Blue Coat Systems Reports Third Quarter Fiscal Year 2003 Financial Results

Release Date: 
02/20/2003 - 8:09am
summary: 

Revenue Growth, Increased Margins, Lower Cash Usage Show Continued Progress Towards Profitability

SUNNYVALE, Calif., Feb. 20, 2002 -- Blue Coat Systems, Inc. (Nasdaq: BCSI) today announced that for the third quarter of fiscal 2003 ended January 31, 2003, revenue was $11.7 million, up from $11.2 million in the prior quarter. The company reported a pro-forma net loss of $2.5 million, or $0.28 per share, a 43% reduction in net loss compared with a pro forma net loss of $4.4 million, or $0.50 per share, in the previous quarter. Actual net loss for the quarter, including deferred stock compensation and additional restructuring reserves related to excess facilities was $4.4 million, or $0.50 per share, compared with a prior quarter actual net loss of $5.2 million, or $0.59 per share. The financial statements included as part of this earnings release contain a full presentation of our GAAP operating results with a reconciliation to our pro forma operating results.

The company also saw gross margins increase to 64.9%, up from 60.1% in the prior quarter. The company ended the quarter with $26.3 million in cash and investments. Cash usage was $3.1 million, significantly reduced from the prior quarter's $4.5 million cash usage.

For the quarter, Web security products provided $7.9 million in revenue, legacy products provided $1.3 million in revenue, and service provided $2.5 million in revenue. Blue Coat's Web security business remains strong, representing 86% of the company's total product revenue. Blue Coat gained more than 50 new worldwide Web security accounts during the quarter. Blue Coat also maintained its strong channel focus with 77% of revenue coming from indirect sources, compared to 23% from direct sales.

Blue Coat is gaining exceptional footing as a leading Web security appliance provider, and we are closing in on profitability," said Brian NeSmith, president and CEO of Blue Coat Systems. "Blue Coat Systems enables our global customers to solve their Web security challenges, delivering the ideal platform for URL filtering, Web anti-virus, IM security and proxy caching."

Operating Highlights
Blue Coat Systems enhanced its Web security platform with two new technology partnerships in the quarter. Blue Coat enhanced its strategic partnership with Websense to distribute Websense's next-generation EIM database on Blue Coat's award-winning Web security appliance platform. Additionally, Blue Coat teamed with Finjan Software to integrate Finjan's Vital Security product, SurfinGate for Web, with Blue Coat's line-up of Web security solutions.

Blue Coat also unveiled the industry's first enterprise-class solutions for securing and controlling popular public instant messaging applications on corporate networks. The new IM Traffic Control solutions, available later this year, are designed to enable IT administrators to implement granular access control, centralized management, and logging of rogue AOL, MSN and Yahoo! IM applications on Blue Coat's appliance platform.

In addition, Blue Coat recently introduced the newest member of its award-winning Security Gateway (SG) product line, named the SG400. The SG400 Web Security Appliance enables corporations to extend Web traffic protection and control to the network edge, while significantly reducing the administration and management costs for securing a distributed enterprise.

Also during the quarter, Network Computing magazine named Blue Coat Systems a "Company to Watch" in 2003. Blue Coat was selected based on the most important technologies, trends and standards to be realized in 2003.

Conference Call
The company will host a conference call today at 5:00 p.m. Eastern Time, 2:00 p.m. Pacific Time, to discuss the quarterly results. Participants should call 800.310.6649 (toll-free) or 719.457.2693 (toll call), pass code: 799965. A playback of the call will be available until Monday, February 24, 2003 at Midnight and can be accessed by calling 888.203.1112 (toll-free) or 719.457.0820 (toll call), pass code: 799965. An audio Web cast of the call will also be available at www.bluecoat.com/aboutus/investor_relations.

Boiler Plate: 

About Blue Coat Systems
Blue Coat Systems is an industry leading Web security appliance company. Blue Coat's Security Gateway platform enables IT to secure and granularly control users accessing Web applications by effectively accelerating port 80 security services, including content filtering, Web anti-virus, proxy caching and malicious mobile code defense. Headquartered in Sunnyvale, California, Blue Coat Systems can be reached at 408.220.2200 or at www.bluecoat.com.

Fowarding Statement: 

The statements contained in this press release that are not purely historical are forward-looking statements, including statements regarding Blue Coat Systems' operating performance and future product deliveries as well as statements regarding our expectations, beliefs, intentions or strategies regarding the future. All forward-looking statements included in this press release are based upon information available to Blue Coat Systems as of the date hereof, and Blue Coat Systems assumes no obligation to update any such forward-looking statements. Forward-looking statements involve risks and uncertainties, which could cause actual results to differ materially from those projected. These and other risks relating to Blue Coat Systems' business are set forth in Blue Coat Systems' most recently filed Form 10-Q for the quarter ended October 31, 2002, and other reports filed from time to time with the Securities and Exchange Commission.

Footer: 

Note: All trademarks, trade names or service marks used or mentioned herein belong to their respective owners. 

