Including Favorable Tax Refund Impact of $0.08 Per Share Financial Results for the Third Quarter and Guidance for the Fourth Quarter to
be Discussed on Conference Call Today at 4:30 p.m. E.D.T.
BEDFORD, Mass., Oct. 27 - RSA Security Inc. (Nasdaq: RSAS) today reported financial results for the third quarter ended September 30, 2005.
Revenue for the third quarter of 2005 was $76.2 million, as compared to $76.7 million for the third quarter of 2004. Net income for the third quarter of 2005 increased 72% to $15.1 million, or $0.21 per diluted share, from $8.7 million, or $0.13 per diluted share, for the comparable period a year ago. During the third quarter the Company received $8.5 million in tax refunds and associated interest payments from the United States Internal Revenue Service ("IRS"). These tax refunds and related reserve adjustments increased the Company's earnings per diluted share by $0.08.
"We delivered third quarter financial results that were within our range of guidance, and we shipped a record number of authentication credentials," said Art Coviello, president and CEO of RSA Security. "With our new product releases in the third quarter, we continue to deliver the highest quality identity and data protection solutions to the market."
Third-Quarter Financial Highlights
* Revenue: Revenue for the third quarter of 2005 was $76.2 million, as
compared to $76.7 million for the third quarter of 2004. RSA
Security's book-to-bill ratio for the quarter was approximately 1.0 to
1, and the Company closed the quarter with $61.5 million in combined
backlog and deferred revenue.
* Net Income: Net income for the third quarter of 2005 increased 72% to
$15.1 million, or $0.21 per diluted share, from $8.7 million, or $0.13
per diluted share, from the third quarter of 2004.
* Cash Position: Cash, cash equivalents, and marketable securities
increased to $302.7 million at September 30, 2005 from $289.7 million
at December 31, 2004. During the quarter, in accordance with the
Company's approved share repurchase program, RSA Security repurchased
448,379 shares of its common stock for $5.7 million.
* Tax: The IRS issued tax refunds and associated interest payments to the
Company totaling $8.5 million. The tax refunds received during the
third quarter are associated with the Company's previously disclosed
IRS audit for the years 1996 through 2002.
Operational Highlights
* Customers: RSA Security shipped product to approximately 5,300
customers in the third quarter, including 642 new customers. With
these new customers, RSA Security's overall customer base is now
approximately 19,000 worldwide.
* Products: RSA Security announced RSA(R) Authentication Manager 6.1, the
enterprise software powering RSA SecurID(R) two-factor authentication
technology, which now delivers 802.1X-based security for organizations
with both wired and wireless environments. The software also supports
a number of Extensible Authentication Protocol (EAP) methods, including
EAP-POTP, an open specification for wired/wireless strong
authentication, which was developed by RSA Laboratories.
The Company also unveiled RSA SecurID for Microsoft(R) Windows(R) 2.0
solution, which delivers improve policy management capabilities,
enhanced usability, increased scalability and complete integration with
RSA SecurID SID800 USB-enabled authenticators.
* The Company began shipping RSA BSAFE(R) Data Security Manager, a
middleware solution that simplifies and strengthens application
security by putting security decisions and design in the hands of
security experts while easing the implementation of security for
developers.
* The Company announced RSA(R) Certificate Manager 6.6 and RSA(R)
Registration Manager 6.6 (formerly RSA Keon software), which deliver
greater functionality and ease-of-use to customers deploying
comprehensive digital certificate solutions. The new versions also
provide simplified methods for customers pairing digital certificates
with solutions such as smart cards, USB-based two-factor authentication
tokens, and enterprise single sign-on.
* Board Appointment: The Company appointed Orson Swindle, former
commissioner of the United States' Federal Trade Commission ("FTC"), as
a new member of its Board of Directors. Mr. Swindle was formally the
Assistant Secretary of Commerce, appointed under President Reagan.
Most recently he spent over seven years as a commissioner at the FTC --
the Federal Government's principal law enforcement agency for antitrust
and consumer protection laws.
Business Outlook
RSA Security's financial guidance for the fourth quarter of 2005 is only current as of today, Thursday, October 27, 2005, and the Company undertakes no obligation to update its estimates:
The Company is reiterating its previously stated earnings guidance for the fourth quarter of 2005, and updating its revenue guidance. The current revenue guidance reflects the Company's plan to build both backlog and deferred revenue in the fourth quarter.
