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RSA Security Announces Second Quarter Results

  • 25 July, 2006 16:42

<p>RSA Security Announces Second Quarter Results
Company Generates Record Revenue of US$94.4 Million and Record Bookings of US$108.7 Million</p>
<p>RSA Security Inc. (NASDAQ: RSAS) today reported financial results for the second quarter ended June 30, 2006.</p>
<p>Revenue for the second quarter of 2006 increased 23% to US$94.4 million from US$76.5 million for the second quarter of 2005. Net income in accordance with Generally Accepted Accounting Principles (GAAP) for the second quarter of 2006 was US$2.8 million, or US$0.04 per diluted share. Net income for the second quarter of 2006, adjusted to exclude stock-based compensation charges, restructuring charges related to the Company’s restructuring of its engineering resources, transaction fees associated with EMC’s proposed acquisition of RSA Security and amortisation of intangible assets associated with RSA Security’s acquisition of Cyota and PassMark Security (“Adjusted Net Income”), was US$10.6 million, or US$0.14 per diluted share (refer to the “Use of Non-GAAP Financial Measures” section and accompanying financial tables for reconciliations of GAAP to non-GAAP financial information). GAAP net income for the second quarter of 2005 was US$8.5 million, or US$0.12 per diluted share. The Company did not report non-GAAP net income for the second quarter of 2005.</p>
<p>“RSA Security had another outstanding quarter with both record revenue and orders, a clear indication that spending on key identity-centric security initiatives and encryption continues to be a top priority,” said Art Coviello, RSA Security president and chief executive officer. “We continue to be successful at growing all areas of our business, and we are excited about the market potential of all of our solutions.</p>
<p>“Further, we are extremely excited about the definitive agreement to be acquired by EMC that we announced on June 29. Together RSA Security and EMC can accelerate the much needed integration of critical security measures into the information infrastructure.”</p>
<p>Second-Quarter 2006 Financial Highlights</p>
<p>• Revenue and Bookings: RSA Security generated US$94.4 million in revenue for the second quarter of 2006, compared to US$76.5 million in revenue for the second quarter of 2005. Bookings for the second quarter of 2006 were US$108.7 million, up 38% from bookings during the second quarter of 2005 and up 14% from first quarter 2006 bookings of US$95.6 million.</p>
<p>• Net Income: For the second quarter of 2006, the Company generated GAAP net income of US$2.8 million, or US$0.04 per diluted share, and Adjusted Net Income of US$10.6 million, or US$0.14 per diluted share.</p>
<p>• Backlog, Deferred Revenue and Estimated Unrecognised Revenue from Managed Service Contracts: The Company closed the quarter with US$134.9 million in combined deferred revenue, backlog and estimated unrecognised revenue from managed service contracts, a 13% increase from the US$119.1 million balance at March 31, 2006. This increase was driven in part by the best ever quarter of consumer bookings, with the total estimated unrecognised revenue from managed service contracts increasing 37% during the second quarter, to US$41.4 million as of June 30, 2006.</p>
<p>• Cash Position and Share Repurchase: Cash, cash equivalents, and marketable securities increased to US$218.1 million at June 30, 2006 from US$208.2 million at March 31, 2006. During the quarter, in accordance with the Company’s approved share repurchase program, RSA Security repurchased 450,000 shares of its common stock for US$8.5 million. The board of directors of RSA Security approved an amendment to the share repurchase program extending it for an additional two years, until June 30, 2008. As of June 30, 2006, there were approximately 6.0 million shares eligible for repurchase under the plan.</p>
<p>Second-Quarter 2006 Operational Highlights</p>
<p>• Acquisition: RSA Security announced on June 29, 2006 that it had entered into a definitive agreement to be acquired by EMC. Under the terms of the agreement, EMC will pay US$28.00 per share in cash in exchange for the each share of RSA Security and the assumption of outstanding options, for an aggregate purchase price of slightly less than US$2.1 billion, net of RSA Security’s existing cash balance. The acquisition is currently expected to close late in the third quarter or early in the fourth quarter of 2006 and is subject to customary closing conditions and regulatory approvals.</p>
