Sourcefire Announces Third Quarter 2012 Results

Sourcefire Announces Third Quarter 2012 Results 
Third Quarter 2012: 
-- Record Revenue: $58.8 Million, an Increase of 30% Year-Over-Year   
-- Adjusted Net Income: $7.6 Million, or $0.25 per Diluted Share 
COLUMBIA, MD -- (Marketwire) -- 11/01/12 --  Sourcefire, Inc.
(NASDAQ: FIRE), a leader in intelligent cybersecurity solutions,
today announced financial results for its fiscal third quarter ended
September 30, 2012. 
"Sourcefire achieved record revenue for the third quarter. We saw
broad based strength across our business driven by our market-leading
FirePOWER platform and our growing distribution capabilities," said
Marty Roesch, interim CEO of Sourcefire. "Today's sophisticated
threats require an approach that provides continuous capability
across all phases of an attack; before it begins, during the time it
is in progress and even after it is missed by other defenses. Our
threat centric approach addresses the full attack continuum and
drives our innovation, resulting in more effective protection for our
customers. This, combined with the investments we are making in our
go-to-market strategy, is enabling us to achieve significant levels
of growth."  
Financial Summary 


 
--  Total Revenue - Revenue for the third quarter of 2012 was $58.8
    million compared to $45.2 million in the third quarter of 2011, an
    increase of 30%.
    
    
--  GAAP Net Income - Net income was $1.2 million for the third quarter of
    2012, or $0.04 per diluted share, on the basis of generally accepted
    accounting principles (GAAP), compared with GAAP net income of $2.0
    million, or $0.07 per diluted share, in the third quarter of 2011.
    
    
--  Adjusted Net Income - Adjusted net income for the third quarter of
    2012, which excludes stock-based compensation expense and amortization
    of acquired intangible assets, and includes an assumed tax rate of
    35%, was $7.6 million, or $0.25 per diluted share. This compares to
    adjusted net income of $5.7 million, or $0.19 per diluted share, for
    the third quarter of 2011, which excludes stock-based compensation
    expense, amortization of acquired intangible assets and other
    acquisition-related expenses, and includes an assumed tax rate of
    35%.
    
    
--  Cash and Cash Flow - As 
of September 30, 2012, the Company's cash,
    cash equivalents and investments totaled $188.5 million. For the third
    quarter of 2012, net cash provided by operating activities was $3.7
    million and the Company generated free cash flow of $1.6 million.

  
Recent Company Highlights 
Revenue Growth 


 
--  Increased U.S. commercial revenue to $24.7 million, up 31% over 3Q11.
    
    
--  Increased international revenue to $17.7 million, up 69% over 3Q11.
    
    
--  Increased U.S. federal sector revenue to $16.4 million, up 4% over
    3Q11.

  
Innovation & Recognition 


 
--  Announced that FirePOWER appliance excelled in the most recent
    independent NSS Labs Next-Generation Firewall (NGFW) product analysis
    -- the industry's most rigorous NGFW testing available to date. The
    FirePOWER 8250 NGFW protected against 99% of all attacks, demonstrated
    superior performance and delivered best-in class total cost of
    ownership.
    
    
--  Introduced the latest solutions to address critical customer needs for
    virtualized security -- FireAMP(TM) Virtual and Virtual
    Next-Generation Intrusion Prevention Systems (NGIPS) with application
    control. These new solutions deliver Information Superiority by
    providing large enterprises and government organizations the
    visibility and control required to address the dynamic nature of
    constantly changing virtual deployments and evolving threats targeting
    those systems.
    
    
--  Announced that Sourcefire Next-Generation Intrusion Prevention Systems
    (NGIPS) have been named to the U.S. Department of Defense (DoD)
    Unified Capability Approved Products List (UC APL).
    
    
--  Commenced Sourcefire Chalk Talks, a complimentary collection of
    informative cybersecurity videos. The ongoing series will provide
    viewers with deeper, unbiased knowledge on essential cybersecurity
    topics, initially focusing on malware and network security.

