Proofpoint Announces Fourth Quarter and Full Year 2020 Financial Results

Fourth Quarter Highlights Total revenue of $275.1 million, up 13% year-over-year Billings of $374.9 million,…

Fourth Quarter Highlights

  • Total revenue of $275.1 million, up 13% year-over-year
  • Billings of $374.9 million, up 8% year-over-year
  • GAAP EPS of $(0.61) per share, Non-GAAP EPS of $0.51 per share
  • Operating cash flow of $55.7 million and free cash flow of $28.9 million

SUNNYVALE, Calif., Feb. 04, 2021 (GLOBE NEWSWIRE) — Proofpoint, Inc. (NASDAQ: PFPT), a leading next-generation security and compliance company, today announced financial results for the fourth quarter and full year ended December 31, 2020.

“Our strong fourth quarter financial results closed out a challenging year on an exceptionally positive note,” stated Gary Steele, chief executive officer of Proofpoint. “The targeted investments we’ve made in expanding the scale of our team and people-centric cybersecurity and compliance services are expected to play an important role in accelerating our growth over the course of 2021 and capture the significant market opportunity that lies ahead.” 

Fourth Quarter 2020 Financial Highlights

  • Revenue: Total revenue for the fourth quarter of 2020 was $275.1 million, an increase of 13%, compared to $243.4 million for the fourth quarter of 2019.
  • Billings: Total billings for the fourth quarter of 2020 were $374.9 million, an increase of 8%, compared to $347.2 million for the fourth quarter of 2019.
  • Gross Profit: GAAP gross profit for the fourth quarter of 2020 was $205.1 million, compared to $180.2 million for the fourth quarter of 2019. Non-GAAP gross profit for the fourth quarter of 2020 was $221.6 million, compared to $194.1 million for the fourth quarter of 2019. GAAP gross margin for the fourth quarter of 2020 was 75%, compared to 74% for the fourth quarter of 2019. Non-GAAP gross margin for the fourth quarter of 2020 was 81%, compared to 80% for the fourth quarter of 2019.
  • Operating Income (Loss): GAAP operating loss for the fourth quarter of 2020 was $(21.5) million, compared to a loss of $(22.8) million for the fourth quarter of 2019. Non-GAAP operating income for the fourth quarter of 2020 was $43.3 million, compared to $37.0 million for the fourth quarter of 2019.
  • Net Income (Loss): GAAP net loss for the fourth quarter of 2020 was $(35.1) million, or $(0.61) per share, based on 57.3 million weighted average shares outstanding. This compares to a GAAP net loss of $(28.7) million, or $(0.51) per share, based on 56.5 million weighted average shares outstanding for the fourth quarter of 2019. Non-GAAP net income for the fourth quarter of 2020 was $33.1 million, or $0.51 per share, based on 65.4 million weighted average diluted shares outstanding. This compares to a Non-GAAP net profit of $33.2 million, or $0.52 per share, based on 64.9 million weighted diluted shares outstanding for the fourth quarter of 2019. Non-GAAP earnings per share for the fourth quarters of 2020 and 2019 included the 6.0 million shares associated with the company’s convertible notes, and cash interest expense (net of tax) of $0.5 million and $0.6 million, respectively, were added back to net income as the “If-Converted” threshold during these periods was achieved.
  • Cash and Cash Flow: As of December 31, 2020, Proofpoint had cash, cash equivalents, and short-term investments of $910.3 million. The Company generated $55.7 million in net cash from operations for the fourth quarter of 2020, compared to $76.4 million during the fourth quarter of 2019. This result included $1.5 million received as leasehold improvement reimbursement related to the Company’s new corporate headquarters. Capital expenditures were $26.8 million, including $17.8 million related to the Company’s new corporate headquarters. The Company’s free cash flow for the fourth quarter of 2020 was $28.9 million, compared to $65.1 million for the fourth quarter of 2019.
  • Stock Repurchase Plan: The Company repurchased approximately 1.2 million shares at an average price of $104.38 during the fourth quarter of 2020.

“We saw exceptional demand for our services by new and existing customers in the fourth quarter, with solid momentum across our core email security and growing portfolio of emerging products,” stated Paul Auvil, chief financial officer of Proofpoint. “We were particularly pleased to exceed our profitability targets in the quarter and also with the nimble execution with our stock repurchase plan both of which demonstrate our ongoing commitment to operate with discipline, drive profitable growth and generate strong shareholder returns.”

