Company Generates $81.7 Million in Revenue and GAAP Earnings Per Share of
$0.16 for the Fourth Quarter; Company Has Record Quarterly Orders and Books
largest deal in History of the Company
Company to Hold Conference Call at 4:30 p.m. ET
BEDFORD, Mass., Jan. 30 /PRNewswire-FirstCall/ -- RSA Security Inc.
(Nasdaq: RSAS) today reported financial results for the fourth quarter and the
year-ended December 31, 2005.
Revenue for the fourth quarter of 2005 was $81.7 million, as compared to
$83.2 million for the fourth quarter of 2004. Net income for the fourth
quarter of 2005 was $11.7 million, or $0.16 per diluted share, as compared to
$11.8 million, or $0.16 per diluted share, for the fourth quarter of 2004.
GAAP earnings per share for the fourth quarter of 2005 includes a
restructuring charge of $(0.02) and a net benefit to the Company's tax rate of
$0.01.
"We are already seeing momentum in 2006, building off of our record fourth
quarter bookings. Further, we are already realizing the benefits of the Cyota
acquisition with the integration of our sales and marketing functions
resulting in additional sales activity," said Art Coviello, president and CEO
of RSA Security. "Customers are interested in intelligent risk-based
authentication on top of their traditional token deployments, and are
embracing the value proposition that RSA Security provides as a leader in both
enterprise and consumer authentication."
Fourth-Quarter and Full Year 2005 Financial Highlights
* Revenue and Bookings: RSA Security generated $310.1 million in revenue
for the full-year 2005, as compared to $307.5 million in revenue for
the full-year 2004. RSA Security's book-to-bill ratio for the fourth
quarter was approximately 1.3 to 1. This compares to a book-to-bill
ratio of 1.1 to 1 during the fourth quarter of 2004.
* Net Income: For the full year 2005, the Company generated net income of
$42.4 million, or $0.58 per diluted share, as compared to net income of
$35.0 million, or $0.51 per diluted share, for the full year 2004.
* Deferred Revenue and Backlog: The Company closed the quarter with $86.6
million in combined deferred revenue and backlog. This is a 40%
increase from RSA Security's $62.0 million in backlog and deferred
revenue at December 31, 2004.
* Share Repurchases: For the fourth quarter of 2005, the Company
repurchased 178,750 shares of RSA Security common stock for $2.2
million. For the full year 2005, RSA Security repurchased 2.2 million
shares of stock for $29.0 million. Under the board approved share
repurchase plan, RSA Security can repurchase an additional 6.5 million
shares of RSA Security common stock through June 30, 2006.
* Cash Position: The Company closed the year with a balance of cash, cash
equivalents and marketable securities of $187.8 million. This balance
reflects the $123.2 million in cash outlays associated with the
acquisition of Cyota, Inc., net of the $5.6 million in cash and cash
equivalents on Cyota's balance sheet as of the December 30, 2005
closing of the acquisition. RSA Security's balance of cash, cash
equivalents and marketable securities was $289.7 million on December
31, 2004.
* Tax: During the fourth quarter of 2005, the Company recorded a net
benefit to its tax rate resulting in a benefit to GAAP earnings per
diluted share of $0.01. The net benefit relates primarily to tax
refunds associated with the Company's previously disclosed US Internal
Revenue Service audit related to tax years 1996 through 2002, and to
the elimination of a tax contingency reserve that the Company
determined was no longer required. These benefits were offset, in
part, by the additional tax cost associated with the repatriation of
certain foreign earnings to the United States as part of the American
Jobs Creation Act of 2004. As disclosed in the Company's quarterly
filings with the Securities and Exchange Commission, the Company
considers these events as discrete events and as such, the
corresponding tax impact is recorded only in the period in which the
events occur.
