This summary is based on the fourth quarter fiscal 2007 earnings call conducted by McAfee Inc. (MFE: chart) on February 7, 2008.

President and CEO: Dave DeWalt
CFO and COO: Eric Brown
VP, Investor Relations: Kelsey Doherty

Key Investors Issues

- The earnings per share dropped from 20 cents in prior year to 7 cents.
- The revenue grew from $302.5 million in last year to $357 million.
- Total employee headcount at the end of the quarter was 4,247.
- For Q1 of 2008, the firm expects GAAP EPS between 24 cents and 29 cents.

Fourth Quarter Fiscal 2007 Financial Highlights

The fourth quarter of 2007 revenue was better than anticipated, exceeding the high end of the firm’s revenue guidance range.

During Q4 2007, the reported record revenue of $357 million. Included in the Q4 2007 results was a favorable year-over-year revenue impact due to foreign exchange of approximately $18 million. About 81% of total revenue came from deferred revenue on the balance sheet. The revenue over-achievement during the quarter was due to strong sales execution across all geographies and product segments.

The North American revenue was $186 million, a gain of 11% from last year’s fourth quarter. North America accounted for 52% of revenues in the fourth quarter of 2007.

The international revenue was $171 million, up 24% year-over-year. In fact, the firm registered double-digit year-over-year revenue gains across all geographies. Europe, the Middle-East and Africa grew 24%. Asia Pacific grew 39%, Latin America grew 30% and Japan grew 11%. The management believes that it is capturing significant market share internationally. International revenue accounted for 48% of the total revenue in the fourth quarter of 2007.

Corporate revenue in the fourth quarter was $215 million, up 24% year-over-year. Growth of corporate revenue is driven by gains in sales of Total Protections for Endpoint and IntruShield product lines.

Revenue from consumer business in the fourth quarter was $141 million, up 7% year-over-year. In the fourth quarter of 2007, the firm marked the 1-year anniversary of the change from an upfront retail model to a subscription model. As a result of this change, the year-over-year consumer revenue comparison was adversely impacted by approximately $9 million. Therefore, under normalized basis, the year-over-year consumer growth would have been approximately 13%. In consumer business, the company has the highest ASP levels in its direct business ever, due to greater traction of its high-end suites. In fact, the highest end consumer suite Total Protection for consumer had its best quarter ever. The firm signed or extended 14 partner agreements and launched 60 new or enhanced online partnerships. These new partners include Sprint, SogoInvest, which is a consumer online training firm, UOL, which is Brazil''s main media and online portal, and H&R Block. The firm signed a new deal with Toshiba Europe GmBH to preload McAfee consumer security on Toshiba desktops and laptops. Toshiba Europe GmBH is approximately twice the size of Toshiba US in terms of PC unit shipments. At Dell, McAfee will once again be the default and recommended security partner from February 2008 through April 2008 in all Dell regions, except the US. The downloads for McAfee SiteAdvisor''s surpassed the $100 million mark at year end, exceeding the download goal set at the very beginning of 2007.

GAAP gross profit margin for the fourth quarter were 75.8% compared with a result in Q3 2007 of 75.8% and Q4 2006 of 77.4%.

Non-GAAP gross profit margins for the fourth quarter were 79%, compared with last quarter’s 78.3% and the year ago gross profit margin of 80.1%.

Total GAAP operating expenses in Q4 2007 was $237 million, up 17% from last year’s $203 million.

Total operating expenses on a non-GAAP basis in Q4 2007 were $195 million. This is 12% higher than last year’s Q4 total of $175 million.

GAAP sales and marketing expenses were $109 million. Sales and marketing expenses on a non-GAAP basis were $104 million or 29% of revenue. Quarter-over-quarter non-GAAP sales and marketing expenses grew sequentially by approximately $17 million due to the following.
- Additional headcount in sales, approximately 75 new individuals were added in the fourth quarter of 2007 to improve the overall capacity model.
- Increased marketing program spent to promote brand awareness and increased sales expenses for commissions and bonus as a result of over-achievement on the fourth quarter sales plan.

The firm believes that these incremental investments in sales and marketing, particularly the additional direct quota carry capacity, which was dilutive in the short-term, will produce positive returns in 2008.

GAAP research and development cost were $54 million. R&D costs on a non-GAAP basis were $51 million or 14% of revenue. Quarter-over-quarter non-GAAP R&D expenses were essentially flat. The firm’s R&D efforts are continuing to pay off. During Q4 2007, McAfee added 16 new patents, bringing McAfee’s total patent portfolio to 310. The company also completed a number of scheduled major product releases, including the fully integrated ePO version of DLP or data loss prevention and the next generation IntruShield platform.

GAAP G&A expenses were $54 million. On a non-GAAP basis, G&A expenses were $40 million or 11% of revenue, up $5 million sequentially. This is due in part to legal expenses, the acquisition of SafeBoot and ongoing indemnification cost.

The GAAP operating income for Q4 is $33 million.