This summary is based on the third quarter fiscal 2007 earnings call conducted by McAfee Inc. (MFE) on October 25, 2007.
CEO & President: Dave DeWalt
COO & CFO: Eric Brown
Sr. Director IR: Kelsey Doherty
Key Investors Issues
- The earnings per share rose to 38 cents from 19 cents in prior year.
- Quarterly revenue rose to $322 million from $287.8 million.
- For the fourth quarter, the company expects revenue of $330 million to $350 million.
Third Quarter Fiscal 2007 Financial Highlights
Revenue was $322 million, up 12% over the same quarter last year.
North American revenue was $165 million in the quarter. This accounted for 51% of third quarter 2007 revenue; this compares with North American revenue of $162 million or 56% of revenue in last year’s third quarter. This shift in the percentage of revenue reflects a very strong growth in international business.
International revenue in third quarter was $157 million, up 25% 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 17%; Japan grew 41%; Asia-Pacific grew 38% and Latin America grew 72%.
Corporate revenue in the third quarter was $186 million, up 11% year over year. Growth of corporate revenue was due to strong performance in the systems business, including total protection solutions for enterprises and small and medium businesses, as well as strength in network solutions sales. During the quarter, the firm recorded numerous transactions in the consumer and mid-market space. In addition, in enterprise, during Q3, the firm closed 271 deals of more than $100 thousand, 22 deals over $500 million and 8 deals of over $1 million. The firm also closed the largest deal in McAfee’s history in excess of $5 million.
The
consumer revenue from consumer business in the third quarter was $136 million, up 14% year over year. In fifteen out of the last sixteen quarters, the firm has grown its consumer revenue at more than double digit rates year over year. This quarter, the company witnessed double digit revenue growth in both online and retail businesses.
In the third quarter of 2007, the firm had a favorable revenue impact due to FX; the total impact was $8 million year over year for the quarter for approximately 3% of reported revenue. It is important to note that of the total revenue during the third quarter, 85% came from deferred revenue on the balance sheet. McAfee has a highly ratable business model and this continues to provide visibility into the future revenue streams.
The firm reported net income on a GAAP basis of $63 million or 38 cents per share on a diluted basis.
Year over year, the firm increased its GAAP earnings per share by 104%. The third quarter net income on a non-GAAP basis was $72 million or 44 cents per share on a diluted basis. Year over year, the firm increased its non-GAAP earnings per share by 22%.
GAAP gross profit margins for the quarter were 75.8% compared with Q2 2007 results which were 77.3% and Q3 2006 results which were 78%.
Non-GAAP gross profit margins for the third quarter were 78.3% compared with 80.2% last quarter and 80.2% for Q3 2006. Gross profit margins for the quarter were impacted by an increase in secure content management and IntruShield hardware sales and continuing growth consumer subscriber acquisitions through channels where McAfee pays a revenue share to a partner.
Total GAAP operating expenses in Q3 2007 were $198 million, up 5% compared with last year’s $188 million.
Meanwhile, total operating expenses on a non-GAAP basis were $173 million in Q3 2007, which is 6% higher than last year’s Q3 2006, when the firm had non-GAAP operating expenses of $163 million.
GAAP
sales and marketing expenses were $91 million, non-GAAP sales and marketing expenses were $87 million or 27% of revenue. Quarter over quarter non-GAAP sales and marketing expenses decreased by approximately $4 million.
GAAP
research and development costs were $54 million and on a non-GAAP basis, research and development costs were $51 million, or 16% of revenue. Quarter over quarter non-GAAP R&D expenses were sequentially flat. The firm will continue to invest in its technology and engineering teams, as it works to build and deliver solutions to its customers that out-innovate the competition. As it implements its strategies, the company is placing a great deal of emphasis on the development of intellectual property. McAfee’s R&D efforts are continuing to pay off. During Q3 2007, the firm added 15 new patents, bringing McAfee’s total patent portfolio to 294 patents.
GAAP
G&A expenses were $38 million; non-GAAP G&A expenses were $34 million or 11% of revenue declining $2 million sequentially due to lower outside services fees.
