(7,497) BASIC AND DILUTED NET LOSS PER SHARE $(0.03) $(0.02) $(0.08) $(0.16) Reconciliation to Non-GAAP Net Income (Loss) NET LOSS $(1,442) $(923) $(3,909) $(7,497) Stock-based compensation expense 62 118 510 640 Amortization of intangible assets 831 831 3,324 3,295 Merger-related and other costs (credits) -- 76 (96) 1,078 NON-GAAP NET INCOME (LOSS) $(549) $102 $(171) $(2,484) NON-GAAP NET INCOME (LOSS) PER SHARE: BASIC $(0.01) $0.00 $(0.00) $(0.05) DILUTED $(0.01) $0.00 $(0.00) $(0.05) Weighted average shares: Basic 49,243 48,082 48,627 46,777 Diluted 49,243 51,138 48,627 46,777 First Call Analyst: FCMN Contact: 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.tumbleweed.com/ http://www.mkr-group.com/

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