Tumbleweed Communications Corp. (Nasdaq:TMWD), the industry�s
leading pure play messaging security vendor, today reported
financial results for its second quarter ended June 30, 2007.
Revenue was $14.1 million for the quarter ended June 30, 2007,
compared to $15.1 million for the same period last year. Product
revenue for the second quarter of 2007 was $5.1 million, compared
to $5.3 million in the second quarter of 2006. Service revenue for
the second quarter of 2007 was $8.0 million, compared to $7.3
million in the second quarter of 2006. Revenue from the license of
intellectual property was $1.0 million the second quarter of 2007,
compared to $2.5 million in the second quarter of 2006. Non-GAAP
net loss for the second quarter of 2007 was $1.2 million, or
$(0.02) per share, compared to non-GAAP net income of $810,000, or
$0.02 per share, in the second quarter of 2006. Non-GAAP results
exclude stock-based compensation expense and intangible asset
amortization expense of $1.2 million and $278,000 for the second
quarter of 2007, and $959,000 and $801,000 for the second quarter
of 2006, respectively. On a GAAP basis, net loss for the second
quarter of 2007 was $2.7 million, or $(0.05) per share, compared to
a net loss of $950,000, or $(0.02) per share, for the second
quarter of 2006. A reconciliation of GAAP and non-GAAP results is
presented in the tables below. Cash and cash equivalents were $30.0
million at June 30, 2007 compared to $30.5 million at December 31,
2006. For the first six months of 2007, Tumbleweed reported revenue
of $29.1 million, compared to $30.2 million for the first six
months of 2006. Non-GAAP net loss for the first six months of 2007
was $1.6 million, or $(0.03) per share, compared to non-GAAP net
income of $2.3 million, or $0.05 per share, for the first six
months of 2006. Non-GAAP results exclude stock-based compensation
expense and intangible asset amortization expense of $2.3 million
and $695,000 for the first six months of 2007, and $2.7 million and
$1.6 million for the first six months of 2006, respectively. On a
GAAP basis, the net loss for the first six months of 2007 was $4.6
million, or $(0.09), compared to a net loss of $2.0 million, or
$(0.04) in the first six months of 2006. �Although second quarter
revenue did not meet our expectations, we did see progress in
several key areas that are expected to lead to future growth,� said
James P. Scullion, Chief Executive Officer of Tumbleweed. �Orders
for our messaging security products, including secure file transfer
and email security, increased 38 percent in the second quarter over
last year.� �We also significantly upgraded our sales management
worldwide, grew our sales distribution channels, and are executing
on an exciting product roadmap to deliver high value solutions for
mission-critical customer problems,� concluded Scullion. Recent
Announcements Tumbleweed strengthened its sales organization with
the appointment of three industry executives to its sales
management team. Joseph Morini was named regional vice president
for the East Region of North America; Thomas Keane was named
regional vice president for the Central Region of North America;
and Bob Booth was named regional vice president for Latin America
& Caribbean. Tumbleweed announced a major expansion in North
America of its premier channel alliance program, the Tumbleweed
Alliance Program (TAP), with the signing of several leading
resellers. Fishnet Security, Midwave Corporation, Cadre, Accudata
Systems, ESI Information Technologies Inc., and Choice Solutions
have all joined Tumbleweed as leading resellers, opening new
vertical markets including the retail, manufacturing, energy,
transportation and education sectors. These new channel partners
will collectively deploy hundreds of new sales professionals
selling Tumbleweed products in North America. Tumbleweed launched
the Tumbleweed Alliance Program (TAP) for the Asia-Pacific region,
with the addition of several new partners. ACW Distribution,
Credence Innovations, Cybertrust, Eagle, Egghead Systems &
Networks, Klikon Solutions, and Wipro are among the top resellers
who recently joined TAP in Asia-Pacific. The expansion of the TAP
adds a significant number of sales professionals for Tumbleweed�s
products in the Asia Pacific region, particularly in India, China
and Australia. Tumbleweed extended the capabilities of its
MailGate� Product Suite, a family of products for protecting,
filtering and monitoring corporate email. The new MailGate features
dramatically reduce accidental email data leaks and botnet driven
threats, and include the security industry�s first multi-layered
perimeter defense, arming customers with unrivaled end-to-end
security and dramatically reduce the cost and complexity associated
with email messaging security. Tumbleweed enhanced its Server
Validator� solution to further support the latest SSL-enabled
applications and now offers the industry�s broadest support of
digital certificate validation for web servers and applications.
