IMPV Imperva, Inc.

• Total revenue of $91.6 million, up 9% year-over-year
• Billings of $106.5 million, up 16% year-over-year
• GAAP operating income of $0.5 million; Non-GAAP operating income of $14.7 million
• Generated $32.2 million in operating cash flow and $30.0 million in free cash flow

Imperva, Inc. (NASDAQ: IMPV), a leading global provider of best-in-class cybersecurity solutions on premises, in the cloud, and across hybrid environments, announced today financial results for the third quarter ended September 30, 2018.

Third Quarter 2018 Financial Highlights

• Revenue: Total revenue was $91.6 million, a year-over-year increase of 9%. Total Services revenue was $68.4 million, a year-over-year increase of 19%.
• Billings: Billings in the quarter were $106.5 million, a year-over-year increase of 16%.
• Operating Income (Loss): GAAP operating income was $0.5 million for the third quarter, improved from a loss of $(0.2) million during the third quarter in 2017. Non-GAAP operating income for the third quarter was $14.7 million, up 29% from a non-GAAP operating income of $11.4 million during the same period in 2017.
• Net Income (Loss): GAAP net income was $1.1 million, or $0.03 per share based on 35.7 million weighted average diluted shares outstanding. This compares to net loss of $(0.4) million, or $(0.01) per share based on 33.9 million weighted average diluted shares outstanding in the third quarter of 2017.Non-GAAP net income was $15.3 million, or $0.43 per share based on 35.7 million weighted average diluted shares outstanding. This compares to a non-GAAP net income of $11.2 million, or $0.33 per share based on 34.4 million weighted average diluted shares outstanding in the third quarter of 2017.

• Balance Sheet and Cash Flow: As of September 30, 2018, Imperva had cash, cash equivalents and investments of $304.4 million and no debt. Total deferred revenue was $191.8 million, an increase of 35% compared to $142.3 million as of September 30, 2017. Total deferred revenue for the third quarter of 2018 includes $2.3 million of deferred revenue balances acquired from business combinations during the period.The company generated $32.2 million in cash flow from operations, compared to $25.5 million in the third quarter of 2017. The company generated $30.0 million in free cash flow (cash flow from operations less capital expenditures) for the quarter, compared to $22.2 million during the third quarter of 2017.As previously disclosed, the Company has adopted ASC 606 under the modified retrospective method effective January 1, 2018. The accounting impact on revenue, expenses and income has been provided in the tables included in this press release.A reconciliation of GAAP to non-GAAP financial measures has been provided in the financial statement tables included in this press release. An explanation of these measures is also included below under the heading “Non-GAAP Financial Measures.”

No Quarterly Conference Call

Due to the previously announced definitive agreement to be acquired by leading private equity technology investment firm Thoma Bravo, LLC, Imperva does not plan to host an earnings conference call to discuss third quarter 2018 financial results.

Non-GAAP Financial Measures

Imperva reports all financial information required in accordance with U.S. generally accepted accounting principles (GAAP). To supplement the Imperva unaudited condensed consolidated financial statements presented in accordance with GAAP, Imperva uses certain non-GAAP measures of financial performance. The presentation of these non-GAAP financial measures is not intended to be considered in isolation from, as a substitute for, or superior to, the financial information prepared and presented in accordance with GAAP, and may be different from non-GAAP financial measures used by other companies. In addition, these non-GAAP measures have limitations in that they do not reflect all of the amounts associated with the results of Imperva operations as determined in accordance with GAAP.

The non-GAAP financial measures used by Imperva include billings, or revenue plus the change in deferred revenue, net of acquired deferred revenue during the period plus any adjustment to the deferred revenue balance due to adoption of the new revenue recognition standard; free cash flow, or cash provided by operating activities less capital expenditures; and non-GAAP operating income (loss); non-GAAP net income (loss); and non-GAAP basic and diluted loss per share. These non-GAAP financial measures exclude stock-based compensation, acquisition- and disposition-related expenses, amortization of purchased intangibles, restructuring and non-routine consulting expenses related to our restructuring and strategy, facilities exit costs, gain on sale of business, provision for income taxes on sale of business and the amount of legal settlements from the Imperva unaudited condensed consolidated statement of operations.

For a description of these items, including the reasons why management adjusts for them, and reconciliations of historical non-GAAP financial measures to the most directly comparable GAAP financial measures, please see the section of the accompanying tables titled “Use of Non-GAAP Financial Information” as well as the related tables that precede it. Imperva may consider whether other significant non-routine items that arise in the future should also be excluded in calculating the non-GAAP financial measures it uses.

Imperva believes that these non-GAAP financial measures, when taken together with the corresponding GAAP financial measures, provide meaningful supplemental information regarding the performance of Imperva by excluding certain items that may not be indicative of the company’s core business, operating results or future outlook. Imperva management uses, and believes that investors benefit from referring to, these non-GAAP financial measures in assessing operating results of Imperva, as well as when planning, forecasting and analyzing future periods. These non-GAAP financial measures also facilitate comparisons of the performance of Imperva to prior periods.