                           BLUE COAT SYSTEMS, INC.
                    CONDENSED CONSOLIDATED BALANCE SHEETS
                                (in thousands)

                                                   January 31,     April 30,
                                                       2003           2002
                                                   (Unaudited)

    ASSETS
    Current assets:
     Cash and cash equivalents                        $8,765        $12,480
     Short-term investments                           15,525         27,466
     Accounts receivable, net                          9,005          6,100
     Inventories                                       1,663          1,988
     Prepaid expenses and other current assets           934          1,576
    Total current assets                              35,892         49,610

    Property and equipment, net                        3,775          6,047
    Restricted investments                             1,991          1,991
    Other assets                                       1,070          1,066
    Total assets                                     $42,728        $58,714

    LIABILITIES AND STOCKHOLDERS' EQUITY
    Current liabilities:
     Accounts payable                                 $1,412         $2,558
     Accrued payroll and related benefits              2,487          2,594
     Deferred revenue                                  8,772          6,153
     Other accrued liabilities                         5,727          8,562
    Total current liabilities                         18,398         19,867

    Accrued restructuring reserve                      5,653          7,182
    Deferred revenue                                   1,240          1,401
    Total liabilities                                 25,291         28,450

    Commitments

    Stockholders' equity:
     Common stock                                          1              4
     Additional paid-in capital                      884,009        883,964
     Treasury stock                                    (903)          (895)
     Notes receivable from stockholders                 (25)           (57)
     Deferred stock compensation                     (1,068)        (3,622)
     Accumulated deficit                           (864,611)      (849,123)
     Accumulated other comprehensive
      income (loss)                                       34            (7)
    Total stockholders' equity                        17,437         30,264
    Total liabilities and stockholders' equity       $42,728        $58,714


                           BLUE COAT SYSTEMS, INC.
               CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
             (Unaudited; in thousands, except per share amounts)

                             Three Months Ended          Nine Months Ended
                                  January 31,               January 31,
                              2003          2002         2003          2002

    Net sales              $11,720       $10,893      $33,973       $44,533
    Cost of goods sold       4,119         5,246       13,177        19,648
    Gross profit             7,601         5,647       20,796        24,885

    Operating expenses:
     Research and
      development            2,712         9,167        9,109        27,842
     Sales and marketing     6,202         6,389       19,743        23,379
     General and
      administrative         1,177         2,214        3,862         7,391
     Stock compensation        599         3,839        2,505        16,996
     Goodwill amortization      --         2,168           --        27,798
     Restructuring           1,273            --        1,273         2,558
     Asset impairment           --         2,768           --       123,756
    Total operating
     expenses               11,963        26,545       36,492       229,720

    Operating loss         (4,362)      (20,898)     (15,696)     (204,835)
    Interest income            122           420          418         1,854
    Other income (expense)    (60)         (437)         (73)         (511)

    Net loss before
     income taxes          (4,300)      (20,915)     (15,351)     (203,492)
    Provision for
     income taxes             (52)         (102)        (137)         (347)
    Net loss              $(4,352)     $(21,017)    $(15,488)    $(203,839)

    Basic and diluted
     net loss per
     common share          $(0.50)       $(2.51)      $(1.77)      $(24.72)
    Shares used in
     computing basic
     and diluted
     net loss per
     common share            8,790         8,381        8,745         8,247

    Pro forma net loss
     per share,
     excluding certain
     non-cash and
     non-recurring items:

    Net loss available
     to common
     stockholders         $(4,352)     $(21,017)    $(15,488)    $(203,839)
    Add non-cash and
     non-recurring items:
     Stock compensation        599         3,839        2,505        16,996
     Goodwill amortization      --         2,168           --        27,798
     Restructuring           1,273            --        1,273         2,558
     Asset impairment           --         2,768           --       123,756
    Pro forma net loss    $(2,480)     $(12,242)    $(11,710)     $(32,731)

    Pro forma basic
     and diluted
     net loss per
     common share
     excluding certain
     non-cash and
     non-recurring items   $(0.28)       $(1.46)      $(1.34)       $(3.97)

    Shares used in
     computing pro forma
     basic and diluted
     net loss per
     common share            8,790         8,381        8,745         8,247


                           BLUE COAT SYSTEMS, INC.
               CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                          (Unaudited, in thousands)


                                                        Nine Months Ended
                                                            January 31,
                                                        2003           2002

    Operating Activities
    Net loss                                       $(15,488)     $(203,839)
    Adjustments to reconcile net loss to
     net cash used in operating activities:
     Depreciation and amortization                     2,227          3,305
     Stock compensation                                2,505         16,996
     Goodwill amortization                                --         27,798
     Asset impairment                                     --        123,756
     Interest on notes receivable from stockholders     (11)           (16)
     Changes in operating assets and liabilities:
      Accounts receivable                            (2,905)          7,302
      Inventories                                        325          3,391
      Prepaid expenses and other current assets          642          1,355
      Other assets                                       (4)             84
      Accounts payable                               (1,146)        (4,827)
      Accrued liabilities                            (3,688)        (6,072)
      Deferred revenue                                 2,459            654
    Net cash used in operating activities           (15,084)       (30,113)

    Investing Activities
    Purchases of property and equipment                (738)        (1,506)
    Sales (purchases) of investments, net             11,981       (13,158)
    Net cash provided by (used in)
     investing activities                             11,243       (14,664)

    Financing Activities
    Net proceeds from issuance of common stock           105            788
    Repayment of notes receivable                         27            232
    Repurchase of employee stock                         (6)          (196)
    Net cash provided by financing activities            126            824

    Net increase (decrease) in cash
     and cash equivalents                            (3,715)       (43,953)
    Cash and cash equivalents at
     beginning of period                              12,480         55,356

    Cash and cash equivalents at end of period        $8,765        $11,403

    Non-cash investing and financing activities
    Treasury stock retirement/cancellation               $--           $190