Server Validator protects against unauthorized access by enforcing
strong user authentication for the latest versions of
mission-critical web service applications via X.509 identity
certificates. Tumbleweed hosted World Secure 2007, its annual
worldwide user forum. Representatives from leading global
enterprises were offered a unique opportunity to learn more about
the latest messaging security and managed file transfer trends
along with sessions for enhancing technical knowledge on how to
best manage messaging security and managed file transfer
initiatives and technologies. Financial Outlook Third Quarter of
2007: Tumbleweed currently expects total revenue for the third
quarter of 2007 to be between $14.5 million and $16.0 million.
Non-GAAP results are expected to range from a loss of $(0.02) to
income of $0.00 per share. Non-GAAP results exclude expected costs
for stock-based compensation expense and intangible asset
amortization expense of a combined $(0.03) per share for the third
quarter of 2007. GAAP results are currently expected to range from
$(0.05) to $(0.03) per share. Per share amounts are based on an
estimated 51.2 million shares outstanding. Fourth Quarter of 2007:
Tumbleweed currently expects total revenue for the fourth quarter
of 2007 to be between $15.5 million and $17.0 million. Non-GAAP
results are expected to range from a loss of $(0.00) to income of
$0.02 per share. Non-GAAP results exclude expected costs for
stock-based compensation expense and intangible asset amortization
expense of a combined $(0.03) per share for the fourth quarter of
2007. GAAP results are expected to be in a loss range from $(0.03)
to $(0.01) per share. Per share amounts are based on an estimated
51.2 million shares outstanding. Conference Call Information
Tumbleweed management will host a conference call on Thursday, July
26, 2007 at 2:30 p.m. PDT (5:30 p.m. EDT) to discuss the second
quarter 2007 results. The call can be accessed by dialing (800)
366-3908 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 after 5:30 p.m. PDT on July 26, 2007 through
August 9, 2007 by dialing (800) 405-2236 and entering pass code
11092900#. The conference call and supplemental financial
information will also be available on the investor relations
portion of the Tumbleweed website. 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 for the third quarter of 2007 and
for the 2007 year as a whole (including estimated revenue and
revenue growth, income and earnings per share on both a GAAP and a
non-GAAP basis), as well as Tumbleweed�s beliefs about its future
growth, the growth of its sales distribution channels, its product
roadmap, and the quality and features of its products. 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 14,
2007, Form 10-Q filed May 10, 2007 and such filings for the periods
referred to above, to be filed subsequently. 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. Non-GAAP Information The
non-GAAP financial information included in this press release is
not prepared in accordance with 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 and comparing 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. About Tumbleweed Tumbleweed Communications Corp.
(NASDAQ:TMWD), the industry�s leading pure play messaging security
vendor, provides world-class innovative messaging security
solutions for organizations of all sizes. Organizations rely on
Tumbleweed's solutions to securely manage their Internet
communications, spanning email management to file transfers.
Tumbleweed has nearly 2,700 customers worldwide, representing
industries such as Finance, Healthcare, and the U.S. Government.