  
Fourth Quarter and Full Year 2012 Outlook  
Based on information as of October 30, 2012, Sourcefire expects
revenue for the fourth quarter of 2012 in the range of $62.0 million
to $64.0 million, net income per diluted share in the range of $0.03
to $0.05 and, on an adjusted basis, net income per diluted share in
the range of $0.27 to $0.29. Sourcefire's expectation of adjusted net
income per diluted share excludes stock-based compensation expense of
$10.0 million to $10.2 million (inclusive of $3.7 million of expense
due to vesting acceleration of restricted shares in connection with
the retirement of the Company's former CEO) and amortization of
acquired intangible assets of approximately $0.3 million, and
includes an assumed 35% tax rate.  
For fiscal year 2012 Sourcefire expects revenue in the range of
$217.7 million to $219.7 million, net income per diluted share in the
range of $0.11 to $0.13 and adjusted net income per diluted share in
the range of $0.80 to $0.82. Sourcefire's expectation of full year
2012 adjusted net income per share excludes stock-based compensation
expense in the expected range of $26.1 million to $26.3 million and
amortization of acquired intangible assets and other
acquisition-related expenses of approximately $2.8 million and
includes an assumed tax rate of 35%. 
Non-GAAP Measures 
To supplement its consolidated financial statements presented in
accordance with GAAP, Sourcefire considers certain financial measures
that are not prepared in accordance with GAAP, including non-GAAP
adjusted net income, adjusted net income per share, adjusted income
from operations, adjusted income from operations as a percentage of
revenue and free cash flow. 
Sourcefire uses these non-GAAP financial measures, in addition to
GAAP financial measures, to evaluate its operating and financial
performance and to compare such performance to that of prior periods
and to the performance of its competitors. The Company also uses
these non-GAAP financial measures in making operational and financial
decisions and in establishing operational goals. Sourcefire believes
that providing these non-GAAP financial measures to investors, as a
supplement to GAAP financial measures, helps investors to evaluate
the Company's operating and financial performance and trends in its
business, consistent with how management evaluates such performance
and trends. The Company also believes these non-GAAP financial
measures may be useful to investors in comparing its performance to
the performance of other companies, although Sourcefire's non-GAAP
financial measures are specific to it and the non-GAAP financial
measures of other companies may not be calculated in the same manner. 
Adjusted Net Income, Adjusted Net Income per Share, Adjusted Income
from Operations and Adjusted Income from Operations as a Percentage
of Revenue: In evaluating the operating performance of its business,
Sourcefire excludes certain charges and credits that are required by
GAAP. These non-GAAP measures exclude (i) stock-based compensation,
which does not involve the expenditure of cash, (ii) amortization of
acquisition-related intangible assets, which does not involve the
expenditure of cash, and (iii) other acquisition-related expenses,
which a
re unrelated to the ongoing operation of the Company's
business in the ordinary course. For 2012 Sourcefire expects non-GAAP
results to be adjusted to reflect the effect of an assumed tax rate
of 35%. This adjustment is intended to normalize the tax rate and
provide a tax rate that approximates the Company's expected long-term
GAAP tax rate.  
Free Cash Flow: Sourcefire defines free cash flow as net cash
provided by operating activities minus capital expenditures. The
Company considers free cash flow to be a liquidity measure that