Full Year 2020 Financial Highlights

  • Revenue: Total revenue for the full year of 2020 was $1,050.0 million, an increase of 18% compared to $888.2 million in 2019.
  • Billings: Total billings for the full year of 2020 were $1,157.3 million, an increase of 8% compared to $1,072.2 million in 2019.
  • Gross Profit: GAAP gross profit for the full year of 2020 was $774.6 million compared to $652.0 million for 2019. Non-GAAP gross profit for the full year of 2020 was $841.9 million compared to $703.7 million for 2019. GAAP gross margin for the full year of 2020 was 74% compared to 73% for 2019. Non-GAAP gross margin was 80% for the full year of 2020 compared to 79% for 2019.
  • Operating Income (Loss): GAAP operating loss for the full year of 2020 was $(95.2) million compared to a loss of $(104.9) million for 2019. Non-GAAP operating income for the full year of 2020 was $156.8 million compared to $122.2 million for 2019.
  • Net Income (Loss): GAAP net loss for the full year of 2020 was $(163.8) million, or $(2.86) per share, based on 57.3 million weighted average shares outstanding. This compares to a GAAP net loss of $(130.3) million, or $(2.33) per share, based on 55.9 million weighted average shares outstanding for 2019. Non-GAAP net income for the full year of 2020 was $128.7 million, or $1.99 per share, based on 65.6 million weighted average diluted shares outstanding. This compares to non-GAAP net income of $106.7 million, or $1.77 per share, based on 60.7 million weighted average diluted shares outstanding for 2019. Non-GAAP earnings per share for the full years of 2020 and 2019 included the shares associated with the company’s convertible notes, and cash interest expense (net of tax) of $1.9 million and $0.8 million, respectively, were added back to net income as the “If-Converted” threshold during these periods was achieved.
  • Cash Flow: The Company generated $264.5 million in net cash from operations for the full year of 2020 compared to $242.5 million during 2019. This result included $15.8 million received as leasehold improvement reimbursement related to the Company’s new corporate headquarters and also a $11.7 million cash tax payment associated with the transfer of certain intellectual property from Israel to the United States associated with the Company’s acquisition of ObserveIT. Capital expenditures were $72.4 million, including $36.0 million related to the Company’s new corporate headquarters. The Company generated free cash flow of $192.1 million for the full year of 2020 compared to $207.3 million during 2019.

Financial Outlook

This financial outlook is based on information and assumptions known as of February 4, 2021. We undertake no obligation to update these forward-looking statements as a result of new information or future events. It is Proofpoint’s policy neither to reiterate nor adjust the financial guidance provided in this release unless it is also done through another public disclosure, such as a subsequent press release or filing on Form 8-K. 

Proofpoint is providing its first quarter 2021 guidance as follows:

  • Total revenue is expected to be in the range of $280.0 million to $282.0 million.
  • GAAP gross margin is expected to be approximately 74%. Non-GAAP gross margin is expected to be approximately 80%.
  • GAAP net loss is expected to be in the range of $(36.4) million to $(32.2) million, or $(0.64) to $(0.56) per share, based on approximately 57.3 million weighted average shares outstanding. Non-GAAP net income is expected to be in the range of $25.0 million to $26.0 million, or $0.39 to $0.40 per share, using 65.6 million weighted average diluted shares outstanding.
  • Free cash flow is expected to be in the range of $80.0 million to $85.0 million. Capital expenditures are expected to be in the range of $8.0 to $9.0 million.

Proofpoint is providing its full year 2021 guidance as follows:

  • Total revenue is expected to be in the range of $1,190.0 million to $1,200.0 million.
  • GAAP gross margin is expected to be approximately 74%. Non-GAAP gross margin is expected to be 80%.
  • GAAP net loss is expected to be in the range of $(154.4) million to $(143.4) million, or $(2.67) to $(2.48) per share, based on approximately 57.9 million weighted average shares outstanding. Non-GAAP net income is expected to be in the range of $125.0 million to $130.0 million, or $1.91 to $1.99 per share, using 66.4 million weighted average diluted shares outstanding.
  • Free cash flow is expected to be in the range of $200.0 million to $210.0 million. Capital expenditures are expected to be approximately $45.0 million.

