Back to GetFilings.com



Table of Contents
 
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
   
Commission File Number
September 30, 2002
   
000-26819
 
WATCHGUARD TECHNOLOGIES, INC.
(Exact Name of Registrant as Specified in Its Charter)
 
Delaware
      
91-1712427
(State or Other Jurisdiction of
Incorporation or Organization)
      
(I.R.S. Employer
Identification No.)
 
505 Fifth Ave. South, Suite 500
Seattle WA 98104-3892
(Address of Principal Executive Offices) (Zip Code)
 
Registrant’s telephone number, including area code:     (206) 521-8340
 
Not Applicable
(Former name, former address and former fiscal year, if changed since last report.)
 
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 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 the filing requirements for the past 90 days.    Yes  X       No        
 
32,523,671 shares of WatchGuard common stock were outstanding as of November 11, 2002.
 

Table of Contents
 
WATCHGUARD TECHNOLOGIES, INC.
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 2002
 
TABLE OF CONTENTS
 
PART I.    FINANCIAL INFORMATION
     
ITEM 1.
      
3
       
3
       
4
       
5
       
6
ITEM 2.
      
14
ITEM 3.
      
38
ITEM 4.
      
38
PART II.    OTHER INFORMATION
     
ITEM 6.
      
39

Page 2

Table of Contents
 
PART I.    FINANCIAL INFORMATION
 
ITEM 1.    FINANCIAL STATEMENTS
 
WATCHGUARD TECHNOLOGIES, INC.
 
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
 
    
December 31, 2001
     
September 30,
2002
  
ASSETS
                  
Current assets:
                  
Cash and cash equivalents
   
$
13,958
 
   
$
10,785
 
Securities available for sale
   
 
99,785
 
   
 
80,295
 
Trade accounts receivable, net
   
 
6,363
 
   
 
8,777
 
Inventories, net
   
 
4,413
 
   
 
4,829
 
Prepaid expenses and other
   
 
4,000
 
   
 
4,528
 
    
  
Total current assets
   
 
128,519
 
   
 
109,214
 
Property and equipment, net
   
 
7,383
 
   
 
7,084
 
Goodwill, net
   
 
26,991
 
   
 
65,729
 
Other intangibles, net and other assets
   
 
10,138
 
   
 
17,143
 
    
  
Total assets
   
$
173,031
 
   
$
199,170
 
    
  
LIABILITIES AND STOCKHOLDERS’ EQUITY
                  
Current liabilities:
                  
Accounts payable
   
$
4,032
 
   
$
7,289
 
Accrued expenses and other liabilities
   
 
4,986
 
   
 
11,461
 
Deferred revenue
   
 
15,709
 
   
 
17,889
 
    
  
Total current liabilities
   
 
24,727
 
   
 
36,639
 
Stockholders’ equity:
                  
Preferred stock, $0.001 par value:
                  
Authorized shares: 10,000,000
                  
No shares issued and outstanding
   
 
—  
 
   
 
—  
 
Common stock, $0.001 par value:
                  
Authorized shares: 80,000,000
                  
Shares issued and outstanding: 27,123,260 at December 31, 2001 and
32,450,028 at September 30, 2002
   
 
27
 
   
 
32
 
Additional paid-in capital
   
 
231,533
 
   
 
265,101
 
Deferred stock-based compensation
   
 
(1,357
)
   
 
(409
)
Accumulated other comprehensive income
   
 
681
 
   
 
312
 
Accumulated deficit
   
 
(82,580
)
   
 
(102,505
)
    
  
Total stockholders’ equity
   
 
148,304
 
   
 
162,531
 
    
  
Total liabilities and stockholders’ equity
   
$
173,031
 
   
$
199,170
 
    
  
See accompanying notes.

Page 3

Table of Contents
 
WATCHGUARD TECHNOLOGIES, INC.
 