provides useful information to management and investors about the
amount of cash generated by the business that, after the purchase of
property and equipment, can be used for strategic opportunities,
including investing in the business, making strategic acquisitions
and strengthening the balance sheet. 
These measures should be considered in addition to results prepared
in accordance with GAAP, but should not be considered a substitute
for, or superior to, GAAP results. The non-GAAP measures included in
this press release have been reconciled to the nearest GAAP measure
in the table following the financial statements attached to this
press release.  
Conference Call and Webcast 
On Thursday, November 1, 2012 at 8:30 a.m. Eastern Time, Sourcefire
will host a conference call to review these results. A listen-only
web cast of the session will be available at
http://investor.sourcefire.com.  
Those wishing to participate in the live session should use the
following numbers to dial in:  
Calling from the United States or Canada: 877-712-7037
 Calling from
other countries: 253-237-1122
 Conference ID number: 39707384 
An online replay will be available at http://investor.sourcefire.com
following the completion of the live call and will remain available
for at least 90 days.  
About Sourcefire 
Sourcefire, Inc. (NASDAQ: FIRE), a world leader in intelligent
cybersecurity solutions, is transforming the way global large- to
mid-size organizations and government agencies manage and minimize
network security risks. With solutions from a next-generation network
security platform to advanced malware protection, Sourcefire provides
customers with Agile Security(R) that is as dynamic as the real world
it protects and the attackers against which it defends. Trusted for
more than 10 years, Sourcefire has been consistently recognized for
its innovation and industry leadership with numerous patents,
world-class research, and award-winning technology. Today, the name
Sourcefire has grown synonymous with innovation, security
intelligence and agile end-to-end security protection. For more
information about Sourcefire, please visit www.sourcefire.com. 
Sourcefire, the Sourcefire logo, Snort, the Snort and Pig logo,
ClamAV, FireAMP, FirePOWER, FireSIGHT and certain other trademarks
and logos are trademarks or registered trademarks of Sourcefire, Inc.
in the United States and other countries. Other company, product and
service names may be trademarks or service marks of others.  
Cautionary Language Concerning Forward-Looking Statements 
The statements contained in this release that are not historical
facts are "forward-looking statements" (as such term is defined in
the Private Securities Litigation Reform Act of 1995) that involve
risks and uncertainties. These statements include expectations
regarding financial results for the fourth quarter of 2012 and
expectations of future growth.  
Management cautions the reader that these forward-looking statements
are only predictions and are subject to a number of both known and
unknown risks and uncertainties, and actual results, performance,
and/or achievements of Sourcefire, Inc. may differ materially from
the future results, performance, and/or achievements expressed or
implied by these forward-looking statements as a result of a number
of factors. These factors include, without limitation, the fact that
the outlook for the fourth quarter of 2012 and expectations of future
growth could change, the risk that the search for a new CEO or the
transition to a new CEO could disrupt the Company's business and also
include, without limitation, those risks and uncertainties described
from time to time in the reports filed by Sourcefire, Inc. with the
U.S. Securities and Exchange Commission. Sourcefire, Inc. undertakes
no obligation to update any forward-looking statements.  