Quarterly Conference Call

Proofpoint will host a conference call today at 1:30 p.m. Pacific Time (4:30 p.m. Eastern Time) to review the company’s financial results for the fourth quarter ended December 31, 2020. To access this call, dial (800) 458-4121 for the U.S. or Canada, or (929) 477-0324 for international callers, with conference ID 8267322. A live webcast, and an archived recording of the conference call will be accessible from the Investors section of Proofpoint’s website at investors.proofpoint.com. An audio replay of this conference call will also be available through February 18, 2021, by dialing (844) 512-2921 for the U.S. or Canada or (412) 317-6671 for international callers, and entering passcode 8267322.

About Proofpoint, Inc.

Proofpoint, Inc. (NASDAQ: PFPT) is a leading cybersecurity and compliance company that protects organizations’ greatest assets and biggest risks: their people. With an integrated suite of cloud-based solutions, Proofpoint helps companies around the world stop targeted threats, safeguard their data, and make their users more resilient against cyber attacks. Leading organizations of all sizes, including more than half of the Fortune 1000, rely on Proofpoint for people-centric security and compliance solutions that mitigate their most critical risks across email, the cloud, social media, and the web. More information is available at  www.proofpoint.com.

Proofpoint is a trademark or registered trademark of Proofpoint, Inc. in the U.S. and other countries. All other trademarks contained herein are the property of their respective owners.

Forward-Looking Statements

This press release contains forward-looking statements that involve risks and uncertainties. These forward-looking statements include statements regarding momentum in the company’s business, market position, win rates and renewal rates, future growth, and future financial results. It is possible that future circumstances might differ from the assumptions on which such statements are based. Important factors that could cause results to differ materially from the statements herein include: the potential direct and indirect impact of events beyond our control such as the current coronavirus (COVID-19) pandemic on our business, financial condition and operations, including on our customers’ spending and on our expenses, supply chain, and employees; failure to maintain or increase renewals from existing customers and failure to generate increased business through existing or new channel partner relationships; uncertainties related to continued success in sales growth and market share gains; failure to convert sales opportunities into definitive customer agreements; risks associated with successful implementation of multiple integrated software products and other product functionality; competition, particularly from larger companies with more resources than Proofpoint; risks related to new target markets, new product introductions and innovation and market acceptance thereof; the ability to attract and retain key personnel; potential changes in strategy; risks associated with management of growth; lengthy sales and implementation cycles, particularly in larger organizations; the time it takes new sales personnel to become fully productive; unforeseen delays in developing new technologies and the uncertain market acceptance of new products or features; technological changes that make Proofpoint’s products and services less competitive; security breaches, which could affect our brand; the costs of litigation; the impact of changes in foreign currency exchange rates; the effect of general economic conditions, including as a result of specific economic risks in different geographies and among different industries; risks related to integrating the employees, customers and technologies of acquired businesses; assumption of unknown liabilities from acquisitions; ability to retain customers of acquired entities; and the other risk factors set forth from time to time in our filings with the SEC, including our Quarterly Report on Form 10-Q for the three months ended September 30, 2020, and the other reports we file with the SEC, copies of which are available free of charge at the SEC’s website at www.sec.gov  or on our investor relations website at https://investors.proofpoint.com/investors/financials-and-filings/quarterly-and-annual-reports/default.aspx. All forward-looking statements herein reflect our opinions only as of the date of this release, and Proofpoint undertakes no obligation, and expressly disclaims any obligation, to update forward-looking statements herein in light of new information or future events.

Computational Guidance on Earnings Per Share Estimates

Accounting principles require that EPS be computed based on the weighted average shares outstanding (“basic”), and also assuming the issuance of potentially issuable shares (such as those subject to stock options, convertible notes, etc.) if those potentially issuable shares would reduce EPS (“diluted”).

The number of shares related to options and similar instruments included in diluted EPS is based on the “Treasury Stock Method” prescribed in Financial Accounting Standards Board (“FASB”) ASC Topic 260, Earnings Per Share (“FASB ASC Topic 260”). This method assumes a theoretical repurchase of shares using the proceeds of the respective stock option exercise at a price equal to the issuer’s average stock price during the related earnings period. Accordingly, the number of shares includable in the calculation of diluted EPS in respect of stock options and similar instruments is dependent on this average stock price and will increase as the average stock price increases.