The world�s most security conscious organizations rely upon
Tumbleweed technology including Bank of America Securities, JP
Morgan Chase & Co., the U.S. Food and Drug Administration, and
the U.S. Department of Defense. Our award-winning products build on
fourteen years of R&D and 26 security patents in the U.S. alone
� many of which are licensed by other security vendors. More
information can be found at www.tumbleweed.com. Tumbleweed
Communications Corp. Condensed Consolidated Balance Sheets June 30,
2007 (in 000s) � 6/30/2007 12/31/2006 ASSETS (unaudited)
(unaudited) � CURRENT ASSETS Cash and cash equivalents $ 30,003 $
30,511 Accounts receivable, net 10,461 12,506 Other current assets
� 2,215 � � 1,938 � TOTAL CURRENT ASSETS � 42,679 � � 44,955 � �
Goodwill 48,074 48,074 Intangible assets, net 776 1,470 Property
and equipment, net 2,116 1,820 Other assets � 352 � � 612 � TOTAL
ASSETS $ 93,997 � $ 96,931 � � LIABILITIES & EQUITY CURRENT
LIABILITIES Accounts payable $ 1,276 $ 1,808 Accrued liabilities
6,227 7,522 Accrued merger-related and other costs - 97 Deferred
revenue � 20,517 � � 20,003 � TOTAL CURRENT LIABILITIES � 28,020 �
� 29,430 � LONG TERM LIABILITIES Deferred revenue, excluding
current portion 4,311 4,728 Other long term liabilities � 42 � � 63
� TOTAL LONG TERM LIABILITIES � 4,353 � � 4,791 � TOTAL LIABILITIES
� 32,373 � � 34,221 � STOCKHOLDERS' EQUITY Common stock 52 51
Additional paid-in capital 362,862 359,238 Treasury stock (796 )
(796 ) Accumulated other comprehensive income 40 29 Accumulated
deficit � (300,534 ) � (295,812 ) TOTAL STOCKHOLDERS' EQUITY �
61,624 � � 62,710 � TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $
93,997 � $ 96,931 � Tumbleweed Communications Corp. Condensed
Consolidated Statements of Operations June 30, 2007 (in 000s,
except per share data) � Three Months Ended Six Months Ended June
30, June 30, (unaudited) (unaudited) � 2007 � � 2006 � � 2007 � �
2006 � REVENUES Product revenue $ 5,121 $ 5,254 $ 11,018 $ 12,679
Service revenue 7,973 7,343 16,995 14,598 Intellectual property
revenue � 1,036 � � 2,549 � � 1,132 � � 2,924 � NET REVENUE �
14,130 � � 15,146 � � 29,145 � � 30,201 � COST OF REVENUE Cost of
product revenue (1) 1,307 970 3,063 1,693 Provision for excess
inventory - - 164 - Cost of service revenue (1) 1,929 1,606 3,828
3,145 Amortization of intangible assets � 234 � � 489 � � 468 � �
999 � GROSS PROFIT 10,660 12,081 21,622 24,364 OPERATING EXPENSES
Research and development (1) 3,859 3,800 7,755 7,220 Sales and
marketing (1) 7,311 6,596 13,928 13,049 General and administrative
(1) 2,516 2,593 5,003 5,949 Amortization of intangible assets � 44
� � 312 � � 227 � � 633 � TOTAL OPERATING EXPENSES � 13,730 � �
13,301 � � 26,913 � � 26,851 � OPERATING LOSS (3,070 ) (1,220 )
(5,291 ) (2,487 ) Other income, net � 381 � � 301 � � 720 � � 565 �
NET LOSS BEFORE TAXES (2,689 ) (919 ) (4,571 ) (1,922 ) Provision
for income taxes � 21 � � 31 � � 34 � � 66 � NET LOSS $ (2,710 ) $
(950 ) $ (4,605 ) $ (1,988 ) � BASIC AND DILUTED NET LOSS PER SHARE
$ (0.05 ) $ (0.02 ) $ (0.09 ) $ (0.04 ) � RECONCILIATION TO
NON-GAAP NET INCOME (LOSS) NET LOSS $ (2,710 ) $ (950 ) $ (4,605 )
$ (1,988 ) Stock-based compensation expense 1,190 959 2,300 2,657
Amortization of intangible assets � 278 � � 801 � � 695 � � 1,632 �
NON-GAAP NET INCOME (LOSS) $ (1,242 ) $ 810 � $ (1,610 ) $ 2,301 �
� NON-GAAP BASIC AND DILUTED NET INCOME (LOSS) PER SHARE $ (0.02 )
$ 0.02 � $ (0.03 ) $ 0.05 � � WEIGHTED AVERAGE SHARES: BASIC 51,052
49,937 50,947 49,803 DILUTED 51,052 49,937 50,947 49,803 � � (1)
Stock-based compensation expense is classified as follows: � Cost
of product revenue $ - $ 2 $ - $ 4 Cost of service revenue 39 34 65
73 Research and development 257 268 560 527 Sales and marketing 319
167 539 356 General and administrative � 575 � � 488 � � 1,136 � �
1,697 � $ 1,190 � $ 959 � $ 2,300 � $ 2,657 �
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