 
                                                                            
                                                                            
                              Sourcefire, Inc.                              
                   Consolidated Statements of Operations                    
              (in thousands, except share and per share data)               
                                                                            
                                                                            
                            Three Months Ended        Nine Months Ended     
                              September 30,             September 30,       
                        ------------------------- ------------------------- 
                            2012         2011         2012         2011     
                        ------------ ------------ ------------ ------------ 
Revenue:                 (unaudited)  (unaudited)  (unaudited)  (unaudited) 
  Products              $     36,690 $     27,552 $     92,177 $     64,207 
  Technical support and                                                     
   professional                                                             
   services                   22,142       17,654       63,555       48,235 
                        ------------ ------------ ------------ ------------ 
    Total revenue             58,832       45,206      155,732      112,442 
                        ------------ ------------ ------------ ------------ 
Cost of revenue:                                                            
  Products                    10,551        7,986       27,722       18,757 
  Technical support and                                                     
   professional                                                             
   services                    2,842        2,141        8,112        6,161 
                        ------------ ------------ ------------ ------------ 
    Total cost of                                                           
     revenue                  13,393       10,127       35,834       24,918 
                        ------------ ------------ ------------ ------------ 
                                                                            
Gross profit                  45,439       35,079      119,898       87,524 
                                                                            
Operating expenses:                                                         
  Research and                                                              
   development                10,768        9,260       30,857       24,296 
  Sales and marketing         22,395       16,304       61,363       45,580 
  General and                                                               
   administrative              6,597        5,086       17,952       14,451 
  Depreciation and                                                
          
   amortization                1,356          970        3,673        2,858 
                        ------------ ------------ ------------ ------------ 
    Total operating                                                         
     expenses                 41,116       31,620      113,845       87,185 
                        ------------ ------------ ------------ ------------ 
                                                                            
Income from operations         4,323        3,459        6,053          339 
Other expense, net               (10)         (41)          (2)         (99)
                        ------------ ------------ ------------ ------------ 
Income before income                                                        
 taxes                         4,313        3,418        6,051          240 
Provision (benefit) for                                                     
 income taxes                  3,098        1,423        3,656       (1,816)
                        ------------ ------------ ------------ ------------ 
Net income              $      1,215 $      1,995 $      2,395 $      2,056 
                        ============ ============ ============ ============ 
                                                                            
Net income per share -                                                      
 basic                  $       0.04 $       0.07 $       0.08 $       0.07 
Net income per share -                                                      
 diluted                $       0.04 $       0.07 $       0.08 $       0.07 
                                                                            
Weighted average shares outstanding                                         
 used in computing per share                                                
 amounts:                                                                   
  Basic                   29,996,464   28,733,267   29,647,214   28,503,974 
  Diluted                 31,124,052   29,630,833   30,822,440   29,402,275 
                                                                            
Stock-based compensation expense for the three and nine months              
 ended September 30, 2012 and 2011 is included in the                       
 Consolidated Statements of Operations as follows (in                       
 thousands):                                                                
                                                                            
                                                                            
                            Three Months Ended         Nine Months Ended    
                               September 30,             September 30,      
                        ------------------------- ------------------------- 
                             2012         2011         2012         2011    
                        ------------ ------------ ------------ ------------ 
                         (unaudited)  (unaudited)  (unaudited)  (unaudited) 
Cost of revenue                                                             
 (products)             $        155 $         80 $        326 $        201 
Cost of revenue                                                             
 (services)                      237          138          614          357 
                        ------------ ------------ ------------ ------------ 
  Stock-based comp                                                          
   expense included in                                                      
   cost of revenue               392          218          940          558 
                                                                            
Research and                                                                
 development                   1,721          974        3,877        2,474 
Sales and marketing            3,076        1,659        6,959        4,367 
General and                                                                 
 administrative                1,918        1,440        4,307        3,385 
                        ------------ ------------ ------------ ------------ 
  Stock-based comp                                                          
   expense included in                                                      
   operating expenses          6,715        4,073       15,143       10,226 
                        ------------ ------------ ------------ ------------ 
Total stock-based                                                           
 compensation expense   $      7,107 $      4,291 $     16,083 $     10,784 
                        ============ ============ ============ ============ 
                                                                            
                                                                            
                                                                            
                              Sourcefire, Inc.                              
                   Condensed Consolidated Balance Sheets                    
                               (in thousands)                               
                                                                            
                                               September 30,  December 31,  
                                                   2012           2011      
                                              -------------- -------------- 
Assets                                          (unaudited)    (unaudited)  
  Cash and cash equivalents                   $       83,288 $       59,407 
  Investments                                        105,217         98,407 
  Accounts receivable, net                            58,739         54,914 
  Inventory                                            6,136          4,285 
  Deferred tax assets                                 10,887         11,339 
  Prepaid expenses and other current assets            8,965          7,718 
  Property and equipment, net                         14,215         12,233 
  Goodwill                                            15,000         15,000 
  Intangible assets, net                               4,798          5,822 
  Other long-term assets                              20,535         14,802 
                                              -------------- -------------- 
  Total assets                                $      327,780 $      283,927 
                                              ============== ============== 
                                                                            