About Imperva

Imperva® is a leading cybersecurity company that delivers best-in-class solutions to protect data and applications – wherever they reside – on-premises, in the cloud, and across hybrid environments. The company’s Incapsula, SecureSphere, and CounterBreach product lines help organizations protect websites, applications, APIs, and databases from cyberattacks while ensuring compliance. Imperva innovates using data, analytics, and insights from our experts and our community to deliver simple, effective and enduring solutions that protect our customers from cybercriminals. Learn more at www.imperva.com, our blog, or Twitter.

© 2018 Imperva, Inc. All rights reserved. Imperva, the Imperva logo, CounterBreach, Incapsula, SecureSphere, ThreatRadar, Camouflage along with its design and Prevoty are trademarks of Imperva, Inc. and its subsidiaries.

 

IMPERVA, INC. AND SUBSIDIARIES

Consolidated Statements of Operations

(On a GAAP basis)

(In thousands, except per share data) (Unaudited)     Three months ended   Nine months ended September 30, September 30, 2018   2017 2018   2017 Net revenue:   Products and license $ 23,241 $ 26,627 $ 62,971 $ 66,217 Services   68,392   57,265     197,706     164,418   Total net revenue 91,633 83,892 260,677 230,635   Cost of revenue: (1) (4) Products and license 1,985 1,883 5,623 5,638 Services   16,997   14,684     49,634     41,455   Total cost of revenue   18,982   16,567     55,257     47,093   Gross profit 72,651 67,325 205,420 183,542 Operating expenses: (1) (4) Research and development 18,618 15,515 56,219 47,493 Sales and marketing (2) 39,051 38,245 119,098 111,757 General and administrative (3) (5) 13,872 13,645 41,789 39,556 Restructuring charges - - 2,551 667 Amortization of acquired intangible assets   644   133     908     582   Total operating expenses   72,185   67,538     220,565     200,055   Income (loss) from operations 466 (213 ) (15,145 ) (16,513 ) Gain on sale of business - - - 35,871 Other income, net   1,034   567     2,983     633   Income (loss) before provision for income taxes 1,500 354 (12,162 ) 19,991 Provision for income taxes (3)   442   724     19,620     768   Net (loss) income $ 1,058 $ (370 ) $ (31,782 ) $ 19,223   Net (loss) income per share of common stock stockholders, basic $ 0.03 $ (0.01 ) $ (0.91 ) $ 0.57   Net (loss) income per share of common stock stockholders, diluted $ 0.03 $ (0.01 ) $ (0.91 ) $ 0.56   Shares used in computing earnings per share of common stock, basic   35,066   33,907     34,782     33,590   Shares used in computing earnings per share of common stock, diluted   35,745   33,907     34,782     34,118     (1) Stock-based compensation expense as included in above: Cost of revenue $ 2,072 $ 1,343 $ 4,789 $ 4,015 Research and development 2,354 2,584 7,299 9,912 Sales and marketing 3,989 3,850 11,034 11,016 General and administrative 3,566 3,694 14,809 10,970 Restructuring charges   -   -     -     675   Total stock-based compensation expense $ 11,981 $ 11,471   $ 37,931   $ 36,588     (2) Non-routine consulting related to our restructuring and strategy as included in above: Sales and marketing $ - $ -   $ 1,700   $ -   $ - $ -   $ 1,700   $ -     (3) Acquisition related expense as included in above: General and administrative $ 1,075 $ $ 1,315 $ 1,082 Provision for income taxes on sales of business   -   -     -     901   $ 1,075 $ -   $ 1,315   $ 1,983     (4) Legal Settlements Cost of revenue $ - $ - $ 120 $ - Research and development - - - - Sales and marketing $ - - $ 1,292 - General and administrative $ -   -   $ 981     -   $ - $ -  