The number of shares includable in the calculation of diluted EPS in respect of convertible senior notes is based on the “If Converted” method prescribed in FASB ASC Topic 260. This method assumes the conversion or exchange of these securities for shares of common stock. In determining if convertible securities are dilutive, the interest savings (net of tax) subsequent to an assumed conversion are added back to net earnings. The shares related to a convertible security are included in diluted EPS only if EPS as otherwise calculated is greater than the interest savings, net of tax, divided by the shares issuable upon exercise or conversion of the instrument. Accordingly, the calculation of diluted EPS for these instruments is dependent on the level of net earnings.

Non-GAAP Financial Measures

We have provided in this release financial information that has not been prepared in accordance with GAAP. We use these non-GAAP financial measures internally in analyzing our financial results and believe they are useful to investors, as a supplement to GAAP measures, in evaluating our ongoing operational performance. We believe that the use of these non-GAAP financial measures provides an additional tool for investors to use in evaluating ongoing operating results and trends and in comparing our financial results with other companies in our industry, many of which present similar non-GAAP financial measures to investors.

Non-GAAP financial measures should not be considered in isolation from, or as a substitute for, financial information prepared in accordance with GAAP. Investors are encouraged to review the reconciliation of these non-GAAP financial measures to their most directly comparable GAAP financial measures below. As previously mentioned, a reconciliation of our non-GAAP financial measures to their most directly comparable GAAP measures has been provided in the financial statement tables included below in this press release.

Non-GAAP gross profit and gross margin. We define non-GAAP gross profit as GAAP gross profit, adjusted to exclude stock-based compensation expense and the amortization of intangibles associated with acquisitions. We define non-GAAP gross margin as non-GAAP gross profit divided by GAAP revenue. We consider these non-GAAP financial measures to be useful metrics for management and investors because they exclude the effect of non-cash charges that can fluctuate for Proofpoint, based on timing of equity award grants and the size, timing and purchase price allocation of acquisitions so that our management and investors can compare our recurring core business operating results over multiple periods. There are a number of limitations related to the use of non-GAAP gross profit and non-GAAP gross margin versus gross profit and gross margin, in each case, calculated in accordance with GAAP. For example, stock-based compensation has been and will continue to be for the foreseeable future a significant recurring expense in our business. Stock-based compensation is an important part of our employees’ compensation and impacts their performance. In addition, the components of the costs that we exclude in our calculation of non-GAAP gross profit and non-GAAP gross margin may differ from the components that our peer companies exclude when they report their non-GAAP results. Management compensates for these limitations by providing specific information regarding the GAAP amounts excluded from non-GAAP gross profit and non-GAAP gross margin and evaluating non-GAAP gross profit and non-GAAP gross margin together with gross profit and gross margin calculated in accordance with GAAP.

Non-GAAP operating income. We define non-GAAP operating income as operating loss, adjusted to exclude stock-based compensation expense, the amortization of intangibles, costs associated with acquisitions, litigations and facility exit costs related to the relocation of our corporate headquarters. Costs associated with acquisitions include legal, accounting, and other professional fees, as well as changes in the fair value of contingent consideration obligations. We consider this non-GAAP financial measure to be a useful metric for management and investors because it excludes the effect of stock-based compensation expense and the amortization of intangibles and costs associated with acquisitions, litigations and facility exit costs so that our management and investors can compare our recurring core business operating results over multiple periods. There are a number of limitations related to the use of non-GAAP operating income versus operating loss calculated in accordance with GAAP. For example, as noted above, non-GAAP operating income excludes stock-based compensation expense. In addition, the components of the costs that we exclude in our calculation of non-GAAP operating income may differ from the components that our peer companies exclude when they report their non-GAAP results of operations, and some of these items are cash-based. Management compensates for these limitations by providing specific information regarding the GAAP amounts excluded from non-GAAP operating income and evaluating non-GAAP operating income together with operating loss calculated in accordance with GAAP.

Non-GAAP net income. We define non-GAAP net income as net loss, adjusted to exclude stock-based compensation expense, amortization of intangibles, costs associated with acquisitions, litigations, facility exit costs related to the relocation of our corporate headquarters, non-cash interest expense related to the convertible debt discount and issuance costs for the convertible debt offering, and tax effects. We consider this non-GAAP financial measure to be a useful metric for management and investors for the same reasons that we use non-GAAP operating income.

