TMWD Tumbleweed Communications Corp (MM)

Tumbleweed Announces 30% Increase in Revenue for Third Quarter of 2004 Strong Results in Enterprise and Government Sectors Drive Increase in Revenue REDWOOD CITY, Calif., Oct. 21 /PRNewswire-FirstCall/ -- Tumbleweed(R) Communications Corp. (NASDAQ:TMWD), a leading provider of email and data security products for enterprises and government agencies, today reported results for the third quarter ended September 30, 2004. Financial Results Tumbleweed reported Q3-04 revenue of $11.2 million, up 30% from $8.6 million in Q3-03; a net loss of $2.7 million, compared to a net loss of $1.8 million in Q3-03; and a non-GAAP loss, which excludes certain items described below, of $1.1 million, compared to a non-GAAP loss of $750,000 in Q3-03. Net loss per share was $(0.06). Non-GAAP loss per share was $(0.02). Cash balances were $20.6 million at September 30, 2004. "We are pleased to report strong financial results for the third quarter. We saw solid revenue growth in both the enterprise and government markets resulting in overall improved financial performance," said Jeffrey C. Smith, Chief Executive Officer of Tumbleweed. "Revenue from core product sales to enterprises reached its highest level yet, reflecting our marketing and product initiatives, including the introduction of a significant new release of our Email Firewall and the shipment of our first Secure Transport appliance." "Solid growth and attention to expenses allowed us to report results for revenue and non-GAAP loss that were better than we had projected," said Tim Conley, Chief Financial Officer of Tumbleweed. "We expect that continued revenue momentum will allow Tumbleweed to make further progress toward profitability in the fourth quarter." New Customer Wins During the quarter, Tumbleweed signed approximately 400 customer contracts including 95 new customers. More than 100 customers entered into contracts for repeat business, exclusive of maintenance renewals. Tumbleweed now has more than 1,000 enterprise customers. New customers were primarily in the financial services, health care and government markets. In financial services, new customers include Fidelity Investments and GMAC Mortgage. In healthcare, wins include Ohio State University Medical Center, BlueCross BlueShield of Massachusetts and Blue Cross of Idaho. Other new customers include Airbus, Ernst & Young, the State of New Jersey, and a number of federal government agencies including the US Coast Guard and the United States Department of the Treasury. Demonstrating continued customer satisfaction with its products, Tumbleweed received orders for expansion of existing applications or new product deployments from its existing customer base. These orders were from accounts such as American Express, Countrywide Home Loans, Goldman Sachs, JP Morgan Chase, Mass Mutual, Merck, Premera Blue Cross, Providian Financial, UPS, Verizon and Wells Fargo Bank. Product News In the past quarter Tumbleweed announced and/or shipped several product releases that support the Company's email and data security strategy. * Tumbleweed announced the release of Email Firewall 6.0 (EMF), which contains critical new functionality including tiered administration, enhanced email authentication, and new protection modules such as the anti-fraud service to combat phishing and other more harmful sources of spam. EMF 6.0 is designed to integrate seamlessly on a single server with Tumbleweed's Secure Messenger 6.0, thus dramatically simplifying deployment of policy-based routing and encryption of confidential content. * Tumbleweed released the SecureTransport appliance. The appliance provides a much sought-after form factor for secure data delivery. Already, nine of the ten largest banks in the United States use Secure Transport software to send billions of dollars in transactions securely across the Internet. SecureTransport appliance supports a variety of file transfer protocols, including FTP/TLS and AS2. SecureTransport appliance is designed to reduce both the time and complexity to deploy mission-critical file transfer applications. * Tumbleweed expanded its email security suite with the introduction of MailGate Edge: a hardened appliance providing the first tier of defense against email threats such as Denial of Service (DoS) and Directory Harvest Attacks (DHA). Before MailGate Edge, many organizations were compromising the integrity of their email networks by storing data such as email traffic at the perimeter of the network. With MailGate Edge as a first line defense, spam and virus engines and their associated message queues can be moved behind the network perimeter. Moreover, production testing indicates MailGate Edge can block more than fifty-percent of incoming harmful email traffic at the perimeter of a network, before anti-spam and anti-virus processing is required. * Tumbleweed released the 2.2 version of the MailGate, a Linux-based appliance used to fight spam and viruses. The product recently won two industry awards for its capabilities. The new release adds Tumbleweed's Dynamic Anti-Spam service to MailGate and greatly enhances spam capture quality. MailGate now employs both a pro-active Intent Based Filtering (IBF) technology and a reactive Dynamic Anti- Spam (DAS) service designed to eliminate spam, viruses and sources of fraud from the e-mail stream. Expanding Distribution Tumbleweed expanded its distribution channel resellers this quarter, bringing to 45 active channel partners in North America. The MailGate product continues to spearhead the channel expansion with more than 55% of Tumbleweed's Mailgate bookings in the third quarter being closed through channel partners. Tumbleweed expects additional reseller traction in the fourth quarter as a result of the introduction of the MailGate Edge product into the channel and continued efforts on reseller recruitment and training across product lines. Patents Tumbleweed licensed its Email Firewall patents to one additional competitor during the quarter. Tumbleweed has now licensed its patents to nine competitors, reflecting the continued value and relevance of its intellectual property for the email security industry. Fourth Quarter Financial Outlook Tumbleweed's outlook for the fourth quarter of 2004: * Tumbleweed currently estimates that revenue in the fourth quarter of 2004 will be between $11.0 million and $12.0 million. * The non-GAAP results for the fourth quarter of 2004 is currently expected to range from a loss of $1.1 million to a slight profit, or $(0.02) to $0.00 per share. Per share amounts are based on 48.0 million shares. Non-GAAP net loss excludes amortization of intangibles and stock-based compensation expense estimated to be approximately $1.0 million. * GAAP net loss for the fourth quarter of 2004 is currently expected to be approximately $2.2 million to $1.0 million, or $(0.04) to $(0.02) per share. * Cash balances are expected to be approximately $20 million at the end of the fourth quarter. 