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
 
    
Three Months Ended September 30,
     
Nine Months Ended
September 30,
  
    
2001
     
2002
     
2001
     
2002
  
Revenues:
                                    
Product
   
$
12,806
 
   
$
14,224
 
   
$
39,345
 
   
$
37,282
 
Service
   
 
4,462
 
   
 
5,851
 
   
 
12,533
 
   
 
16,153
 
    
  
  
  
Total revenues
   
 
17,268
 
   
 
20,075
 
   
 
51,878
 
   
 
53,435
 
Cost of revenues:
                                    
Product
   
 
5,214
 
   
 
5,332
 
   
 
15,906
 
   
 
14,499
 
Service
   
 
1,450
 
   
 
1,509
 
   
 
4,384
 
   
 
4,576
 
    
  
  
  
Total cost of revenues
   
 
6,664
 
   
 
6,841
 
   
 
20,290
 
   
 
19,075
 
    
  
  
  
Gross margin
   
 
10,604
 
   
 
13,234
 
   
 
31,588
 
   
 
34,360
 
Operating expenses:
                                    
Sales and marketing (1)
   
 
7,380
 
   
 
8,859
 
   
 
23,241
 
   
 
25,060
 
Research and development (2)
   
 
4,129
 
   
 
5,306
 
   
 
14,140
 
   
 
15,989
 
General and administrative (3)
   
 
2,060
 
   
 
1,786
 
   
 
5,795
 
   
 
5,817
 
Stock-based compensation
   
 
1,468
 
   
 
288
 
   
 
8,534
 
   
 
1,302
 
Amortization of goodwill
   
 
1,837
 
   
 
—  
 
   
 
5,508
 
   
 
—  
 
Amortization of other intangible assets acquired
   
 
887
 
   
 
1,219
 
   
 
2,664
 
   
 
3,159
 
Acquired in-process technology
   
 
—  
 
   
 
—  
 
   
 
—  
 
   
 
1,179
 
Restructuring charges
   
 
—  
 
   
 
—  
 
   
 
2,900
 
   
 
4,272
 
    
  
  
  
Total operating expenses
   
 
17,761
 
   
 
17,458
 
   
 
62,782
 
   
 
56,778
 
    
  
  
  
Operating loss
   
 
(7,157
)
   
 
(4,224
)
   
 
(31,194
)
   
 
(22,418
)
Interest income, net
   
 
1,292
 
   
 
636
 
   
 
4,615
 
   
 
2,522
 
    
  
  
  
Loss before income taxes
   
 
(5,865
)
   
 
(3,588
)
   
 
(26,579
)
   
 
(19,896
)
    
  
  
  
Provision for income taxes
   
 
28
 
   
 
—  
 
   
 
196
 
   
 
29
 
    
  
  
  
Net loss
   
$
(5,893
)
   
$
(3,588
)
   
$
(26,775
)
   
$
(19,925
)
    
  
  
  
Basic and diluted net loss per share
   
$
(0.22
)
   
$
(0.11
)
   
$
(1.01
)
   
$
(0.65
)
    
  
  
  
Shares used in calculation of basic and diluted net loss per share
   
 
26,839
 
   
 
32,341
 
   
 
26,594
 
   
 
30,507
 
    
  
  
  
(1)
 
Sales and marketing expenses exclude amortization of stock-based compensation of $30 and $15 for the three months ended September 30, 2001 and 2002, respectively and $201 and $52 for the nine months ended September 30, 2001 and 2002, respectively.
(2)
 
Research and development expenses exclude amortization of stock-based compensation of $1,431 and $244 for the three months ended September 30, 2001 and 2002, respectively and $8,303 and $1,170 for the nine months ended September 30, 2001 and 2002, respectively.
(3)
 
General and administrative expenses exclude amortization of stock-based compensation of $7 and $29 for the three months ended September 30, 2001 and 2002, respectively and $30 and $80 for the nine months ended September 30, 2001 and 2002, respectively.
 
 
See accompanying notes.

Page 4

Table of Contents
 
WATCHGUARD TECHNOLOGIES, INC.
 
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
    
Nine Months Ended September 30,
  
    
2001
     
2002
  
OPERATING ACTIVITIES:
                  
Net loss
   
$
(26,775
)
   
$
(19,925
)
Adjustments to reconcile net loss to net cash used in operating activities:
                  
Depreciation and amortization of property and equipment
   
 
1,634
 
   
 
2,078
 
Amortization of goodwill
   
 
5,508
 
   
 
—  
 
Amortization of other intangible assets
   
 
2,664
 
   
 
3,163
 
Acquired in-process technology
   
 
—  
 
   
 
1,179
 
Amortization of stock-based compensation
   
 
8,534
 
   
 
1,302
 
Noncash stock-based compensation restructuring charges
   
 
579
 
   
 
—  
 
Changes in operating assets and liabilities:
                  
Trade accounts receivable, net
   
 
3,045
 
   
 
(2,063
)
Inventories, net
   
 
1,322
 
   
 
391
 
Prepaid expenses and other