Fourth-Quarter Operational Highlights
* Customers: RSA Security shipped product to approximately 5,800 customers
in the fourth quarter, including approximately 700 new customers. The
financial services, technology, manufacturing and professional services
sectors were among the strongest vertical markets for the Company. The
Company shipped a record 1.55 million authentication credentials during
the fourth quarter, up 48% from the third quarter of 2005, the
Company's previous record quarter for credential shipments. Of the
1.55 million authentication credentials shipped during the quarter,
approximately 500,000 credentials were consumer related.
The Company also announced that during the fourth quarter it received a
$10 million RSA SecurID(R) order from Japan Net Bank. Japan Net Bank
will deploy RSA SecurID authentication credentials to all of its online
consumers over the course of the next 12 months. RSA Security has not
shipped any credentials related to this transaction and the Company
intends to begin shipping a significant number of these authentication
credentials to the financial institution in the first quarter of 2006.
Due to the subscription nature of this transaction, revenue will be
recognized over the course of five years.
* Partners: The Company announced strategic alliances with Microsoft, Sun
Microsystems, Courion and M-Tech, pairing these partners' leading
provisioning technologies with RSA Security's identity and access
management solutions. RSA Security and its strategic provisioning
partners will provide robust product integration and jointly deliver
each organization's technology expertise to customers, extending
previous product-level integration.
* Acquisitions: RSA Security announced and completed its acquisition of
Cyota, Inc., a privately-held company that delivers online security and
anti-fraud solutions to thousands of financial institutions worldwide.
The acquisition closed on December 30, 2005.
With the acquisition of Cyota, RSA Security is first-to-market with a
portfolio of solutions enabled with a risk-based, layered
authentication approach. This approach will allow customers to choose
from a range of authentication techniques -- from life questions,
watermarking and anomaly detection to digital certificates, tokens and
smart cards -- depending on the risks posed and desired convenience.
Additionally, RSA Security believes that the acquisition will enable
the Company to establish itself as a strategic hub for the consumer
marketplace, providing the ability to authenticate and protect all
aspects of online banking and e-commerce: end-users, merchants and
transactions.
As part of the acquisition, the Company is reporting additional metrics
to allow for a better understanding of the combined businesses. These
metrics equate to the total amount of contracted managed service
business anticipated to be recognized as revenue over the life of the
contract, as well as the short-term amount that is anticipated to be
recognized as revenue over the course of the next twelve months. These
metrics, which represent management's estimates, primarily relate to
Cyota's managed service offerings and are included in the accompanying
supplemental financial data table. Total estimated unrecognized
revenue from managed service contracts is $24.2 million, and total
short-term estimated unrecognized revenue from managed service
contracts is $11.4 million.
* Products: RSA Security announced RSA(R) Sign-On Manager 4.5, an
enterprise single sign-on (ESSO) solution that expands integration with
RSA SecurID(R) technology. RSA Sign-On Manager software delivers
simple and secure access to applications, improves password management,
bolsters regulatory compliance, and reduces help desk costs.
The Company also announced the RSA(R) Card Manager solution, a card
management system that enables organizations to manage the lifecycle of
authentication credentials stored on any smart chip-enabled device.
RSA Card Manager software provides a platform for businesses and
governments to implement smart card-based identity and access
management (IAM) solutions, and delivers key infrastructure that helps
U.S. federal agencies meet the Homeland Security Presidential Directive
12 (HSPD-12).
The Company also announced RSA(R) Key Manager. RSA Key Manager
software enables businesses to effectively manage the lifecycle of
encryption keys and helps them to comply with the key lifecycle
management guidelines of the Payment Card Industry (PCI) Data Security
Standard, a global initiative spearheaded by leading payment card
companies which strives to protect consumers' transaction data.
Business Outlook
A significant portion of the authentication credentials scheduled to be
shipped over the coming quarters are consumer authentication credentials. The
current guidance reflects the fact that most of these consumer authentication
credentials are sold on a subscription basis, with much of the revenue
associated with these units being recognized over longer term subscription
contracts.
Guidance for the first quarter of 2006 is only current as of today, Monday
January 30, 2006; the Company undertakes no obligation to update its
estimates.
