Form 8-K PROOFPOINT INC For: Jul 24

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 

Form 8-K

 

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

Date of Report (Date of earliest event reported):  July 24, 2019

 

Proofpoint, Inc.

(Exact name of registrant as specified in its charter)

 

 

 

 

 

(408) 517-4710

(Registrant’s telephone number, including area code)

 

(Former name or former address, if changed since last report)

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

 

 ☐Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 ☐Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 ☐Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 Securities registered or to be registered pursuant to Section 12(b) of the Act.

 

 

 Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

 

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.    ☐

 

 

 

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On July 25, 2019, Proofpoint issued a press release announcing financial results for the quarter ended June 30, 2019.

In addition to following our press releases and SEC filings, investors should also monitor the investors section of our website at investors.proofpoint.com, as we post investor-oriented information such as news and events, financial filings, webcasts, presentations and other relevant materials to it.  

The information in this Current Report on Form 8-K and Exhibit 99.1 attached hereto (the “2.02 Information”) are being furnished pursuant to Item 2.02 of Form 8-K and will not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liabilities of that section, nor will the 2.02 Information be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, regardless of any general incorporation language in such filing, except as shall be expressly set forth by specific reference in such filing.

 

Item 5.02.  Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers

 

(d) 

On July 24, 2019, the Board of Directors (the “Board”) of Proofpoint, Inc. (the “Company”) appointed Peter Leav and Leyla Seka to the Board. Each of Mr. Leav and Ms. Seka will serve as a Class II director whose current term will expire at the Company’s 2020 annual meeting of the stockholders. 

There is no arrangement or understanding with any person pursuant to which Mr. Leav or Ms. Seka was appointed as a member of the Board.

Neither Mr. Leav nor Ms. Seka are a party to any transaction required to be disclosed pursuant to Item 404(a) of Regulation S-K.

In connection with each of their appointments as a director, each of Mr. Leav and Ms. Seka will receive an initial restricted stock unit grant under the Company’s 2012 Equity Incentive Plan for 1,441 shares of the Company’s common stock (the “Initial RSU Grants”). The Initial RSU Grants will vest on May 31, 2020, subject to such director’s continued service to the Company through such date. In addition, in lieu of quarterly cash compensation for the remainder of 2019, Ms. Seka will receive a restricted stock unit grant under the Company’s Amended and Restated 2012 Equity Incentive Plan for 262 shares, which vests in equal amounts on September 30, 2019, December 31, 2019 and March 31, 2020 (the “Seka Grant”). The Initial RSU Grants and the Seka Grant will accelerate and vest in full in the event of a change in control of the Company. Each of Mr. Leav and Ms. Seka will also receive other standard non-employee director cash and equity compensation pursuant to the Company’s non-employee director compensation policy.

In addition to the compensation that each of Mr. Leav and Ms. Seka will receive in connection with his and her appointment as a member of the Board, the Company intends to enter into a standard form of indemnity agreement with each such director. The indemnity agreement, among other things, would require the Company to indemnify the director for certain expenses, including attorneys’ fees, judgments, penalties, fines and settlement amounts actually and reasonably incurred by him or her in any action or proceeding arising out of his or her service as one of the Company’s directors, or any of the Company’s subsidiaries or any other company or enterprise to which she provides services at the Company’s request. A form of the indemnity agreement was previously filed by the Company as Exhibit 10.01 to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2017 (File No. 001-35506), as filed with the Securities and Exchange Commission on October 31, 2017. 

 

 

 

 

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SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

 

 

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Exhibit 99.1

 

 

Proofpoint Announces Second Quarter 2019 Financial Results

 

Second Quarter Highlights

 

 

SUNNYVALE, Calif., – July 25, 2019 – Proofpoint, Inc. (NASDAQ: PFPT), a leading next-generation security and compliance company, today announced financial results for the second quarter ended June 30, 2019.

“Our second quarter results represent another clear example of our team’s consistent execution and strong focus on our customers and innovation,” stated Gary Steele, chief executive officer of Proofpoint. “The significant investments we’re making in broadening our product suite, and the encouraging progress we’re seeing with our bundling strategy, provide further opportunity to drive attractive growth and increase our market share in the over $13 billion total addressable market.”