Our current and deferred income tax expense is commensurate with the non-GAAP measure of profitability using a non-GAAP tax rate of 17% for the three and twelve months ended December 31, 2020 and 2019. We use an annual projected tax rate in a computation of the non-GAAP income tax provision, and exclude the impact of stock-based compensation, intangible amortization expenses, costs associated with acquisitions, litigations, facility exit costs related to the relocation of our corporate headquarters, and non-cash interest expense related to the debt discount and issuance costs for the convertible notes. The projected rate considers other factors such as our current operating structure, existing tax positions in various jurisdictions, and key legislation in major jurisdictions where we operate.

Billings. We define billings as revenue recognized plus the change in deferred revenue and customer prepayments less change in unbilled accounts receivable from the beginning to the end of the period, but excluding additions to deferred revenue and customer prepayments from acquisitions. Customer prepayments represent billed amounts for which the contract can be terminated and the customer has a right of refund. Unbilled accounts receivable represent amounts for which the company has recognized revenue, pursuant to its revenue recognition policy, for subscription software already delivered and professional services already performed, but billed in arrears and for which the company believes it has an unconditional right to payment. We consider billings to be a useful metric for management and investors because billings drive deferred revenue, which is an important indicator of the health and visibility of our business, and has historically represented a majority of the quarterly revenue that we recognize. There are a number of limitations related to the use of billings versus revenue calculated in accordance with GAAP. Billings include amounts that have not yet been recognized as revenue, but exclude additions to deferred revenue from acquisitions. We may also calculate billings in a manner that is different from other companies that report similar financial measures. Management compensates for these limitations by providing specific information regarding GAAP revenue and evaluating billings together with revenues calculated in accordance with GAAP.

Free cash flow. We define free cash flow as net cash provided by operating activities minus capital expenditures. We consider free cash flow to be a liquidity measure that provides useful information to management and investors about the amount of cash generated by the business that, after the acquisition of property and equipment, can be used for strategic opportunities, including investing in our business, making strategic acquisitions, and strengthening the balance sheet. Analysis of free cash flow facilitates management’s comparisons of our operating results to competitors’ operating results. A limitation of using free cash flow versus the GAAP measure of net cash provided by operating activities as a means for evaluating our company is that free cash flow does not represent the total increase or decrease in the cash balance from operations for the period because it excludes cash used for capital expenditures during the period. Management compensates for this limitation by providing information about our capital expenditures on the face of the cash flow statement and in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources” section of our quarterly and annual reports filed with the SEC.


Proofpoint, Inc.
Consolidated Statements of Operations
(In thousands, except per share amounts)
(Unaudited)





































    Three Months Ended
December 31,
  Twelve Months Ended
December 31,
    2020   2019   2020   2019
Revenue:                                
Subscription   $ 271,412     $ 240,367     $ 1,031,045     $ 875,006  
Hardware and services     3,717       3,062       18,965       13,184  
Total revenue     275,129       243,429       1,050,010       888,190  
Cost of revenue:(1)(2)                                
Subscription     61,430       55,789       240,615       206,997  
Hardware and services     8,602       7,473       34,844       29,217  
Total cost of revenue     70,032       63,262       275,459       236,214  
Gross profit     205,097       180,167       774,551       651,976  
Operating expense:(1)(2)                                
Research and development     71,559       61,969       283,799       230,463  
Sales and marketing     127,500       111,374       488,235       416,717  
General and administrative     27,525       29,633       97,713       109,727  
Total operating expense     226,584       202,976       869,747       756,907  
Operating loss     (21,487 )     (22,809 )     (95,196 )     (104,931 )
Interest expense     (9,202 )     (8,828 )     (36,241 )     (12,526 )
Other (expense) income, net     (2,862 )     3,544       548       7,109  
Loss before income taxes     (33,551 )     (28,093 )     (130,889 )     (110,348 )
Provision for income taxes     (1,551 )     (641 )     (32,920 )     (19,917 )
Net loss   $ (35,102 )   $ (28,734 )   $ (163,809 )   $ (130,265 )
Net loss per share, basic and diluted   $ (0.61 )   $ (0.51 )   $ (2.86 )   $ (2.33 )
Weighted average shares outstanding, basic and diluted     57,335       56,474       57,324       55,902  
                                 
