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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended June 30, 2019

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Transition Period from____to____

Commission File Number 001-35506

PROOFPOINT, INC.

(Exact name of Registrant as specified in its charter)

 

Delaware

 

51-0414846

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. employer

identification no.)

892 Ross Drive

Sunnyvale, California

 

94089

(Address of principal executive offices)

 

(Zip Code)

 

(408517-4710

 

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock

PFPT

NASDAQ

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES NO

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). YES   NO

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

 

Accelerated filer

Non-accelerated filer

 

 

Smaller reporting company

 

 

 

 

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No

Shares of Proofpoint, Inc. common stock, $0.0001 par value per share, outstanding as of July 19, 2019: 56,069,733 shares.

 


Table of Contents

 

TABLE OF CONTENTS

 

 

 

Page

PART I. FINANCIAL INFORMATION

 

 

 

 

 

ITEM 1. FINANCIAL STATEMENTS (UNAUDITED):

 

3

 

 

 

Condensed Consolidated Balance Sheets as of June 30, 2019 and December 31, 2018

 

3

 

 

 

Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2019 and 2018

 

4

 

 

 

Condensed Consolidated Statements of Comprehensive Loss for the Three and Six Months Ended June 30, 2019 and 2018

 

5

 

 

 

Condensed Consolidated Statements of Stockholders' Equity for the Three and Six Months Ended June 30, 2019 and 2018

 

6

 

 

 

Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2019 and 2018

 

8

 

 

 

Notes to Condensed Consolidated Financial Statements

 

10

 

 

 

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

28

 

 

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

40

 

 

 

ITEM 4. CONTROLS AND PROCEDURES

 

41

 

 

 

PART II. OTHER INFORMATION

 

 

 

 

 

ITEM 1. LEGAL PROCEEDINGS

 

42

 

 

 

ITEM 1A. RISK FACTORS

 

42

 

 

 

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

57

 

 

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

 

57

 

 

 

ITEM 4. MINE SAFETY DISCLOSURES

 

57

 

 

 

ITEM 5. OTHER INFORMATION

 

57

 

 

 

ITEM 6. EXHIBITS

 

58

 

 

 

SIGNATURES

 

59

 

 

 

2


Table of Contents

 

PART I. FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS.

Proofpoint, Inc.

Condensed Consolidated Balance Sheets

(In thousands, except per share amounts)

(Unaudited)

 

 

 

June 30, 2019

 

 

December 31, 2018

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

149,697

 

 

$

185,392

 

Short-term investments

 

 

33,008

 

 

 

46,307

 

Accounts receivable, net

 

 

170,998

 

 

 

199,194

 

Inventory

 

 

356

 

 

 

481

 

Deferred product costs

 

 

1,902

 

 

 

1,800

 

Deferred commissions

 

 

40,208

 

 

 

37,391

 

Prepaid expenses and other current assets

 

 

21,300

 

 

 

16,872

 

Total current assets

 

 

417,469

 

 

 

487,437

 

Property and equipment, net

 

 

70,688

 

 

 

70,627

 

Operating lease right-of-use assets

 

 

52,156

 

 

 

 

Long-term deferred product costs

 

 

296

 

 

 

303

 

Goodwill

 

 

543,143

 

 

 

460,425

 

Intangible assets, net

 

 

136,207

 

 

 

136,645

 

Long-term deferred commissions

 

 

74,479

 

 

 

69,989

 

Other assets

 

 

15,426

 

 

 

7,592

 

Total assets

 

$

1,309,864

 

 

$

1,233,018

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

18,567

 

 

$

20,237

 

Accrued liabilities

 

 

71,336

 

 

 

90,719

 

Deferred rent

 

 

 

 

 

829

 

Operating lease liabilities

 

 

22,510

 

 

 

 

Deferred revenue

 

 

515,048

 

 

 

490,296

 

Total current liabilities

 

 

627,461

 

 

 

602,081

 

Long-term deferred rent

 

 

 

 

 

3,757

 

Long-term operating lease liabilities

 

 

34,461

 

 

 

 

Other long-term liabilities

 

 

9,223

 

 

 

6,812

 

Long-term deferred revenue

 

 

113,431

 

 

 

107,834

 

Total liabilities

 

 

784,576

 

 

 

720,484

 

Commitments and contingencies (Note 7)

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

Convertible preferred stock, $0.0001 par value; 5,000 shares

   authorized; no shares issued and outstanding

 

 

 

 

 

 

Common stock, $0.0001 par value; 200,000 shares authorized; 56,043

   and 55,149 shares issued and outstanding at June 30, 2019 and

   December 31, 2018, respectively

 

 

6

 

 

 

6

 

Additional paid-in capital

 

 

1,177,800

 

 

 

1,107,953

 

Accumulated other comprehensive income (loss)

 

 

2

 

 

 

(7

)

Accumulated deficit

 

 

(652,520

)

 

 

(595,418

)

Total stockholders’ equity

 

 

525,288

 

 

 

512,534

 

Total liabilities and stockholders’ equity

 

$

1,309,864

 

 

$

1,233,018

 

 

See accompanying Notes to the Condensed Consolidated Financial Statements.

