This summary is based on the second quarter fiscal 2007 earnings call conducted by McAfee Inc. (MFE) on July 26, 2007.
Chief Executive Officer & President: Dave DeWalt
Chief Operating Officer & Chief Financial Officer: Eric Brown
Sr. Director of Investor Relations: Kelsey Doherty
Key Investors Issues
- The EPS grew from 19 cents in the prior year quarter to 30 cents.
- Quarterly revenue grew to $314 million from $277.4 million in previous year.
- For the third quarter, the firm expects GAAP EPS to be between 23 cents and 28 cents.
Second Quarter Fiscal 2007 Financial Highlights
The second quarter revenue was $314 million, up 13% from second quarter of 2006.
North America revenue of $163 million accounted for 52% of second quarter 2007 revenue. This compares with North America revenue of $151 million or 54% of revenue in last year''s second quarter. North America revenue grew 8% year-over-year.
Outside of North America, the firm is continuing to capture market share with International revenue in the second quarter of $151 million, up 20% 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 14%. Japan grew 15%. Asia Pacific grew 53% and Latin America grew 80%. Of the total revenue, 85% came from the balance sheet. McAfee has a highly ratable business model and this provides visibility into its future revenue streams.
In addition to the numerous transactions in the Consumer and mid-market space, during the second quarter, the company closed 266 deals of more than $100,000, 24 deals over $500,000, and 11 deals of more than $1 million. In second quarter of 2006, by comparison, the company had 4 deals over $1 million.
Corporate revenue in the first quarter was $182 million, up 9% year-over-year.
The firm had solid sales of its management solutions, appliances and Total Protection Solutions or TOPS. The company is optimistic about its new 5 and 10 giga bit, next generation IntruShield appliances due later this year. Not only is the next generation IntruShield platform the first and only network intrusion prevention system appliance to deliver the highest giga bit port density in the industry, but as with all of the firm’s other appliances, McAfee tends to deliver them with best in class efficiency and quality.
The revenue from Consumer business in the second quarter was $132 million, up 19% year-over-year.
In 14 of the last 15 quarters, the firm has grown its revenue at more than double digit rates year-over-year. Revenue from on-line business was $115 million for the second quarter, up 22% and this continues to be a strategic area focus for the Consumer team.
GAAP gross profit margins were 77.3% compared with first quarter 2007 results which were 78% and second quarter 2006 results which were 79.4%.
Non-GAAP gross profit margins for the second quarter were 80.2% compared with 80.8% last quarter and 81.6% for second quarter 2006. Gross profit margins continue to be affected by growth and Consumer subscriber acquisitions through channels where McAfee pays revenue share to a partner and the slight increase in Consumer revenue weighting versus last quarter.
Total GAAP operating expenses in second quarter 2007 were $202 million, up 5% compared with last year''s $193 million.
The total operating expenses on a non-GAAP basis were $179 million in second quarter 2007, which is 6% higher than in second quarter 2006 when the firm had non-GAAP operating expenses of $168 million. The company’s annual performance assessment and base salary adjustments for employees take effect at the beginning of the second quarter and are included in these results. Quarter-over-quarter, this resulted in a $4 million increase in operating expenses.
GAAP sales and marketing expenses were $94 million. Non-GAAP sales and marketing expenses were $91 million or 29% of revenue. The quarter-over-quarter variance of $7 million in non-GAAP sales and marketing expense was due to increased marketing spend during second quarter and higher sales commissions related to special incentive activities.