Liabilities                                                                 
  Accounts payable and accrued expenses       $       24,034 $       23,237 
  Deferred revenue                                    71,647         61,570 
  Other liabilities                                    1,419          1,263 
                                              -------------- -------------- 
  Total liabilities                                   97,100         86,070 
                                              -------------- -------------- 
                                                                            
Stockholders' Equity                                                        
  Common stock                                            29             28 
  Additional paid-in capital                         243,772        213,402 
  Accumulated deficit                                (13,154)       (15,549)
  Accumulated other comprehensive income                                    
   (loss)                                                 33            (24)
                                              -------------- -------------- 
  Total stockholders' equity                         230,680        197,857 
                                              -------------- -------------- 
                                                                    
        
  Total liabilities and stockholders' equity  $      327,780 $      283,927 
                                              ============== ============== 
                                                                            
                                                                            
                                                                            
                              Sourcefire, Inc.                              
              Condensed Consolidated Statements of Cash Flows               
                               (in thousands)                               
                                                                            
                               Three Months Ended      Nine Months Ended    
                                 September 30,           September 30,      
                            ----------------------- ----------------------- 
                                2012        2011        2012        2011    
                            ----------- ----------- ----------- ----------- 
                            (unaudited) (unaudited) (unaudited) (unaudited) 
Net income                  $     1,215 $     1,995 $     2,395 $     2,056 
Adjustments to reconcile                                                    
 net income to net cash                                                     
 provided by (used in)                                                      
 operating activities             2,527      (2,329)     23,658      (2,477)
                            ----------- ----------- ----------- ----------- 
Net cash provided by (used                                                  
 in) operating activities         3,742        (334)     26,053        (421)
                                                                            
Net cash provided by (used                                                  
 in) investing activities        (3,336)     11,194     (16,445)     (6,699)
                                                                            
Net cash provided by                                                        
 financing activities             5,345       1,463      14,273       4,023 
                            ----------- ----------- ----------- ----------- 
Net increase (decrease) in                                                  
 cash and cash equivalents        5,751      12,323      23,881      (3,097)
Cash and cash equivalents                                                   
 at beginning of period          77,537      38,990      59,407      54,410 
                            ----------- ----------- ----------- ----------- 
Cash and cash equivalents                                                   
 at end of period           $    83,288 $    51,313 $    83,288 $    51,313 
                            ----------- ----------- ----------- ----------- 
                                                                            
                                                                            
                                                                            
                              Sourcefire, Inc.                              
                Reconciliation of Non-GAAP Measures to GAAP                 
              (in thousands, except share and per share data)               
                                                                            
                                                                            
                               Three Months Ended      Nine Months Ended    
                                 September 30,           September 30,      
                            ----------------------- ----------------------- 
                                2012        2011        2012        2011    
                            ----------- ----------- ----------- ----------- 
                            (unaudited) (unaudited) (unaudited) (unaudited) 
Reconciliation of adjusted                                                  
 income from operations:                                                    
  GAAP income from                                                          
   operations               $     4,323 $     3,459 $     6,053 $       339 
  Amortization of                                                           
   acquisition-related                                                      
   intangible assets                342         252       1,026         756 
  Other acquisition-related                                                 
   expenses*                          -         667       1,436       2,123 
  Stock-based compensation                                                  
   expense                        7,107       4,291      16,083      10,784 
                            ----------- ----------- ----------- ----------- 
  Adjusted income from                                                      
   operations               $    11,772       8,669 $    24,598 $    14,002 
                            =========== =========== =========== =========== 
  Adjusted income from                                                      
   operations as% of total                                                  
   revenue                         20.0%       19.2%       15.8%       12.5%
                                                                            
Reconciliation of adjusted                                                  
 net income:                                                                
  GAAP net income           $     1,215 $     1,995 $     2,395 $     2,056 
  Stock-based compensation                                                  
   expense                        7,107       4,291      16,083      10,784 
  Amortization of                                                           
   acquisition-related                                                      
   intangible assets                342         252       1,026         756 
  Other acquisition-related                                                 
   expenses**                         -         781       1,436       2,465 
  Tax credit for research                                                   
   and experimentation                -           -           -      (2,001)
  Income tax adjustment***       (1,019)     (1,637)     (4,953)     (4,801)
                            ----------- ----------- ----------- ----------- 
  Adjusted net income       $     7,645       5,682 $    15,987 $     9,259 
                            =========== =========== =========== =========== 
                                                                            
