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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 September 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 October 18, 2019: 56,454,217 shares.

 


Table of Contents

 

TABLE OF CONTENTS

 

 

 

Page

PART I. FINANCIAL INFORMATION

 

 

 

 

 

ITEM 1. FINANCIAL STATEMENTS (UNAUDITED):

 

3

 

 

 

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

 

3

 

 

 

Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2019 and 2018

 

4

 

 

 

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

 

5

 

 

 

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

 

6

 

 

 

Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 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

 

30

 

 

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

43

 

 

 

ITEM 4. CONTROLS AND PROCEDURES

 

44

 

 

 

PART II. OTHER INFORMATION

 

 

 

 

 

ITEM 1. LEGAL PROCEEDINGS

 

45

 

 

 

ITEM 1A. RISK FACTORS

 

45

 

 

 

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

 

62

 

 

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

 

62

 

 

 

ITEM 4. MINE SAFETY DISCLOSURES

 

62

 

 

 

ITEM 5. OTHER INFORMATION

 

62

 

 

 

ITEM 6. EXHIBITS

 

63

 

 

 

SIGNATURES

 

64

 

 

 

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)

 

 

 

September 30, 2019

 

 

December 31, 2018

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

1,020,183

 

 

$

185,392

 

Short-term investments

 

 

31,327

 

 

 

46,307

 

Accounts receivable, net

 

 

204,769

 

 

 

199,194

 

Inventory

 

 

425

 

 

 

481

 

Deferred product costs

 

 

2,078

 

 

 

1,800

 

Deferred commissions

 

 

42,473

 

 

 

37,391

 

Prepaid expenses and other current assets

 

 

19,053

 

 

 

16,872

 

Total current assets

 

 

1,320,308

 

 

 

487,437

 

Property and equipment, net

 

 

70,285

 

 

 

70,627

 

Operating lease right-of-use assets

 

 

53,719

 

 

 

 

Long-term deferred product costs

 

 

349

 

 

 

303

 

Goodwill

 

 

543,143

 

 

 

460,425

 

Intangible assets, net

 

 

124,689

 

 

 

136,645

 

Long-term deferred commissions

 

 

79,488

 

 

 

69,989

 

Other assets

 

 

16,045

 

 

 

7,592

 

Total assets

 

$

2,208,026

 

 

$

1,233,018

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

17,819

 

 

$

20,237

 

Accrued liabilities

 

 

103,573

 

 

 

90,719

 

Deferred rent

 

 

 

 

 

829

 

Operating lease liabilities

 

 

20,529

 

 

 

 

Deferred revenue

 

 

542,429

 

 

 

490,296

 

Total current liabilities

 

 

684,350

 

 

 

602,081

 

Convertible senior notes

 

 

741,367

 

 

 

 

Long-term deferred rent

 

 

 

 

 

3,757

 

Long-term operating lease liabilities

 

 

36,835

 

 

 

 

Other long-term liabilities

 

 

18,571

 

 

 

6,812

 

Long-term deferred revenue

 

 

132,174

 

 

 

107,834

 

Total liabilities

 

 

1,613,297

 

 

 

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; 56,204

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

   December 31, 2018, respectively

 

 

6

 

 

 

6

 

Additional paid-in capital

 

 

1,291,580

 

 

 

1,107,953

 

Accumulated other comprehensive income (loss)

 

 

3

 

 

 

(7

)

Accumulated deficit

 

 

(696,860

)

 

 

(595,418

)

Total stockholders’ equity

 

 

594,729

 

 

 

512,534

 

Total liabilities and stockholders’ equity

 

$

2,208,026

 

 

$

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 September 30,

 

 

Nine Months Ended September 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Subscription

 

$

224,275

 

 

$

181,505

 

 

$

634,639

 

 

$

509,311

 

Hardware and services

 

 

3,110

 

 

 

2,674

 

 

 

10,122

 

 

 

9,204

 

Total revenue

 

 

227,385

 

 

 

184,179

 

 

 

644,761

 

 

 

518,515

 

Cost of revenue:(1)(2)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Subscription

 

 

52,308

 

 

 

45,679

 

 

 

151,208

 

 

 

133,495

 

Hardware and services

 

 

7,573

 

 

 

5,258

 

 

 

21,744

 

 

 

15,271

 

Total cost of revenue

 

 

59,881

 

 

 

50,937

 

 

 

172,952

 

 

 

148,766

 

Gross profit

 

 

167,504

 

 

 

133,242

 

 

 

471,809

 

 

 

369,749

 

Operating expense:(1)(2)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

 

60,060

 

 

 

45,917

 

 

 

168,494

 

 

 

137,176

 

Sales and marketing

 

 

105,502

 

 

 

90,006

 

 

 

305,343

 

 

 

252,814

 

General and administrative

 

 

26,388

 

 

 

23,877

 

 

 

80,094

 

 

 

60,431

 

Total operating expense

 

 

191,950

 

 

 

159,800

 

 

 

553,931

 

 

 

450,421

 

Operating loss

 

 

(24,446

)

 

 

(26,558

)

 

 

(82,122

)

 

 

(80,672

)

Interest expense

 

 

(3,698

)

 

 

(9,746

)

 

 

(3,698

)

 

 

(16,761

)

Other income, net

 

 

2,180

 

 

 

224

 

 

 

3,565

 

 

 

941

 

Loss before income taxes

 

 

