SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-Q
| x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the Quarterly period ended June 30, 2004
OR
| ¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OR THE SECURITIES EXCHANGE ACT 1934. |
For the transition period from to
Commission file number: 000-27723
SonicWALL, Inc.
(Exact name of registrant as specified in its charter)
| California | 77-0270079 | |
| (State or other jurisdiction of incorporation) |
(I.R.S. Employer Identification No.) |
1143 Borregas Avenue
Sunnyvale, California 94089
(408) 745-9600
fax: (408) 745-9300
(Address of registrant’s principal executive offices)
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 such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes x No ¨
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:
| Title of Each Class |
Outstanding at June 30, 2004 | |
| Common Stock, no par value | 71,158,438 Shares |
| Page | ||||
| PART I. |
FINANCIAL INFORMATION | 3 | ||
| ITEM 1. |
Financial Statements | 3 | ||
| ITEM 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations | 14 | ||
| ITEM 3. |
Quantitative and Qualitative Disclosures About Market Risk | 35 | ||
| ITEM 4. |
Controls and Procedures | 36 | ||
| PART II. |
OTHER INFORMATION | 37 | ||
| ITEM 1. |
Legal Proceedings | 37 | ||
| ITEM 2. |
Changes in Securities and Issuer Purchases of Equity Securities | 38 | ||
| ITEM 3. |
Defaults Upon Senior Securities | 38 | ||
| ITEM 4. |
Submission of Matters to a Vote of Security Holders | 38 | ||
| ITEM 5. |
Other Information | 38 | ||
| ITEM 6. |
Exhibits and Reports on Form 8-K | 39 | ||
| 40 | ||||
2
| Condensed Consolidated Balance Sheets as of June 30, 2004 (unaudited) and December 31, 2003 |
4 | |
| 5 | ||
| 6 | ||
| Notes to Condensed Consolidated Financial Statements (unaudited) |
7 | |
3
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
| December 31, 2003 |
June 30, 2004 |
|||||||
| (1) | (Unaudited) | |||||||
| ASSETS | ||||||||
| Current Assets: |
||||||||
| Cash and cash equivalents |
$ | 30,467 | $ | 20,432 | ||||
| Short-term investments |
213,010 | 233,666 | ||||||
| Accounts receivable, net |
9,164 | 17,647 | ||||||
| Inventories |
1,955 | 3,435 | ||||||
| Prepaid expenses and other current assets |
2,589 | 2,553 | ||||||
| Total current assets |
257,185 | 277,733 | ||||||
| Property and equipment, net |
4,903 | 4,919 | ||||||
| Goodwill |
97,953 | 97,953 | ||||||
| Purchased intangibles and other assets, net |
21,680 | 17,844 | ||||||
| $ | 381,721 | $ | 398,449 | |||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||
| Current Liabilities: |
||||||||
| Accounts payable |
$ | 7,376 | $ | 7,228 | ||||
| Accrued restructuring |
1,251 | 879 | ||||||
| Accrued payroll and related benefits |
4,988 | 6,671 | ||||||
| Other accrued liabilities |
3,830 | 4,054 | ||||||
| Deferred revenue |
19,180 | 24,878 | ||||||
| Income taxes payable |
827 | 764 | ||||||
| Total current liabilities |
37,452 | 44,474 | ||||||
| Commitments and contingencies (see note 8) |
||||||||
| Shareholders’ Equity: |
||||||||
| Common stock |
468,905 | 480,007 | ||||||
| Accumulated other comprehensive loss |
(38 | ) | (547 | ) | ||||
| Accumulated deficit |
(124,598 | ) | (125,485 | ) | ||||
| Total shareholders’ equity |
344,269 | 353,975 | ||||||
| $ | 381,721 | $ | 398,449 | |||||
| (1) | Amounts as of December 31, 2003 have been derived from the audited financial statements as of the same date. |
The accompanying notes are an integral part of these condensed consolidated financial statements.