Fourth Quarter Guidance:
* Diluted earnings per share in the range of $0.15 to $0.19
* Revenue in the range of $78 million to $82 million, as compared to prior
revenue guidance of $81 million to $85 million
Conference Call Details
In conjunction with this announcement, RSA Security will host a conference call today at 4:30 p.m. (ET) to discuss the Company's financial results, highlights of the quarter, business strategy and financial guidance. A live webcast of this conference call will be available on the "Investor" page of the Company's website, and a webcast archive will be available for approximately three months. To access this call by telephone, dial (800) 289- 0507 or (913) 981-5540. A replay will be available through midnight on Wednesday, November 2, 2005 at (888) 203-1112 and (719) 457-0820. Both live and replay numbers have a pass code of 7371064.
About RSA Security Inc.
RSA Security Inc. is the expert in protecting online identities and digital assets. The inventor of core security technologies for the Internet, the company leads the way in strong authentication and encryption, bringing trust to millions of user identities and the transactions that they perform. RSA Security's portfolio of award-winning identity & access management solutions helps businesses to establish who's who online -- and what they can do.
With a strong reputation built on a 20-year history of ingenuity, leadership and proven technologies, we serve approximately 19,000 customers around the globe and interoperate with more than 1,000 technology and integration partners. For more information, please visit http://www.rsasecurity.com
RSA, BSAFE, SecurWorld and SecurID are either registered trademarks or trademarks of RSA Security Inc. in the United States and/or other countries. All other products and services mentioned are trademarks of their respective companies.
This press release contains forward-looking statements regarding RSA Security's financial guidance for the fourth quarter of 2005. These statements involve a number of risks and uncertainties. Some of the important factors that could cause actual results to differ materially from those indicated by the forward-looking statements are general economic conditions, including the global economy, changes in our operating expenses, the long and unpredictable nature of the sales cycle for some of our products, the timing of the introduction or enhancement of our products and our competitors' and strategic partners' products, changes in product pricing, including changes in competitors' pricing policies, development and performance of our direct and indirect distribution channels, delays in product development, competitive pressures, changes in customer and market requirements and standards, market acceptance of new products and technologies, technological changes in the computer industry, and the risk factors detailed from time to time in RSA Security's periodic reports and registration statements filed with the Securities and Exchange Commission, including, without limitation, RSA Security's Annual Report on Form 10-K filed on March 14, 2005.
Condensed Consolidated Statements of Operations
(Unaudited)
(In thousands, except per share data)
Three Months Ended Nine Months Ended
September 30, September 30,
2005 2004 2005 2004
Revenue
Products $53,774 $57,776 $163,175 $169,430
Maintenance and
professional services 22,463 18,955 65,208 54,846
Total revenue 76,237 76,731 228,383 224,276
Cost of revenue
Products 9,663 7,983 28,243 24,047
Maintenance and
professional services 6,462 5,843 18,945 17,068
Total cost of revenue 16,125 13,826 47,188 41,115
Gross profit 60,112 62,905 181,195 183,161
Costs and expenses
Research and
development 15,990 15,934 47,459 46,120
Marketing and selling 27,753 26,946 85,197 80,169
General and
administrative 7,733 8,388 24,079 22,556
Restructurings -- -- -- 1,601
Total 51,476 51,268 156,735 150,446