3


Table of Contents

 

Proofpoint, Inc.

Condensed Consolidated Statements of Operations

(In thousands, except per share amounts)

(Unaudited)

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Subscription

 

$

210,780

 

 

$

169,019

 

 

$

410,364

 

 

$

327,806

 

Hardware and services

 

 

3,659

 

 

 

2,856

 

 

 

7,012

 

 

 

6,530

 

Total revenue

 

 

214,439

 

 

 

171,875

 

 

 

417,376

 

 

 

334,336

 

Cost of revenue:(1)(2)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Subscription

 

 

50,648

 

 

 

45,618

 

 

 

98,900

 

 

 

87,816

 

Hardware and services

 

 

7,180

 

 

 

5,154

 

 

 

14,171

 

 

 

10,013

 

Total cost of revenue

 

 

57,828

 

 

 

50,772

 

 

 

113,071

 

 

 

97,829

 

Gross profit

 

 

156,611

 

 

 

121,103

 

 

 

304,305

 

 

 

236,507

 

Operating expense:(1)(2)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

 

55,185

 

 

 

47,527

 

 

 

108,434

 

 

 

91,259

 

Sales and marketing

 

 

102,837

 

 

 

84,911

 

 

 

199,841

 

 

 

162,808

 

General and administrative

 

 

27,881

 

 

 

19,029

 

 

 

53,706

 

 

 

36,554

 

Total operating expense

 

 

185,903

 

 

 

151,467

 

 

 

361,981

 

 

 

290,621

 

Operating loss

 

 

(29,292

)

 

 

(30,364

)

 

 

(57,676

)

 

 

(54,114

)

Interest income (expense)

 

 

1,068

 

 

 

(3,187

)

 

 

2,246

 

 

 

(6,008

)

Other expense, net

 

 

(409

)

 

 

(633

)

 

 

(861

)

 

 

(290

)

Loss before income taxes

 

 

(28,633

)

 

 

(34,184

)

 

 

(56,291

)

 

 

(60,412

)

(Provision for) benefit from income taxes

 

 

(280

)

 

 

(114

)

 

 

(900

)

 

 

13,958

 

Net loss

 

$

(28,913

)

 

$

(34,298

)

 

$

(57,191

)

 

$

(46,454

)

Net loss per share, basic and diluted

 

$

(0.52

)

 

$

(0.67

)

 

$

(1.03

)

 

$

(0.92

)

Weighted average shares outstanding, basic and diluted

 

 

55,768

 

 

 

50,935

 

 

 

55,553

 

 

 

50,721

 

 

(1) Includes stock-based compensation expense as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of subscription revenue

 

$

4,269

 

 

$

3,448

 

 

$

8,144

 

 

$

6,899

 

Cost of hardware and services revenue

 

$

1,054

 

 

$

571

 

 

$

1,960

 

 

$

1,162

 

Research and development

 

$

12,522

 

 

$

9,986

 

 

$

24,021

 

 

$

20,021

 

Sales and marketing

 

$

15,799

 

 

$

12,382

 

 

$

29,553

 

 

$

23,884

 

General and administrative

 

$

12,006

 

 

$

7,410

 

 

$

22,993

 

 

$

12,903

 

 

 

(2) Includes intangible amortization expense as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of subscription revenue

 

$

7,505

 

 

$

7,244

 

 

$

14,267

 

 

$

13,020

 

Research and development

 

$

 

 

$

15

 

 

$

 

 

$

30

 

Sales and marketing

 

$

3,634

 

 

$

3,982

 

 

$

7,171

 

 

$

6,397

 

 

 

See accompanying Notes to the Condensed Consolidated Financial Statements.

 

 

 

 

 

 

 

 

 

4


Table of Contents

 

Proofpoint, Inc.