First Quarter 2006 Financial Update
The Company is providing non-GAAP financial guidance to ensure that
investors can compare current period results to future period results. Non-
GAAP earnings per diluted share can be calculated by taking GAAP earnings per
diluted share and subtracting: the anticipated compensation charge associated
with the expensing of stock options, the anticipated restructuring charge
associated with the restructuring of the Company's engineering resources, and
the anticipated charge associated with the amortization of intangible assets
associated with the acquisition of Cyota.
* The Company anticipates revenue for the first quarter of 2006 to be in
the range of $84 million to $88 million, including the operations of
Cyota.
* The Company anticipates non-GAAP earnings per diluted share for the
first quarter of 2006 to be in the range of $0.12 to $0.16.
* The Company anticipates GAAP earnings per diluted share for the first
quarter of 2006 to be in the range of $0.04 to $0.10.
* Included in GAAP earnings per diluted share, the Company anticipates a
compensation charge in the first quarter of 2006 associated with the
expensing of stock options in accordance with FAS 123R in the range of
$3 million to $4 million, or $(0.03) to $(0.04) per diluted share.
* Also included in GAAP earnings per diluted share, the Company
anticipates a restructuring charge in the first quarter of 2006 in the
range of $2 million to $3 million, or $(0.02) to $(0.03) per diluted
share. This restructuring charge is related to the Company's
restructuring of its engineering resources. As previously disclosed,
the Company expects to incur restructuring charges related to
consolidating and relocating its engineering resources through the
fourth quarter of 2006 in the range of $10 million to $14 million.
* Also included in GAAP earnings per diluted share, the Company
anticipates a charge in the first quarter of 2006 as it relates to the
amortization of intangible assets associated with its acquisition of
Cyota. This charge is expected to be approximately $900,000 a quarter,
or $(0.01) per share.
Conference Call and Web Cast Information
RSA Security will host a conference call today at 4:30 p.m. ET. A live
Web cast of this conference call will be available on the "Investor" page of
the Company's Web site; http://www.RSASecurity.com. To access this call by
telephone, dial (866) 592-8995 or (706) 634-1223. A replay will be available
through midnight on Monday, February 6, 2006 at (800) 642-1687 or (706) 645-
9291. Both live and replay numbers have a pass code of 4028864.
About RSA Security Inc.
RSA Security Inc. is the expert in protecting online identities and
digital assets. The inventor of core security technologies for the Internet,
the company leads the way in strong authentication and encryption, bringing
trust to millions of user identities and the transactions that they perform.
RSA Security's portfolio of award-winning identity & access management
solutions helps businesses to establish who's who online -- and what they can
do.
With a strong reputation built on a 20-year history of ingenuity,
leadership and proven technologies, we serve approximately 20,000 customers
around the globe and interoperate with more than 1,000 technology and
integration partners. For more information, please visit
http://www.rsasecurity.com
RSA, BSAFE, SecurWorld and SecurID are either registered trademarks or
trademarks of RSA Security Inc. in the United States and/or other countries.
All other products and services mentioned are trademarks of their respective
companies.
This press release contains forward-looking statements regarding RSA
Security's financial performance for the first quarter of 2006. These
statements involve a number of risks and uncertainties. Some of the important
factors that could cause actual results to differ materially from those
indicated by the forward-looking statements are our ability to successfully
integrate Cyota's employees and operations, the ability to realize anticipated
synergies and cost savings as a result of the Cyota acquisition, general
global economic conditions, changes in our operating expenses, the long and
unpredictable nature of the sales cycle for some of our products, the timing
of the introduction or enhancement of our products and our competitors' and
strategic partners' products, changes in product pricing, including changes in
competitors' pricing policies, development and performance of our direct and
indirect distribution channels, delays in product development, competitive
pressures, changes in customer and market requirements and standards, market
acceptance of new products and technologies, technological changes in the
computer industry, and the risk factors detailed from time to time in RSA
Security's periodic reports and registration statements filed with the
Securities and Exchange Commission, including, without limitation, RSA
Security's Annual Report on Form 10-K filed on March 14, 2005 and its
Quarterly Report on Form 10-Q filed on November 7, 2005.