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 800-322-0079 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 877-519-4471 and entering the following pass code: 5249923. 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 merger-related and other costs, 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 operating results are presented for supplemental informational purposes only for understanding Tumbleweed's operating results. 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. A leading global email security company with more than 10 years in the business, Tumbleweed provides one of the deepest product lines and one of the most developed email security architectures available. From our email security suite, point solutions for spam, inbound and outbound filtering, to secure data encryption and certificate authentication, Tumbleweed has a solution used by enterprises and governments to help mitigate risk and increase network bandwidth. Tumbleweed customers include ABN Amro, Bank of America Securities, Catholic Healthcare West, JP Morgan Chase & Co., The Regence Group (Blue Cross/Blue Shield), Society for Worldwide Interbank Financial Telecommunication (SWIFT), St. Luke's Episcopal Healthcare System, the US Food and Drug Administration, and the US Navy and Marine Corps. 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 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, markets, products, services, its ability to successfully implement and distribute through an indirect sales channel, close appropriate business in a timely manner and adequately respond to competitive pressures surrounding its products, particularly the MailGate product. 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 15, 2004 and Forms 10-Q filed May 10, 2004 and August 12, 2004. 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 Statements of Operations September 30, 2004 (in 000s, except per share data) Three Months Nine Months Ended Ended September 30, September 30, (unaudited) (unaudited) 2004 2003 2004 2003 REVENUES Product revenue $5,186 $5,067 $13,703 $10,973 Service revenue 5,428 3,154 16,144 8,640 Intellectual property and other revenue 584 404 1,516 935 NET REVENUE 11,198 8,625 31,363 20,548 COSTS OF REVENUES Cost of product and service revenue 1,491 1,334 4,141 3,976 Amortization of intangible assets 510 217 1,327 534 GROSS PROFIT 9,197 7,074 25,895 16,038 OPERATING EXPENSES Research and development 2,860 2,560 8,828 6,573 Sales and marketing 6,487 4,425 17,403 11,127 General and administrative 1,345 1,551 3,689 4,489 SUB-TOTAL OPERATING EXPENSES 10,692 8,536 29,920 22,189 Stock-based compensation expense 141 75 522 124 Amortization of intangible assets 421 206 1,137 226 Amortization of in-process research and development -- -- -- 100 Merger-related and other costs 533 549 1,002 2,436 TOTAL OPERATING EXPENSES 11,787 9,366 32,581 25,075 OPERATING LOSS (2,590) (2,292) (6,686) (9,037) NON-OPERATING INCOME (EXPENSE) Other income (expense), net (113) 512 141 577 NET LOSS BEFORE TAXES (2,703) (1,780) (6,545) (8,460) Provision for income taxes 28 17 29 24 NET LOSS $(2,731) $(1,797) $(6,574) $(8,484) Shares used in computing basic and diluted Net loss per share 47,955 40,541 46,339 34,104 BASIC AND DILUTED NET LOSS PER SHARE $(0.06) $(0.04) $(0.14) $(0.25) Reconciliation to Non-GAAP Net Loss NET LOSS $(2,731) $(1,797) $(6,574) $(8,484) Stock-based compensation expense 141 75 522 124 Amortization of intangible assets 931 423 2,464 760 Amortization of in-process research and development -- -- -- 100 Merger-related and other costs 533 549 1,002 2,436 NON-GAAP NET LOSS $(1,126) $(750) $(2,586) $(5,064) NON-GAAP BASIC AND DILUTED NET LOSS PER SHARE $(0.02) $(0.02) $(0.06) $(0.15) Tumbleweed Communications Corp. Condensed Consolidated Balance Sheets September 30, 2004 (in 000s) 9/30/04 12/31/2003 ASSETS (unaudited) (unaudited) CURRENT ASSETS Cash and cash equivalents $20,594 $25,351 Accounts receivable, net 8,002 10,039 Other current assets 1,774 1,068 TOTAL CURRENT ASSETS 30,370 36,458 Goodwill 49,471 13,308 Intangible assets, net 8,129 4,392 Property and equipment, net 1,304 1,648 Other assets 671 540 TOTAL ASSETS $89,945 $56,346 LIABILITIES & EQUITY CURRENT LIABILITIES Accounts payable $1,535 $250 Current installments of long-term debt 267 267 Accrued liabilities 6,131 6,791 Accrued merger-related and other costs 939 485 Deferred revenue 12,757 11,808 TOTAL CURRENT LIABILITIES 21,629 19,601 LONG TERM LIABILITIES Long-term debt, excluding current installments 267 467 Accrued merger-related and other costs, excluding current portion 465 540 Deferred revenue, excluding current portion 3,073 2,984 Other long term liabilities 154 159 TOTAL LONG TERM LIABILITIES 3,959 4,150 TOTAL LIABILITIES 25,588 23,751 STOCKHOLDERS' EQUITY Common stock 49 43 Additional paid-in capital 352,488 313,532 Treasury stock (796) (796) Deferred stock compensation expense (865) (302) Accumulated other comprehensive loss (645) (585) Accumulated deficit (285,874) (279,297) TOTAL STOCKHOLDERS' EQUITY 64,357 32,595 TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $89,945 $56,346 DATASOURCE: Tumbleweed Communications Corp. CONTACT: Todd Kehrli of MKR Group, LLC, +1-818-556-3700, for Tumbleweed Communications; or Tim Conley, VP Finance & CFO of Tumbleweed Communications, +1-650-216-2066 Web site: http://www.tumbleweed.com/

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