<p>• Customers: RSA Security closed business with more than 6,600 customers in the second quarter, including approximately 900 new customers. The Company shipped approximately 2.5 million authentication credentials during the second quarter, a 44% increase from the first quarter of 2006. Approximately 1.3 million of those credentials were consumer related, a 116% increase from the consumer credentials shipped during the first quarter of 2006.</p>
<p>• Products and Solutions: During the second quarter, RSA Security announced an initiative to provide companies with a more comprehensive approach to enterprise data protection (EDP). RSA Security’s EDP approach is designed to provide a robust framework for protecting an organisation’s sensitive data in any place where data reside: at the application-level; within databases; in files and operating systems; on laptops and mobile devices, and in storage. In addition, this EDP framework addresses the management of associated encryption keys, access control and authentication — helping organisations mitigate risk and reduce costs, while protecting consumer, employee and partner information.</p>
<p>Additionally, the Company announced RSA® Access Manager 6.0 software (formerly RSA ClearTrust® software) to help protect Web-based resources and enforce centralised user access policies as companies grapple with compliance requirements (e.g., Health Insurance Portability and Accountability Act and European Data Protection Directive) and strive to improve their overall security posture. RSA Access Manager is engineered to provide robust auditing and access control capabilities, while delivering Web single sign-on (SSO) for a superior end-user experience. New features in RSA Access Manager 6.0 software include delegated administration, operational instrumentation and health monitoring; SmartRules™ extended results, extended interoperability with Microsoft technology, expanded logging, 64-bit computing support and an enhanced graphical user interface (GUI).</p>
<p>The Company also announced that Broadcom Corporation, a global leader in semiconductors for wired and wireless communications, is joining the RSA SecurID® Ready for Authenticators program — an extension of the trusted RSA Secured® Partner Program. As part of this, Broadcom plans to license RSA SecurID technology for integration within the new Broadcom® BCM5890 secure processor. Launched during the second quarter, Broadcom’s BCM5890 is a secure silicon processor with integrated radio frequency identification (RFID) technology. By embedding RSA SecurID technology within the BCM5890 secure processor, Broadcom will enable its customers to leverage native support for one-time passcodes (OTPs).</p>
<p>Business Outlook</p>
<p>The Company continues to see strong demand for its products and services across all areas of its business, including all geographic areas. In light of the definitive agreement to be acquired by EMC announced on June 29, 2006, the Company is not providing financial guidance for its operations for the third quarter of 2006.</p>
<p>Use of Non-GAAP Financial Measures</p>
<p>The Company is providing non-GAAP financial measures as the Company believes that these figures are helpful in allowing investors to more accurately assess the ongoing nature of RSA Security’s operations. We believe that these non-GAAP measures, which exclude from our net income and earnings per share stock-based compensation charges, restructuring charges related to our restructuring of our engineering resources, amortization of intangible assets associated with our recent acquisitions of Cyota and PassMark Security, and certain fees associated with the proposed transaction with EMC, and which include in our cash flow from operations (in the Supplemental Financial Data table) the tax benefit from the exercise of stock options, when viewed in addition to and not in lieu of our reported GAAP results, assist investors in understanding our results of operations and evaluating our performance as compared to our results and performance in prior periods, because the prior comparative periods did not include stock-based compensation charges, the engineering restructuring charges or the amortisation of intangible assets from our acquisition of Cyota and PassMark Security. Further, as we begin to apply Statement of Financial Accounting Standards No. 123R, “Share Based Payment” (SFAS 123R), we believe it is useful for investors to understand how the expenses and other adjustments associated with the application of SFAS 123R are reflected in our income statements. Finally, we have observed that many of our competitors and other companies in our industry exclude similar items from their publicly disclosed results, and we believe that excluding the items from our own results may assist investors in comparing our performance to that of other companies.</p>