Press contact: Financial contact:
Kristin Hilf Jeremiah Sisitsky
RSA Security Inc. RSA Security Inc.
(781) 515-6312 (781) 515-6065
khilf@rsasecurity.com jsisitsky@rsasecurity.com
Condensed Consolidated Statements of Operations*
(Unaudited)
(In thousands, except per share data)
Three Months Ended Twelve Months Ended
December 31, December 31,
2005 2004 2005 2004
Revenue
Products $58,970 $63,068 $222,145 $232,497
Maintenance and
professional services 22,762 20,163 87,970 75,010
Total revenue 81,732 83,231 310,115 307,507
Cost of revenue
Products 11,998 7,883 40,240 31,931
Maintenance and
professional services 6,444 6,235 25,389 23,302
Total cost of revenue 18,442 14,118 65,629 55,233
Gross profit 63,290 69,113 244,486 252,274
Costs and expenses
Research and
development 15,063 15,767 62,523 61,887
Marketing and selling 26,915 30,079 112,113 110,248
General and
administrative 8,301 10,081 32,380 32,637
Restructurings 2,051 (818) 2,051 783
Total 52,330 55,109 209,067 205,555
Income from operations 10,960 14,004 35,419 46,719
Interest expense
and other 2,519 625 9,955 (3,278)
Income (loss) from
investing activities -- (74) -- 210
Income before
provision for
income taxes 13,479 14,555 45,374 43,651
Provision for
income taxes 1,797 2,745 2,940 8,669
Net income $11,682 $11,810 $42,434 $34,982
Basic earnings per share
Per share amount $0.16 $0.17 $0.60 $0.54
Weighted average
shares 71,013 69,792 71,052 64,309
Diluted earnings per share
Per share amount $0.16 $0.16 $0.58 $0.51
Weighted average
shares 71,013 69,792 71,052 64,309
Effect of dilutive
equity instruments 1,589 4,370 2,022 4,329
Adjusted weighted
average shares 72,602 74,162 73,074 68,638
* The statement of operations for the three months ended and the twelve
months ended December 31, 2005 and December 31, 2004 do not include
Cyota, Inc.
Condensed Consolidated Balance Sheets*
(Unaudited)
(In thousands, except share data)
December 31, December 31,
2005 2004
ASSETS
Current assets
Cash and cash equivalents $69,050 $68,210
Marketable securities 118,702 221,509
Accounts receivable (less allowance
for doubtful accounts of $1,600 in 2005
and $1,672 in 2004) 55,738 53,494
Inventory 4,813 3,465
Prepaid expenses and other assets 14,211 14,307
Total current assets 262,514 360,985
Property and equipment, net 69,764 70,700
Other assets
Deferred taxes 8,108 8,222
Intangible and other assets 41,534 12,184
Goodwill, net 275,864 172,736
Total other assets 325,506 193,142
Total assets $657,784 $624,827
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable, accrued expenses
and other liabilities $53,212 $48,911
Current portion of accrued restructurings 5,962 6,031
Income taxes accrued and payable 18,442 22,479
Deferred revenue 47,453 45,010
Total current liabilities 125,069 122,431
Accrued restructurings, long-term 9,793 13,682
Deferred revenue, long-term 7,429 6,125
Other 8,633 6,057
Total liabilities 150,924 148,295
Stockholders' equity 506,860 476,532
Total liabilities and shareholders' equity $657,784 $624,827
* The balance sheet for the period as of December 31, 2005 reflects Cyota,
Inc.