Income from operations 8,636 11,637 24,460 32,715
Interest expense
and other 3,145 (935) 7,434 (3,903)
Income (loss) from
investing activities -- 354 -- 284
Income before provision
for income taxes 11,781 11,056 31,894 29,096
Provision for
income taxes (3,282) 2,315 1,142 5,924
Net income $15,063 $8,741 $30,752 $23,172
Basic earnings per share
Per share amount $0.21 $0.14 $0.43 $0.37
Weighted average
shares 70,830 63,857 71,066 62,467
Diluted earnings
per share
Per share amount $0.21 $0.13 $0.42 $0.35
Weighted average
shares 70,830 63,857 71,066 62,467
Effect of dilutive
equity instruments 1,872 3,970 2,183 4,272
Adjusted weighted
average shares 72,702 67,827 73,249 66,739
Condensed Consolidated Balance Sheets
(Unaudited)
(In thousands, except share data)
September 30, December 31,
2005 2004
ASSETS
Current assets
Cash and cash equivalents $81,084 $68,210
Marketable securities 221,605 221,509
Accounts receivable (less allowance
for doubtful accounts of $1,625 in 2005
and $1,672 in 2004) 47,257 53,494
Inventory 3,954 3,465
Prepaid expenses and other assets 10,191 14,307
Total current assets 364,091 360,985
Property and equipment, net 67,818 70,700
Other assets
Deferred taxes 8,222 8,222
Intangible and other assets 17,058 12,184
Goodwill 172,736 172,736
Total other assets 198,016 193,142
Total assets $629,925 $624,827
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable, accrued
expenses and other liabilities $47,421 $48,911
Current portion of accrued restructurings 4,977 6,031
Income taxes accrued and payable 21,849 22,479
Deferred revenue 42,190 45,010
Total current liabilities 116,437 122,431
Accrued restructurings, long-term 11,018 13,682
Deferred revenue, long-term 6,656 6,125
Other 6,662 6,057
Total liabilities 140,773 148,295
Stockholders' equity 489,152 476,532
Total liabilities and shareholders' equity $629,925 $624,827
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(In thousands)
Three Months Ended Nine Months Ended
September 30, September 30,
2005 2004 2005 2004
Cash flows from
operating activities
Net income $15,063 $8,741 $30,752 $23,172
Adjustments to
reconcile net
income to net
cash provided
by operating activities:
Depreciation 3,224 2,706 9,228 8,450
Tax benefit from
exercise of
stock options 1,361 1,201 2,575 5,944
Amortization of
convertible
debentures deferred
financing costs -- 351 -- 1,212
Non cash warrant
accretion -- 379 -- 1,089
Gain on sale of
investments -- (390) -- (390)
Decrease in Crosby
Finance, LLC fair value -- 36 -- 106
Deferred taxes 619 -- 619 --
Increase (decrease) in
cash from changes in:
Accounts receivable 1,708 (6,452) 6,019 (7,263)
Inventory 547 170 (489) 394
Prepaid expenses
and other assets (1,275) (1,856) (2,593) (467)
Accounts payable,
accrued expenses
and other liabilities 5,215 104 (2,052) (2,196)
Accrued
restructurings (1,307) (2,657) (3,717) (5,945)
Refundable income
taxes and income
taxes accrued
and payable 2,050 7,068 2,603 6,666
Deferred revenue (3,182) 2,471 (2,328) 7,901
Net cash provided
by operating
activities 24,023 11,872 40,617 38,673
Cash flows from
investing activities
Purchase of
marketable
securities (36,255) (79,697) (132,432) (251,008)
Sales/maturities
of marketable
securities 36,669 58,300 131,916 152,600
Purchases of
property and
equipment (3,761) (4,048) (7,963) (7,355)
Other (910) 8 (2,147) 60
Net cash (used for)
investing
activities (4,257) (25,437) (10,626) (105,703)
Cash flows from
financing activities
Proceeds from
exercise of
stock options
and purchase plans 5,394 4,743 10,066 20,009
Share repurchase (5,731) (911) (26,819) (911)
Net cash (used for)
provided by
financing activities (337) 3,832 (16,753) 19,098
Effect of exchange rate
changes on cash
and cash equivalents (287) (309) (364) (1,369)
Net increase (decrease)
in cash and
cash equivalents 19,142 (10,042) 12,874 (49,301)
Cash and cash
equivalents,
beginning of period 61,942 168,064 68,210 207,323
Cash and cash
equivalents,