(1) Includes stock-based compensation expense as follows:                                
  Cost of subscription revenue   $ 4,662     $ 4,303     $ 20,571     $ 16,966  
  Cost of hardware and services revenue     1,288       998       5,469       4,001  
  Research and development     15,006       12,983       63,504       50,739  
  Sales and marketing     19,039       15,790       74,568       61,858  
  General and administrative     7,771       9,897       22,587       42,761  
  Total stock-based compensation expense   $ 47,766     $ 43,971     $ 186,699     $ 176,325  
(2) Includes intangible amortization expense as follows:                                
  Cost of subscription revenue   $ 10,591     $ 8,607     $ 41,277     $ 30,760  
  Sales and marketing     3,821       4,085       16,228       14,888  
  Total intangible amortization expense   $ 14,412     $ 12,692     $ 57,505     $ 45,648  

Proofpoint, Inc.
Consolidated Balance Sheets
(In thousands, except per share amounts)
(Unaudited)









































    December 31,   December 31,
    2020   2019
Assets                
Current assets:                
Cash and cash equivalents   $ 910,279     $ 847,555  
Short-term investments           43,385  
Accounts receivable, net     255,390       265,741  
Inventory     317       1,249  
Deferred product costs     3,480       2,723  
Deferred commissions     57,779       47,250  
Prepaid expenses and other current assets     32,493       22,081  
Total current assets     1,259,738       1,229,984  
Property and equipment, net     111,030       73,512  
Operating lease right-of-use assets     182,228       51,852  
Long-term deferred product costs     420       581  
Goodwill     688,454       687,517  
Intangible assets, net     130,392       186,023  
Long-term deferred commissions     108,762       90,305  
Other assets     17,686       17,737  
Total assets   $ 2,498,710     $ 2,337,511  
Liabilities and Stockholders’ Equity                
Current liabilities:                
Accounts payable   $ 2,233     $ 16,311  
Accrued liabilities     132,187       119,423  
Operating lease liabilities     28,560       20,202  
Deferred revenue     702,248       615,874  
Total current liabilities     865,228       771,810  
Convertible senior notes     783,561       749,620  
Long-term operating lease liabilities     178,506       36,223  
Other long-term liabilities     39,639       19,172  
Long-term deferred revenue     190,032       168,189  
Total liabilities     2,056,966       1,745,014  
Stockholders’ equity                
Common stock, $0.0001 par value; 200,000 shares authorized; 58,513 shares issued and 57,178 shares outstanding at December 31, 2020; 56,784 shares issued and outstanding at December 31, 2019     6       6  
Additional paid-in capital     1,470,497       1,318,084  
Treasury stock, at cost; 1,335 shares at December 31, 2020     (139,356 )      
Accumulated other comprehensive income           1  
Accumulated deficit     (889,403 )     (725,594 )
Total stockholders’ equity     441,744       592,497  
Total liabilities and stockholders’ equity   $ 2,498,710     $ 2,337,511  

Proofpoint, Inc.
Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)













