Condensed Consolidated Statements of Cash Flows*
(Unaudited)
(In thousands)
Three Months Ended Twelve Months Ended
December 31, December 31,
2005 2004 2005 2004
Cash flows from
operating activities
Net income $11,682 $11,810 $42,434 $34,982
Adjustments to
reconcile net income
to net cash provided
by operating activities:
Depreciation 3,297 2,724 12,525 11,174
Tax benefit from
exercise of stock
options 1,148 3,608 3,723 9,552
Amortization of
convertible debentures
deferred financing costs -- 59 -- 1,271
Non cash warrant
accretion -- 34 -- 1,123
Gain on sale of
investments -- (398) -- (398)
(Increase) decrease
in Crosby Finance, LLC
fair value -- 82 -- 188
Deferred taxes 2,756 1,891 3,375 1,891
Increase (decrease)
in cash from changes in:
Accounts receivable (5,684) (11,705) 335 (18,968)
Inventory (859) 152 (1,348) 546
Prepaid expenses
and other assets (1,210) (1,450) (3,803) (1,917)
Accounts payable,
accrued payroll
and other
liabilities 2,215 6,795 164 4,209
Accrued restructurings (240) (2,246) (3,958) (8,191)
Refundable income
taxes and income
taxes accrued
and payable (3,259) (5,396) (656) 1,270
Deferred revenue 5,598 8,308 3,270 16,209
Net cash provided
by operating
activities 15,444 14,268 56,061 52,941
Cash flows from
investing activities
Purchase of
marketable
securities (27,153) (176,870) (159,585) (427,878)
Sale/maturities of
marketable
securities 130,024 53,350 261,940 205,950
Purchases of
property and
equipment (4,187) (3,733) (12,150) (11,088)
Sales of investments -- 28 -- 28
Acquisition, net of
cash acquired (124,407) -- (124,407) --
Other (383) (1,061) (2,530) (1,001)
Net cash (used for)
provided by
investing
activities (26,106) (128,286) (36,732) (233,989)
Cash flows from
financing activities
Proceeds from
exercise of stock
options and
purchase plans 950 23,455 11,016 43,464
Share repurchase (2,154) -- (28,973) (911)
Net cash provided
by financing
activities (1,204) 23,455 (17,957) 42,553
Effect of exchange
rate changes on cash
and cash equivalents (168) 751 (532) (618)
Net (decrease) increase
in cash and cash
equivalents (12,034) (89,812) 840 (139,113)
Cash and cash
equivalents,
beginning of period 81,084 158,022 68,210 207,323
Cash and cash
equivalents,
end of period $69,050 $68,210 $69,050 $68,210
* The statement of cash flows for the three months ended and the twelve
months ended December 31, 2005 reflect the acquisition of Cyota, Inc.
Supplemental Financial Data
(Unaudited)
(In thousands, except per share data)
Three Months Ended
Dec 31, March 31, June 30, Sept 30, Dec 31,
2004 2005 2005 2005 2005
Revenue
Enterprise
and Consumer
solutions $73,340 $70,185 $68,700 $67,722 $76,044
Developer
solutions 9,891 5,433 7,828 8,515 5,688
Total $83,231 $75,618 $76,528 $76,237 $81,732
Products $63,068 $54,634 $54,767 $53,774 58,970
Maintenance
and
professional
services 20,163 20,984 21,761 22,463 22,762
Total $83,231 $75,618 $76,528 $76,237 $81,732
Domestic $46,731 $41,117 $42,823 $42,968 $43,265
International 36,500 34,501 33,705 33,269 38,467
Total $83,231 $75,618 $76,528 $76,237 $81,732
Statements of
Operations Data
Gross profit $69,113 $60,811 $60,273 $60,112 $63,290
Gross margin 83.0% 80.4% 78.8% 78.8% 77.4%
Total
operating
expenses $55,109 $53,443 $51,817 $51,476 $52,330
Income from
operations $14,004 $7,368 $8,456 $8,636 $10,960
Operating
margin(1) 16.8% 9.7% 11.0% 11.3% 13.4%
Net income $11,810 $7,222 $8,468 $15,063 $11,682
Diluted
earnings per
share $0.16 $0.10 $0.12 $0.21 $0.16
Other Financial Data
Gross margin
- products 87.5% 84.0% 82.0% 82.0% 79.7%
Gross margin
- maintenance
and professional
services 69.1% 71.0% 70.6% 71.2% 71.7%
Total
authentication
credentials
(2) 1,021,000 1,039,000 1,031,000 1,051,219 1,551,076
Consumer
authentication