Second Quarter 2019 Financial Highlights

Net Income (Loss): GAAP net loss for the second quarter of 2019 was $(28.9) million, or $(0.52) per share, based on 55.8 million weighted average shares outstanding. This compares to a GAAP net loss of $(34.3) million, or $(0.67) per share, based on 50.9 million weighted average shares outstanding for the second quarter of 2018. Non-GAAP net income for the second quarter of 2019 was $24.1 million, or $0.41 per share, based on 58.1 million weighted average diluted shares outstanding. This result included an additional $4.7 million in non-cash income tax expense, at an effective rate of 17%, using the SEC’s Non-GAAP Financial Measures Compliance and Disclosure Interpretations (C&DI 102.11) compared to the Company’s historical calculation methodology, and as disclosed on April 25, 2019.

“We are pleased with our ability to exceed expectations during the second quarter and further demonstrate the strong operating leverage inherent within our financial model,” stated Paul Auvil, chief financial officer of Proofpoint. “The

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company remains well-positioned to execute our disciplined growth strategy given the ongoing investments we’re making in expanding our product portfolio for our customers and driving strong returns on behalf of our shareholders.”

A reconciliation of GAAP to non-GAAP financial measures has been provided in the financial tables included in this press release. An explanation of these measures and how they are calculated are also included below under the heading “Non-GAAP Financial Measures.”

Financial Outlook

 

As of July 25, 2019, Proofpoint is providing its third quarter and full year 2019 guidance as follows:

 

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 second quarter ended June 30, 2019. To access this call, dial (800) 263-0877 for the U.S. or Canada, or (323) 794-2094 for international callers, with conference ID #4345370. 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 August 8, 2019, by dialing (844) 512-2921 for the U.S. or Canada or (412) 317-6671 for international callers, and entering passcode #4345370.

 

About Proofpoint, Inc.

 

Proofpoint, Inc. (NASDAQ: PFPT) is a leading cybersecurity 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

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all sizes, including more than half of the Fortune 1000, rely on Proofpoint to mitigate their most critical security and compliance 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: failure to maintain or increase renewals and increased business 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 March 31, 2019, 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 upon request from our investor relations department. 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. Each series of convertible securities is considered individually and in sequence, starting with the series having the lowest incremental earnings per share, to determine if its effect is dilutive or anti-dilutive.

 

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

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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 and the amortization of intangibles and costs associated with acquisitions and litigation. 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 they exclude the effect of stock-based compensation expense and the amortization of intangibles and costs associated with acquisitions and litigation 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 and litigation, non-cash interest expense related to the convertible debt discount and issuance costs for the convertible debt offering, loss on conversion of convertible debt, 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.

 

Starting January 1, 2019, we changed the calculation of our non-GAAP provision for income taxes in accordance with the SEC’s Non-GAAP Financial Measures Compliance and Disclosure Interpretations. 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 six months ended June 30, 2019. We use an annual projected tax rate in a computation of the non-GAAP income tax provision, and exclude the direct impact of stock-based compensation and intangible amortization expenses. 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 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

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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.

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Proofpoint, Inc.

Consolidated Statements of Operations

(In thousands, except per share amounts)

(Unaudited)

 

 

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Proofpoint, Inc.

Consolidated Balance Sheets

(In thousands, except per share amounts)

(Unaudited)

 

 

 

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Proofpoint, Inc.

Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

 

 

 

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Reconciliation of Non-GAAP Measures

(In thousands, except per share amounts)

(Unaudited)

 

 

 

(1) Starting January 1, 2019, the Company changed the calculation of its non-GAAP provision for income taxes in accordance with the SEC’s Non-GAAP Financial Measures Compliance and Disclosure Interpretations. 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 six months ended June 30, 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 and acquisition-related expenses. The change has no impact on tax liability or cash flows. For the three and six months ended June 30, 2018, only GAAP deferred tax expenses or benefits related to the amortization of intangible assets and deferred tax benefits related to changes in the Company's valuation allowance resulting from business acquisitions were excluded from the non-GAAP income tax expense. The Non-GAAP income tax for the six months ended June 30, 2018, excluded $14,725 of deferred tax benefits related to a reduction in the Company’s deferred tax valuation allowance resulting from the Wombat Acquisition. 

 

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(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.

 

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Reconciliation of Total Revenue to Billings

(In thousands)

(Unaudited)

 

 

 

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Reconciliation of GAAP Cash Flows from Operations to Free Cash Flows

(In thousands)

(Unaudited)

 

 

 

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Revenue by Solution

(In thousands)

(Unaudited)

 

 

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Reconciliation of Non-GAAP Measures to Guidance

(In millions, except per share amount)

(Unaudited)

 

 

 

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Media Contact

 

Kristy Campbell

Proofpoint, Inc.

408-517-4710

[email protected]

 

Investor Contacts

 

 

 

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