Condensed Consolidated Statements of Comprehensive Loss

(In thousands)

(Unaudited)

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Net loss

 

$

(28,913

)

 

$

(34,298

)

 

$

(57,191

)

 

$

(46,454

)

Other comprehensive income, net of tax:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized gain on short-term investments, net

 

 

1

 

 

 

1

 

 

 

9

 

 

 

8

 

Comprehensive loss

 

$

(28,912

)

 

$

(34,297

)

 

$

(57,182

)

 

$

(46,446

)

 

See accompanying Notes to the Condensed Consolidated Financial Statements.

5


Table of Contents

 

Proofpoint, Inc.

Condensed Consolidated Statements of Stockholders’ Equity

(In thousands, except per share amounts)

(Unaudited)

 

 

 

Three months ended June 30, 2019

 

 

 

Common Stock

 

 

Additional

Paid-In

 

 

Accumulated

Other

Comprehensive

 

 

Accumulated

 

 

Total

Stockholders’

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Income (Loss)

 

 

Deficit

 

 

Equity

 

Balances at March 31, 2019

 

 

55,607

 

 

$

6

 

 

$

1,130,711

 

 

$

1

 

 

$

(623,607

)

 

$

507,111

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(28,913

)

 

 

(28,913

)

Unrealized gain on short-term

   investments

 

 

 

 

 

 

 

 

 

 

 

1

 

 

 

 

 

 

1

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

42,207

 

 

 

 

 

 

 

 

 

42,207

 

Acquisition of Meta Networks, Ltd. (Note 3)

 

 

72

 

 

 

 

 

 

446

 

 

 

 

 

 

 

 

 

446

 

Common stock issued

 

 

442

 

 

 

 

 

 

13,587

 

 

 

 

 

 

 

 

 

13,587

 

Tax withholding upon vesting of

   restricted stock awards

 

 

(78

)

 

 

 

 

 

(9,151

)

 

 

 

 

 

 

 

 

(9,151

)

Balances at June 30, 2019

 

 

56,043

 

 

$

6

 

 

$

1,177,800

 

 

$

2

 

 

$

(652,520

)

 

$

525,288

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six months ended June 30, 2019

 

 

 

Common Stock

 

 

Additional

Paid-In

 

 

Accumulated

Other

Comprehensive

 

 

Accumulated

 

 

Total

Stockholders’

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Income (Loss)

 

 

Deficit

 

 

Equity

 

Balances at December 31, 2018

 

 

55,149

 

 

$

6

 

 

$

1,107,953

 

 

$

(7

)

 

$

(595,418

)

 

$

512,534

 

Cumulative effect of adjustment from

   adoption of ASC 842

 

 

 

 

 

 

 

 

 

 

 

 

 

 

89

 

 

 

89

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(57,191

)

 

 

(57,191

)

Unrealized gain on short-term

   investments

 

 

 

 

 

 

 

 

 

 

 

9

 

 

 

 

 

 

9

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

76,942

 

 

 

 

 

 

 

 

 

76,942

 

Acquisition of Meta Networks, Ltd. (Note 3)

 

 

72

 

 

 

 

 

 

446

 

 

 

 

 

 

 

 

 

446

 

Common stock issued

 

 

1,130

 

 

 

 

 

 

27,343

 

 

 

 

 

 

 

 

 

27,343

 

Tax withholding upon vesting of

   restricted stock awards

 

 

(308

)

 

 

 

 

 

(34,884

)

 

 

 

 

 

 

 

 

(34,884

)

Balances at June 30, 2019

 

 

56,043

 

 

$

6

 

 

$

1,177,800

 

 

$

2

 

 

$

(652,520

)

 

$

525,288

 

 

6


Table of Contents

 

 

 

Three months ended June 30, 2018

 

 

 

Common Stock

 

 

Additional

Paid-In

 

 

Accumulated

Other

Comprehensive

 

 

Accumulated

 

 

Total

Stockholders’

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Income (Loss)

 

 

Deficit

 

 

Equity

 

Balances at March 31, 2018

 

 

50,813

 

 

$

5

 

 

$

807,516

 

 

$

(2

)

 

$

(503,825

)

 

$

303,694

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(34,298

)

 

 

(34,298

)

Unrealized gain on short-term

   investments

 

 

 

 

 

 

 

 

 

 

 

1

 

 

 

 

 

 

1

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

30,631

 

 

 

 

 

 

 

 

 

30,631

 

Common stock issued

 

 

487

 

 

 

 

 

 

10,322

 

 

 

 

 

 

 

 

 

10,322

 

Tax withholding upon vesting of

   restricted stock awards

 

 

(109

)

 

 

 

 

 

(13,313

)