end of period $81,084 $158,022 $81,084 $158,022
Supplemental Financial Data
(Unaudited)
(In thousands, except per share data)
Three Months Ended
Sept 30, Dec 31, March 31, June 30, Sept 30,
2004 2004 2005 2005 2005
Revenue
Enterprise
solutions $70,542 $73,340 $70,185 $68,700 $67,722
Developer
solutions 6,189 9,891 5,433 7,828 8,515
Total $76,731 $83,231 $75,618 $76,528 $76,237
Enterprise
solutions 92% 88% 93% 90% 89%
Developer
solutions 8% 12% 7% 10% 11%
Total 100% 100% 100% 100% 100%
Products $57,776 $63,068 $54,634 $54,767 $53,774
Maintenance
and
professional
services 18,955 20,163 20,984 21,761 22,463
Total $76,731 $83,231 $75,618 $76,528 $76,237
Products 75% 76% 72% 72% 71%
Maintenance
and
professional
services 25% 24% 28% 28% 29%
Total 100% 100% 100% 100% 100%
Domestic $42,942 $46,731 $41,117 $42,823 $42,968
International 33,789 36,500 34,501 33,705 33,269
Total $76,731 $83,231 $75,618 $76,528 $76,237
Domestic 56% 56% 54% 56% 56%
International 44% 44% 46% 44% 44%
Total 100% 100% 100% 100% 100%
Statements of
Operations
Data
Gross profit $62,905 $69,113 $60,811 $60,273 $60,112
Gross margin 82.0% 83.0% 80.4% 78.8% 78.8%
Total
operating
expenses $51,268 $55,109 $53,443 $51,817 $51,476
Income from
operations $11,637 $14,004 $7,368 $8,456 $8,636
Operating
margin (1) 15.2% 16.8% 9.7% 11.0% 11.3%
Interest
expense
and other $(935) $625 $1,891 $2,400 $3,145
Income (loss)
from investing
activities $354 $(74) -- -- --
Provision
(benefit)
for income
taxes $2,315 $2,745 $2,037 $2,388 $(3,282)
Net income $8,741 $11,810 $7,222 $8,468 $15,063
Diluted
earnings
per share $0.13 $0.16 $0.10 $0.12 $0.21
Other Financial Data
Gross margin
- products 86.2% 87.5% 84.0% 82.0% 82.0%
Gross margin
- maintenance
and
professional
services 69.2% 69.1% 71.0% 70.6% 71.2%
Authentication
credentials
(4) 1,033,000 1,021,000 1,039,000 1,031,000 1,051,000
Cash and
cash
equivalents
and marketable
securities $255,996 $289,719 $282,289 $284,206 $302,689
Deferred
revenue
balance $42,526 $51,135 $48,784 $51,899 $48,846
Book to
bill ratio
(2) 1.0 1.1 1.0 1.0 1.0
Day sales
outstanding
(DSO) 50 59 55 58 57
Debt to
equity ratio 0.2 NA NA NA NA
Cash flow
from
operations $11,872 $15,640 $4,844 $11,750 $24,023
Cash flow
from
operations
per diluted
share (3) $0.19 $0.21 $0.06 $0.16 $0.33
(1) Operating margin is equal to total income from operations as a
percentage of total revenue for the period presented.
(2) The book to bill ratio is equal to the ratio of total orders booked
for the period as compared to total revenue for the period.
(3) Cash flow from operations per diluted share is calculated as cash flow
from operations divided by dilutive weighted average shares
outstanding during the period.
(4) Includes RSA SecurID tokens (both enterprise and consumer) as well as
software tokens, smart cards and USB.
Condensed Consolidated Statements of Operations
(Unaudited)
The following table sets forth certain consolidated financial data as a percentage of our total revenue:
Percentage
Increase
Three Months Ended September 30, (Decrease)
2005 2004 in Dollars
Revenue
Products 70.5% 75.3% (6.9)%
Maintenance and professional
services 29.5 24.7 18.5
Total revenue 100.0 100.0 (0.6)
Cost of revenue
Products 12.7 10.4 21.0
Maintenance and
professional services 8.5 7.6 10.6
Total cost of revenue 21.2 18.0 16.6
Gross margin 78.8 82.0 (4.4)
Costs and expenses
Research and development 21.0 20.8 0.4
Marketing and selling 36.4 35.1 3.0
General and administrative 10.1 10.9 (7.8)
Total 67.5 66.8 0.4
Income from operations 11.3 15.2 (25.8)
Interest expense and other 4.2 (1.2) (436.4)
Income from investing activities -- 0.4 (100.0)
Income before provision for
income taxes 15.5 14.4 6.6
Provision for income taxes (4.3) 3.0 (241.8)
Net income 19.8% 11.4% 72.3%
Press contact: Financial contact:
Matt Buckley Jeremiah Sisitsky
RSA Security Inc. RSA Security Inc.
(781) 515-6212 (781) 515-6065
mbuckley@rsasecurity.com jsisitsky@rsasecurity.com