credentials
(2) NR NR NR NR 516,195
Cash and
cash
equivalents
and marketable
securities $289,719 $282,289 $284,206 $302,689 $187,752
Day sales
outstanding
(DSO) 59 55 58 57 59
Cash flow
from
operations $15,640 $4,844 $11,750 $24,023 $15,444
Cash flow
from
operations
per diluted
share (3) $0.21 $0.06 $0.16 $0.33 $0.21
Book to bill
ratio (4) 1.1 1.0 1.0 1.0 1.3
Total deferred
revenue
balance $51,135 $48,784 $51,899 $48,846 $54,882
Total
estimated
unrecognized
revenue from
managed service
contracts (5) NR NR NR NR $24,224
Total product
and services
backlog (6) $10,828 $11,051 $10,304 $12,662 $31,673
Total NR NR NR NR $110,779
Short-term
deferred
revenue NR NR $44,317 $42,190 $47,453
Short-term
estimated
unrecognized
revenue from
managed service
contracts NR NR NR NR $11,399
Short-term
product and
services backlog NR NR NR NR $21,325
Total (7) NR NR NR NR $80,177
NR reflects metric not reported
(1) Operating margin is equal to total income from operations as a
percentage of total revenue for the period presented.
(2) Includes RSA SecurID tokens as well as software tokens, smart cards
and USB.
(3) Cash flow from operations per diluted share is calculated as cash
flow from operations divided by dilutive weighted average shares
outstanding during the period.
(4) The book to bill ratio is equal to the ratio of total orders booked
for the period as compared to total revenue for the period.
(5)* Total estimated unrecognized revenue from managed service contracts
is equal to contracted monthly fixed fees associated with the
service plus contracted monthly variable fees based on an estimated
number of units for the remaining term of the contract. Contract
terms are typically 1-3 years. Contracts are billed monthly and are
therefore excluded from deferred revenue. This metric primarily
relates to Cyota's managed service offerings.
(6)* Total product and services backlog is equal to contracted orders for
products and maintenance and professional services which have not
been fulfilled.
(7)* Short-term represents the portion of these metrics that is expected
to be recognized as revenue in the next 12 months.
* These metrics represent management's estimates. Certain of these
managed service contracts are terminable upon notice of the customer.
Condensed Consolidated Statements of Operations*
(Unaudited)
The following table sets forth certain consolidated financial data as a
percentage of our total revenue:
Three Months Ended Percentage
December 31, Increase
2005 2004 (Decrease)
in Dollars
Revenue
Products 72.2% 75.8% (6.5)%
Maintenance and
professional services 27.8 24.2 12.9
Total revenue 100.0 100.0 (1.8)
Cost of revenue
Products 14.7 9.5 52.2
Maintenance and
professional services 7.9 7.5 3.4
Total cost of revenue 22.6 17.0 30.6
Gross margin 77.4 83.0 (8.4)
Costs and expenses
Research and development 18.4 18.9 (4.5)
Marketing and selling 32.9 36.1 (10.5)
General and administrative 10.2 12.1 (17.7)
Restructuring 2.5 (0.9) (350.7)
Total 64.0 66.2 (5.0)
Income from operations 13.4 16.8 (21.7)
Interest expense and other 3.1 0.8 303.0
Income from investing activities 0.0 (0.1) (100.0)
Income before provision for
income taxes 16.5 17.5 (7.4)
Provision for income taxes 2.2 3.3 (34.5)
Net income 14.3% 14.2% (1.1)%
* The statement of operations for the three months ended December 31, 2005
and the three months ended December 31, 2004 do not include Cyota, Inc.
SOURCE RSA Security Inc.
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Related links:
http://www.rsasecurity.com
CONTACT:
Kristin Hilf, +1-781-515-6312,
khilf@rsasecurity.com, or Jeremiah Sisitsky, +1-781-515-6065,
jsisitsky@rsasecurity.com both of RSA Security Inc.
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