  Adjusted net income per                                                   
   share - basic            $      0.25 $      0.20 $      0.54 $      0.32 
  Adjusted net income per                                                   
   share - diluted          $      0.25 $      0.19 $      0.52 $      0.31 
                                                                            
  Weighted average number                                                   
   of shares - basic         29,996,464  28,733,267  29,647,214  28,503,974 
  Weighted average number                                                   
   of shares - diluted       31,124,052  29,630,833  30,822,440  29,402,275 
                                                                            
* Includes the accrual of retention obligations related to the hiring of    
 former Immunet employees and other acquisition-related costs               
** Includes the accrual of retention obligations related to the hiring of   
 former Immunet employees, the increase in the fair value ofacquisition-    
 related contingent consideration and other acquisition-related costs.      
*** Income tax adjustment is used to adjust the GAAP provision for income   
 taxes to a Non-GAAP provision for income taxes utilizingan assumed ta
x     
 rate of 35%.                                                               
                                                                            
Reconciliation of net cash provided by (used in) operating activities to    
 free cash flow:                                                            
                                                                            
                               Three Months Ended      Nine Months Ended    
                                 September 30,           September 30,      
                            ----------------------- ----------------------- 
                                2012        2011        2012        2011    
                            ----------- ----------- ----------- ----------- 
                            (unaudited) (unaudited) (unaudited) (unaudited) 
                                                                            
Net cash provided by (used                                                  
 in) operating activities   $     3,742 $      (334)$    26,053 $      (421)
Purchase of property and                                                    
 equipment                       (2,073)     (1,630)     (6,149)     (4,344)
                            ----------- ----------- ----------- ----------- 
Free Cash Flow              $     1,669 $    (1,964)$    19,904 $    (4,765)
                            ----------- ----------- ----------- ----------- 
                                                                            
                                                                            
                                                                            
                              Sourcefire, Inc.                              
                        Supplemental Operating Data                         
                                                                            
                                                                            
                               Three Months Ended      Nine Months Ended    
                                 September 30,           September 30,      
                            ----------------------- ----------------------- 
                                2012        2011        2012        2011    
                            ----------- ----------- ----------- ----------- 
                            (unaudited) (unaudited) (unaudited) (unaudited) 
                                                                            
Number of deals in excess                                                   
 of $500,000                         26          18          51          40 
Number of deals in excess                                                   
 of $100,000                        117          87         279         207 
Number of new customers             108         121         290         281 
Percentage of channel-                                                      
 influenced deals                    35%         39%         41%         47%
Total channel partners              723         557                         
Number of full-time                                                         
 employees at end of period         560         434                         
                                                                            
Revenue Composition by                                                      
 Geography:                                                                 
United States                        70%         77%         69%         75%
International                        30%         23%         31%         25%
                            ----------- ----------- ----------- ----------- 
  Total                             100%        100%        100%        100%
                            =========== =========== =========== =========== 
                                                                            
Revenue Composition by Business                                             
 Distribution:                                                              
Existing customer product                                                   
 revenue                             36%         33%         37%         37%
New customer product                                                        
 revenue                             26%         28%         22%         20%
Technical support and                                                       
 professional services               38%         39%         41%         43%
                            ----------- ----------- ----------- ----------- 
  Total                             100%        100%        100%        100%
                            ----------- ----------- ----------- ----------- 

  
Media Contact:
Jennifer Leggio
Sourcefire
650-260-4025
jleggio@sourcefire.com 
Investor Contact:
Staci Mortenson
ICR
203-682-8273
Staci.Mortenson@icrinc.com