    Three Months Ended
December 31,
  Twelve Months Ended
December 31,
    2020   2019   2020   2019
Cash flows from operating activities                                
Net loss   $ (35,102 )   $ (28,734 )   $ (163,809 )   $ (130,265 )
Adjustments to reconcile net loss to net cash provided by operating activities:                                
Depreciation and amortization     24,704       21,875       95,965       80,332  
Stock-based compensation     47,766       43,971       186,699       176,325  
Amortization of debt issuance costs and accretion of debt discount     8,627       8,253       33,941       11,708  
Amortization of deferred commissions     16,724       13,981       62,776       50,415  
Noncash lease costs     7,959       6,123       27,229       23,339  
Deferred income taxes     (715 )     123       (1,982 )     (2,371 )
Other     2,559       261       3,239       1,855  
Changes in assets and liabilities, net of effect of acquisitions:                                
Accounts receivable     (74,910 )     (56,030 )     9,264       (62,239 )
Inventory     28       (823 )     931       (768 )
Deferred product costs     (643 )     (879 )     (595 )     (1,203 )
Deferred commissions     (35,416 )     (29,576 )     (91,763 )     (80,590 )
Prepaid expenses     (6,775 )     (2,419 )     (11,217 )     (7,915 )
Other current assets     171       (457 )     (228 )     57  
Long-term assets     344       377       171       (499 )
Accounts payable     (3,750 )     (962 )     (13,321 )     (3,569 )
Accrued liabilities     10,231       5,161       43,844       33,191  
Operating lease liabilities     (4,758 )     (6,604 )     (24,874 )     (24,529 )
Deferred revenue     98,637       102,760       108,218       179,234  
Net cash provided by operating activities     55,681       76,401       264,488       242,508  
Cash flows from investing activities                                
Proceeds from maturities of short-term investments           11,936       63,093       93,838  
Purchase of short-term investments           (23,919 )     (19,876 )     (90,955 )
Purchase of property and equipment     (26,798 )     (11,337 )     (72,420 )     (35,193 )
Receipts from escrow account                 154        
Acquisitions of business, net of cash and restricted cash acquired           (212,652 )     (2,720 )     (317,155 )
Net cash used in investing activities     (26,798 )     (235,972 )     (31,769 )     (349,465 )
Cash flows from financing activities                                
Proceeds from issuance of common stock     15,270       12,573       34,250       28,091  
Withholding taxes related to restricted stock net share settlement     (28,513 )     (24,416 )     (69,421 )     (66,006 )
Proceeds from issuance of convertible senior notes, net of costs                       901,293  
Purchase of capped calls                       (84,640 )
Repurchases of common stock     (125,352 )           (139,356 )      
Net cash (used in) provided by financing activities     (138,595 )     (11,843 )     (174,527 )     778,738  
Effect of exchange rate changes on cash, cash equivalents and restricted cash     2,002       479       2,852       (26 )
Net (decrease) increase in cash, cash equivalents and restricted cash     (107,710 )     (170,935 )     61,044       671,755  
Cash, cash equivalents and restricted cash                                
Beginning of period     1,026,661       1,028,842       857,907       186,152  
End of period   $ 918,951     $ 857,907     $ 918,951     $ 857,907  

Reconciliation of Non-GAAP Measures
(In thousands, except per share amounts)
(Unaudited) 








































    Three Months Ended   Twelve Months Ended
    December 31,   December 31,
    2020   2019   2020   2019
                                 
GAAP gross profit   $ 205,097     $ 180,167     $ 774,551     $ 651,976  
GAAP gross margin     75 %     74 %     74 %     73 %
Plus:                                
Stock-based compensation expense     5,950       5,301       26,040       20,967  
Intangible amortization expense     10,591       8,607       41,277       30,760  
Non-GAAP gross profit     221,638       194,075       841,868       703,703  
Non-GAAP gross margin     81 %     80 %     80 %     79 %
                                 
GAAP operating loss     (21,487 )     (22,809 )     (95,196 )     (104,931 )
Plus:                                
Stock-based compensation expense     47,766       43,971       186,699       176,325  
Intangible amortization expense     14,412       12,692       57,505       45,648  
Acquisition-related expenses     14       2,394       857       3,303  
Litigation-related expenses     2,009       753       5,540       1,880  
Facility exit costs     594             1,383        
Non-GAAP operating income     43,308       37,001       156,788       122,225  
                                 
GAAP net loss     (35,102 )     (28,734 )     (163,809 )     (130,265 )
Plus:                                
Stock-based compensation expense     47,766       43,971       186,699       176,325  
Intangible amortization expense     14,412       12,692       57,505       45,648  
Acquisition-related expenses     14       2,394       857       3,303  
Litigation-related expenses     2,009       753       5,540       1,880  
Facility exit costs     594             1,383        
Interest expense – debt discount and issuance costs     8,627       8,253       33,941       11,708  
Income tax expense (1)     (5,227 )     (6,154 )     6,564       (1,931 )
Non-GAAP net income     33,093       33,175       128,680       106,668  
Add interest expense of convertible senior notes, net of tax (2)     478       575       1,909       818  
Numerator for non-GAAP EPS calculation   $ 33,571     $ 33,750     $ 130,589     $ 107,486  
Non-GAAP net income per share – diluted   $ 0.51     $ 0.52     $ 1.99     $ 1.77  
                                 
GAAP weighted average shares used to compute net loss per share, diluted     57,335       56,474       57,324       55,902  
Dilutive effect of convertible senior notes (2)     5,975       5,975       5,975       2,144  
Dilutive effect of employee equity incentive plan awards (3)     2,134       2,486       2,323       2,668  
Non-GAAP weighted average shares used to compute net income per share, diluted     65,444       64,935       65,622       60,714  

(1) The Company’s current and deferred income tax expense commensurate with the non-GAAP measure of profitability using non-GAAP tax rate of 17% for the three and twelve months ended December 31, 2020 and 2019. The Company uses annual projected tax rate in its computation of the non-GAAP income tax provision, and excludes the direct impact of stock-based compensation, intangible amortization expenses, costs associated with acquisitions, litigations, facility exit costs related to the relocation of our corporate headquarters, and non-cash interest expense related to the debt discount and issuance costs for the convertible notes.

