This summary is based on the first quarter fiscal 2008 earnings call conducted by McAfee Inc. (MFE) on April 24, 2008.
Management:
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CEO and President: David DeWalt
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Chief Accounting Officer and SVP of Finance: Keith Krzeminski
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SVP and General Manager, CSB: Todd Gebhart
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VP, IR: Kelsey Doherty
Key Investors Issues
- Revenue was $370 million, up 17% from $315 million in the prior year.
- Net income was $31.6 million or 19 cents a share, down 27% from 2007.
- The firm repurchased 3.4 million or its common stock.
First Quarter Highlights
Revenue was $370 million, up 17% from $315 million in the prior year with balanced performance across segments and geographies.
- North American revenue was $190 million, an increase of 15% from last year and accounted for 51% of the business.
- International revenue was $180 million, an increase of 20% from 2007, accounting for 49% of the business.
- Europe, the Middle East and Africa grew 20%, Asia Pacific grew 36%, Latin America grew 24%, and Japan grew 7%.
As a result of investments made in sales force and improvements in execution, the firm continues to expand its success in the corporate segment.
- Corporate revenue was $217 million, up 16% year-over-year as Total Protection for the Endpoint had another great quarter and drove many competitive displacements.
- McAfee continues to see price point increases of about 30% as it upgrades the current customers to ToPS for the Endpoint., closing 271 deals over $100,000, 37 deals over $500,000 and 8 deals over $1 million.
- Consumer had revenue of $153 million, up 19% year over year as online sales of McAfee Internet Suite and Total Protection grew more than 50% year over year.
The firm signed or extended 14 consumer agreements and launched 97 new or enhanced consumer online partnerships.
- Gross profit margins were 75.7%, compared with 77.8% in the prior year with the decrease associated with product mix and ongoing revenue share agreements with partners.
- Total operating expenses were $226 million, up 11% from last year''s $203 million reflecting the acquisitions of SafeBoot and Scan Alert.
- Research and development costs were $58 million.
Total employee headcount was 4,472, up by 225 from 4,247 employees at the end of the fourth quarter in the prior year, largely reflecting over 120 additions from the acquisition of ScanAlert and additions made to the sales force.
- Net income was $31.6 million or 19 cents a share, down 27% from $43.4 million or 27 cents a share in the prior year due to higher sales and marketing costs.
- Net accounts receivable balance was $195 million compared to the balance at the end of the comparative period of $147 million.
- DSOs were 48 days compared with 42 days in the first quarter of last year, with the increase in DSOs primarily due to the acquisition of SafeBoot, increased sales volume and the timing of orders processed.
- Deferred revenue was $1.08 billion, up 21% on a year over year basis, as short-term deferred revenue increased $36 million.
The firm ended the year with cash and marketable securities of $1.293 billion, down 4% year over year.
- McAfee used $113 million to repurchase 3.4 million shares of its own common stock and currently has $637 million in authorization available for share repurchases through July 2009.
- It generated a total operating cash flow of $65 million, using $10 million for capital spending, $49 million for the ScanAlert acquisition and generated $54 million as a result of employee stock options which were exercised.
New Agreements Secured:
- In a multi-year worldwide partnership, McAfee is shipping 60-day trials of McAfee Internet Security Suite with SiteAdvisor on Acer''s computers, starting in the second quarter of 2008.
- With Sony Computer, the firm started shipping 90-day trials of McAfee Internet Suite on Sony Corporation''s PCs for their Japanese channels.
And for Dell, it improved its positioning and will be the default and recommended security partner from May 2008 through July 2008 in all of North America, Asia Pacific and Latin American markets.
- At the same time, it will have default positioning in EMEA and recommended positioning in Japan.
- The combination of these partnerships coupled with Toshiba Europe GmbH, Cox Communications and a record setting number of first quarter partnerships in Europe positions the firm for significant growth in the consumer business.
Operational Highlights:
- The firm experienced reduced in-period revenue realization rates driving more revenue to the balance sheet, due to synergies with acquisitions such as SafeBoot and ScanAlert, an increase in the number of large transactions, and an increase in subscription revenue.
- The decline in upfront realization rates as compared to the first quarter of 2007 cost the firm approximately 2 cents of earnings per share during the quarter.
- The data encryption acquisition SafeBoot is hitting on all cylinders, with sales growing 65% year-over-year.