(25,964

)

 

 

(36,080

)

 

 

(82,255

)

 

 

(96,492

)

(Provision for) benefit from income taxes

 

 

(18,376

)

 

 

20

 

 

 

(19,276

)

 

 

13,978

 

Net loss

 

$

(44,340

)

 

$

(36,060

)

 

$

(101,531

)

 

$

(82,514

)

Net loss per share, basic and diluted

 

$

(0.79

)

 

$

(0.69

)

 

$

(1.82

)

 

$

(1.61

)

Weighted average shares outstanding, basic and diluted

 

 

56,014

 

 

 

52,184

 

 

 

55,708

 

 

 

51,214

 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of subscription revenue

 

$

4,519

 

 

$

3,503

 

 

$

12,663

 

 

$

10,402

 

Cost of hardware and services revenue

 

$

1,043

 

 

$

474

 

 

$

3,003

 

 

$

1,636

 

Research and development

 

$

13,735

 

 

$

9,678

 

 

$

37,756

 

 

$

29,699

 

Sales and marketing

 

$

16,515

 

 

$

13,191

 

 

$

46,068

 

 

$

37,075

 

General and administrative

 

$

9,871

 

 

$

11,250

 

 

$

32,864

 

 

$

24,153

 

 

 

(2) Includes intangible amortization expense as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of subscription revenue

 

$

7,886

 

 

$

7,121

 

 

$

22,153

 

 

$

20,141

 

Research and development

 

$

 

 

$

15

 

 

$

 

 

$

45

 

Sales and marketing

 

$

3,632

 

 

$

3,982

 

 

$

10,803

 

 

$

10,379

 

 

 

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 September 30,

 

 

Nine Months Ended September 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Net loss

 

$

(44,340

)

 

$

(36,060

)

 

$

(101,531

)

 

$

(82,514

)

Other comprehensive income, net of tax:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized gain (loss) on short-term investments, net

 

 

1

 

 

 

(1

)

 

 

10

 

 

 

7

 

Comprehensive loss

 

$

(44,339

)

 

$

(36,061

)

 

$

(101,521

)

 

$

(82,507

)

 

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 September 30, 2019

 

 

 

Common Stock

 

 

Additional

Paid-In

 

 

Accumulated

Other

Comprehensive

 

 

Accumulated

 

 

Total

Stockholders’

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Income (Loss)

 

 

Deficit

 

 

Equity

 

Balances at June 30, 2019

 

 

56,043

 

 

$

6

 

 

$

1,177,800

 

 

$

2

 

 

$

(652,520

)

 

$

525,288

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(44,340

)

 

 

(44,340

)

Unrealized gain on short-term investments

 

 

 

 

 

 

 

 

 

 

 

1

 

 

 

 

 

 

1

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

41,732

 

 

 

 

 

 

 

 

 

41,732

 

Common stock issued

 

 

218

 

 

 

 

 

 

 

827

 

 

 

 

 

 

 

 

 

827

 

Tax withholding upon vesting of restricted stock awards

 

 

(57

)

 

 

 

 

 

(6,931

)

 

 

 

 

 

 

 

 

(6,931

)

Embedded conversion feature on convertible senior notes (Note 8)

 

 

 

 

 

 

 

 

163,023

 

 

 

 

 

 

 

 

 

163,023

 

Purchase of capped calls (Note 8)

 

 

 

 

 

 

 

 

(84,871

)

 

 

 

 

 

 

 

 

(84,871

)

Balances at September 30, 2019

 

 

56,204

 

 

$

6

 

 

$

1,291,580

 

 

$

3

 

 

$

(696,860

)

 

$

594,729

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine months ended September 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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(101,531

)

 

 

(101,531

)

Unrealized gain on short-term investments

 

 

 

 

 

 

 

 

 

 

 

10

 

 

 

 

 

 

10

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

118,674

 

 

 

 

 

 

 

 

 

118,674

 

Acquisition of Meta Networks, Ltd. (Note 3)

 

 

72

 

 

 

 

 

 

446

 

 

 

 

 

 

 

 

 

446

 

Common stock issued

 

 

1,348

 

 

 

 

 

 

28,170

 

 

 

 

 

 

 

 

 

28,170

 

Tax withholding upon vesting of restricted stock awards

 

 

(365

)

 

 

 

 

 

(41,815

)

 

 

 

 

 

 

 

 

(41,815

)

Embedded conversion feature on convertible senior notes (Note 8)

 

 

 

 

 

 

 

 

163,023

 

 

 

 

 

 

 

 

 

163,023

 

Purchase of capped calls (Note 8)

 

 

 

 

 

 

 

 

(84,871

)

 

 

 

 

 

 

 

 

(84,871

)

Balances at September 30, 2019

 

 

56,204

 

 

$

6

 

 

$

1,291,580

 

 

$

3

 

 

$

(696,860

)

 

$

594,729

 

 

6


Table of Contents

 

 

 

Three months ended September 30, 2018

 

 

 

Common Stock

 

 

Additional

Paid-In

 

 

Accumulated

Other

Comprehensive

 

 

Accumulated

 

 

Total

Stockholders’

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Income (Loss)

 

 

Deficit

 

 

Equity

 

Balances at June 30, 2018

 

 

51,191

 

 

$

5

 

 

$

835,156

 

 

$

(1

)

 

$

(538,123

)

 

$

297,037

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(36,060

)