(2) The Company uses the if-converted method to compute diluted earnings per share with respect to its convertible senior notes. There was no add-back of interest expense or additional dilutive shares related to the convertible senior notes where the effect was anti-dilutive.

(3) The Company uses the treasury method to compute the dilutive effect of employee equity incentive plan awards. 

Reconciliation of Total Revenue to Billings
(In thousands)
(Unaudited)

















    Three Months Ended   Twelve Months Ended
    December 31,   December 31,
      2020       2019       2020       2019  
                                 
Total revenue   $ 275,129     $ 243,429     $ 1,050,010     $ 888,190  
Deferred revenue and customer prepayments                                
Ending     904,126       797,173       904,126       797,173  
Beginning     804,197       688,105       797,173       605,073  
Net Change     99,929       109,068       106,953       192,100  
Unbilled accounts receivable                                
Ending     1,877       2,255       1,877       2,255  
Beginning     1,756       4,060       2,255       1,276  
Net Change     (121 )     1,805       378       (979 )
Less:                                
Deferred revenue and customer prepayments contributed by acquisitions           (7,152 )           (7,152 )
Billings   $ 374,937     $ 347,150     $ 1,157,341     $ 1,072,159  

Reconciliation of GAAP Cash Flows from Operations to Free Cash Flows
(In thousands)
(Unaudited)









    Three Months Ended   Twelve Months Ended
    December 31,   December 31,
    2020   2019   2020   2019
                                 
GAAP cash flows provided by operating activities   $ 55,681     $ 76,401     $ 264,488     $ 242,508  
Less:                                
Purchases of property and equipment     (26,798 )     (11,337 )     (72,420 )     (35,193 )
Non-GAAP free cash flows   $ 28,883     $ 65,064     $ 192,068     $ 207,315  

Reconciliation of Non-GAAP Measures to Guidance
(In millions, except per share amount)
(Unaudited)





































    Three Months Ending   Year Ending
    March 31,   December 31,
    2021   2021
         
Total revenue   $280.0 – $282.0   $1,190.0 – $1,200.0
         
GAAP gross profit   206.7 – 208.7   878.6 – 887.3
GAAP gross margin   74%   74%
Plus:        
Stock-based compensation expense   6.7 – 6.3   32.5 – 31.8
Intangible amortization expense   10.6   40.9
Non-GAAP gross profit   224.0 – 225.6   952.0 – 960.0
Non-GAAP gross margin   80%   80%
         
GAAP net loss   (36.4) – (32.2)   (154.4) – (143.4)
Plus:        
Stock-based compensation expense   48.0 – 45.0   232.0- 227.0
Intangible amortization expense   13.9   54.3
Litigation-related expenses   1.7   7.4
Interest expense – debt issuance costs   1.0   3.8
Income tax expense   (3.2) – (3.4)   (18.1) – (19.1)
Non-GAAP net income   25.0 – 26.0   125.0 – 130.0
Add interest expense of convertible senior notes, net of tax (if dilutive)   0.5   1.9
Numerator for non-GAAP EPS calculation   $25.5 – $26.5   $126.9 – $131.9
Non-GAAP net income per share – diluted   $0.39 – $0.40   $1.91 – $1.99
Non-GAAP weighted average shares used to compute net income per share, diluted   65.6   66.4
         
         
    Three Months Ending   Year Ending
    March 31,   December 31,
    2021   2021
         
GAAP cash flows provided by operating activities   $88.0 – $94.0   $245.00 – $255.0
Less:        
Purchases of property and equipment   (8.0) – (9.0)   (45.0)
Non-GAAP free cash flows   $80.0 – $85.0   $200.0 – $210.0



Media Contact

Kristy Campbell
Proofpoint, Inc.
408-517-4710
[email protected]

Investor Contact

Jason Starr
Proofpoint, Inc.
408-585-4351
[email protected]