4
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
| Three Months Ended June 30, |
Six Months Ended June 30, |
|||||||||||||||
| 2003 |
2004 |
2003 |
2004 |
|||||||||||||
| Revenue: |
||||||||||||||||
| Product |
$ | 14,500 | $ | 22,609 | $ | 28,751 | $ | 45,327 | ||||||||
| License and service |
6,901 | 9,805 | 12,956 | 18,922 | ||||||||||||
| Total revenue |
21,401 | 32,414 | 41,707 | 64,249 | ||||||||||||
| Cost of revenue: |
||||||||||||||||
| Product, excluding amortization of stock-based compensation of $2, $0, $5 and $0, respectively |
7,344 | 7,984 | 13,181 | 16,104 | ||||||||||||
| License and service |
1,371 | 1,597 | 2,955 | 3,102 | ||||||||||||
| Amortization of purchased technology |
1,136 | 1,136 | 2,272 | 2,272 | ||||||||||||
| Total cost of revenue |
9,851 | 10,717 | 18,408 | 21,478 | ||||||||||||
| Gross margin |
11,550 | 21,697 | 23,299 | 42,771 | ||||||||||||
| Operating expenses: |
||||||||||||||||
| Research and development, excluding amortization of stock-based compensation of $10, $33, $52 and $180, respectively |
4,880 | 6,118 | 9,405 | 12,108 | ||||||||||||
| Sales and marketing, excluding amortization of stock-based compensation of $237, $0, $365 and $0, respectively |
10,089 | 12,511 | 20,135 | 23,769 | ||||||||||||
| General and administrative, excluding amortization (recovery) of stock-based compensation of $2, $0, ($28) and $0, respectively |
2,874 | 3,560 | 5,408 | 7,309 | ||||||||||||
| Amortization of purchased intangibles |
1,405 | 787 | 2,810 | 1,599 | ||||||||||||
| Restructuring charges |
1,104 | 115 | 1,266 | 128 | ||||||||||||
| Amortization of stock-based compensation |
251 | 33 | 394 | 180 | ||||||||||||
| Total operating expenses |
20,603 | 23,124 | 39,418 | 45,093 | ||||||||||||
| Loss from operations |
(9,053 | ) | (1,427 | ) | (16,119 | ) | (2,322 | ) | ||||||||
| Interest income and other expense, net |
1,032 | 785 | 2,325 | 1,620 | ||||||||||||
| Loss before income taxes |
(8,021 | ) | (642 | ) | (13,794 | ) | (702 | ) | ||||||||
| Benefit from (provision for) income taxes |
(73 | ) | (86 | ) | 1,827 | (185 | ) | |||||||||
| Net loss |
$ | (8,094 | ) | $ | (728 | ) | $ | (11,967 | ) | $ | (887 | ) | ||||
| Net loss per share: |
||||||||||||||||
| Basic and diluted |
$ | (0.12 | ) | $ | (0.01 | ) | $ | (0.18 | ) | $ | (0.01 | ) | ||||
| Shares used in computing net loss per share: |
||||||||||||||||
| Basic and diluted |
67,658 | 71,134 | 67,608 | 70,592 | ||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
5
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
| Six Months Ended June 30, |
||||||||
| 2003 |
2004 |
|||||||
| Cash flows from operating activities: |
||||||||
| Net loss |
$ | (11,967 | ) | $ | (887 | ) | ||
| Adjustments to reconcile net loss to net cash provided by operating activities: |
||||||||
| Depreciation and amortization |
6,868 | 5,698 | ||||||
| Recovery of doubtful accounts |
(363 | ) | (91 | ) | ||||
| Amortization of stock-based compensation |
394 | 180 | ||||||
| Non-cash restructuring charges |
98 | 90 | ||||||
| Deferred income taxes |
(1,960 | ) | — | |||||
| Changes in operating assets and liabilities, net of effects of businesses acquired: |
||||||||
| Accounts receivable |
4,909 | (8,392 | ) | |||||
| Inventories |
657 | (1,480 | ) | |||||
| Prepaid expenses and other current assets |
1,112 | 36 | ||||||
| Other assets |
11 | (34 | ) | |||||
| Accounts payable |
(1,206 | ) | (148 | ) | ||||
| Accrued restructuring |
386 | (462 | ) | |||||
| Accrued payroll and related benefits |
(824 | ) | 1,683 | |||||
| Other accrued liabilities |
10 | 225 | ||||||
| Deferred revenue |
3,640 | 5,697 | ||||||
| Income taxes payable |
272 | (63 | ) | |||||
| Net cash provided by operating activities |
2,037 | 2,052 | ||||||
| Cash flows from investing activities: |
||||||||
| Purchase of property and equipment |
(1,529 | ) | (1,844 | ) | ||||
| Maturity and sale of short-term investments |
144,890 | 118,810 | ||||||
| Purchase of short-term investments |
(143,773 | ) | (139,975 | ) | ||||
| Net cash used in investing activities |
(412 | ) | (23,009 | ) | ||||
| Cash flows from financing activities: |
||||||||
| Issuance of common stock under employee stock option | ||||||||