<p>In addition, our management uses the non-GAAP measures discussed in this release to conduct and evaluate our business, and we believe that investors benefit from seeing our results “through the eyes of management.” We establish and manage our stock-based compensation programs, restructuring plans and acquisition strategy on a corporate-wide basis, and our business unit managers are not responsible for, and cannot control, the impact of the associated charges on their business units. Accordingly, our management excludes these charges internally when measuring the success of our various business units and product lines. Further, our incentive bonus program for employees, including executives, is based on corporate performance measures that exclude some or all of these charges, again because the costs are the result of corporate-wide decisions over which the individual business unit managers and individual employees have limited or no control.</p>
<p>Our use of non-GAAP financial measures is subject to a number of limitations. For example, we are excluding charges such as stock-based compensation charges, restructuring charges and amortisation charges that are true costs of our business and these non-GAAP financial measures may not be directly comparable to the amounts reported by other companies. However, we believe that excluding these non-cash and/or non-recurring items allow our investors to better analyse our operations. The presentation of the non-GAAP financial information included in this press release and the accompanying financial tables is not intended to be considered in isolation or as a substitute for the financial information prepared and presented in accordance with GAAP.</p>
<p>GAAP earnings per share for the second quarter of 2006 include pre-tax charges as follows: a restructuring charge of US$368,000 related to the Company’s previously announced restructuring of its engineering resources, US$500,000 in transaction fees associated with EMC’s proposed acquisition of RSA Security, stock-based compensation charges of US$7.1 million related to the Company’s adoption of SFAS 123R and US$1.4 million of amortisation of intangible assets primarily related to intangible assets acquired as a result of the Company’s acquisitions of Cyota and PassMark Security.</p>
<p>Second Quarter 2006 Financial Results:
Reconciliation of Earnings per Diluted Share GAAP to Adjusted Net Income Per Share*
(Per diluted share)</p>
<p>Earnings per diluted share (GAAP) $0.04</p>
<p>Restructuring charge and transaction fees $0.01</p>
<p>SFAS 123R stock option expense $0.08</p>
<p>Amortization of intangible assets $0.01</p>
<p>Earnings per diluted share (non-GAAP)* $0.14</p>
<p>*Figures are per diluted share and are post-tax assuming a GAAP effective tax rate and in US$.</p>
<p>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, encryption and anti-fraud protection, bringing trust to millions of user identities and the transactions that they perform. RSA Security’s portfolio of award-winning identity &amp; access management solutions helps businesses to establish who’s who online – and what they can do.</p>
<p>With a strong reputation built on a 20-year history of ingenuity, leadership and proven technologies, we serve more than 21,000 customers – including financial institutions representing hundreds of millions of consumers around the globe – and interoperate with over 1,000 technology and integration partners. For more information, please visit www.rsasecurity.com</p>
<p># # #</p>
<p>RSA, SecurID, Secured and ClearTrust 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.</p>
<p>This press release contains forward-looking statements regarding RSA Security’s financial performance and prospects and the Company’s proposed acquisition by EMC Corporation. 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 our ability to successfully integrate the employees and operations of our most recent acquisitions, Cyota, Inc. and Passmark Security, Inc., the ability to realize anticipated synergies and cost savings as a result of the Cyota and Passmark acquisitions, general global economic conditions, 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, the successful completion of the acquisition by EMC 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 16, 2006.</p>
<p>Media Contacts</p>
<p>Sarah Mulvin</p>
<p>Kinetics</p>
<p>(02) 9212-3848</p>
<p>sarah@kinetics.com.au</p>
<p>Hwei Oh</p>
<p>RSA Security Australia Pty Ltd</p>
<p>(02) 9463-8407</p>
<p>hoh@rsasecurity.com</p>

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