$

2,393

  $ -   (5) Facilities exit costs as included in above: General and administrative $ 559 $ -   $ 559   $ -   $ 559 $ -   $ 559   $ -     IMPERVA, INC. AND SUBSIDIARIES Consolidated Balance Sheets (In thousands) (Unaudited)     September 30,     December 31, 2018 2017 ASSETS CURRENT ASSETS: Cash and cash equivalents $ 155,932 $ 192,538 Short-term investments 148,487 166,993 Restricted cash 30 52 Accounts receivable, net 68,261 75,535 Deferred costs, current 6,647 - Inventory 189 617 Prepaid expenses and other current assets   9,191     14,894   Total current assets 388,737 450,629 Property and equipment, net 22,600 25,407 Goodwill 149,445 36,389 Acquired intangible assets, net 14,376 3,184 Severance pay fund 5,799 6,554 Restricted cash 2,603 2,284 Deferred tax assets 995 2,022 Other assets including non-current deferred costs   21,388     1,593   TOTAL ASSETS $ 605,943   $ 528,062   LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable $ 5,372 $ 5,869 Income taxes 8,916 319 Accrued compensation and benefits 23,422 22,913 Accrued and other current liabilities 15,327 11,098 Deferred revenue   137,814     126,174   Total current liabilities 190,851 166,373 Long-term accrued severance pay 6,564 7,238 Other non-current liabilities 12,887 6,253 Deferred revenue   54,022     33,081   TOTAL LIABILITIES   264,324     212,945   Commitments and Contingencies STOCKHOLDERS' EQUITY: Common stock 3 3 Additional paid-in capital 612,249 572,106 Accumulated deficit (268,846 ) (256,537 ) Accumulated other comprehensive loss   (1,787 )   (455 ) TOTAL STOCKHOLDERS' EQUITY   341,619     315,117   TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 605,943   $ 528,062       IMPERVA, INC. AND SUBSIDIARIES Consolidated Statements of Cash Flows (In thousands) (Unaudited)     Nine months ended September 30 2018     2017 CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $ (31,782 ) $ 19,223 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 8,709 7,780 Stock-based compensation 37,931 36,588 Amortization of deferred costs 3,864 - Amortization of acquired intangibles 908 582 Loss on disposals - 48 Amortization of premiums/accretion of discounts on short-term investments 163 56 Gain on sale of business - (35,871 ) Facilities exit costs 559 - Other 668 (1,090 ) Changes in operating assets and liabilities: Accounts receivable, net 8,741 2,767 Inventory 355 61 Deferred costs (14,541 ) - Prepaid expenses and other assets 558 (794 ) Accounts payable (653 ) (628 ) Income taxes 8,597 707 Accrued compensation and benefits 509 3,981 Accrued and other liabilities 9,033 4,229 Severance pay (net) 81 256 Deferred revenue 33,848 13,253 Deferred tax assets   1,027     (1,682 ) Net cash provided by operating activities   68,575     49,466   CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from sales/maturities of short-term investments 71,736 66,463 Purchase of short-term investments (53,339 ) (91,878 ) Proceeds from sale of business - 35,015 Receipt of cash in escrow from sale of business 5,000 - Acquisitions, net of cash acquired (123,507 ) - Net purchases of property and equipment   (5,724 )   (9,835 ) Net cash used in investing activities   (105,834 )   (235 ) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of common stock, net of repurchases 10,799 14,790 Shares withheld for tax withholding on vesting of restricted stock units   (9,151 )   (8,217 ) Net cash provided by financing activities   1,648     6,573   Effect of exchange rate changes on cash, cash equivalents, and restricted cash   (698 )   1,090   NET INCREASE (DECREASE) IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH (36,309 ) 56,894 CASH, CASH EQUIVALENTS AND RESTRICTED CASH - Beginning of period   194,874     109,295   CASH, CASH EQUIVALENTS AND RESTRICTED CASH - End of period $ 158,565   $ 166,189       IMPERVA, INC. AND SUBSIDIARIES Topic 606 Adoption Financial Impact (In thousands, except per share data) (Unaudited)     Three months ended   Nine months ended September 30,2018 September 30,2018

Asreported

  Adjustments  

Balanceswithoutadoption ofTopic 606

Asreported

  Adjustments  

Balanceswithoutadoption ofTopic 606

Net revenue: Products and license $ 23,241 $ (2,768 ) $ 20,473   $ 62,971   $ (5,778 ) $ 57,193   Services: Subscriptions 38,519 (378 ) 38,141 109,956 (352 ) 109,604 Maintenance and Support 25,219 (967 ) 24,252 75,393 (2,365 ) 73,028 Professional services and training   4,654   72     4,726     12,357     258     12,615   Total services   68,392   (1,273 )   67,119     197,706     (2,459 )   195,247   Total net revenue   91,633   (4,041 )   87,592     260,677     (8,237 )   252,440   Operating expenses: Sales and marketing   39,051   2,882     41,933     119,098     10,677     129,775   Income (loss) from operations   466   (6,923 )   (6,457 )   (15,145 )   (18,914 )   (34,059 ) Net (loss) income $ 1,058 $ (6,923 ) $ (5,865 ) $ (31,782 ) $ (18,914 ) $ (50,696 ) Net (loss) income per share of common stock stockholders, basic and diluted $ 0.03 $ (0.17 ) $ (0.91 ) $ (1.46 )     IMPERVA, INC. AND SUBSIDIARIES Reconciliation of GAAP to Non-GAAP Measures (In thousands, except per share data) (Unaudited)     Three months ended September 30

 

Nine months ended September 30

2018   2017

 

2018

 

2017

GAAP operating income (loss) $ 466 $ (213 ) $ (15,145 ) $ (16,513 ) Plus: Stock-based compensation expense 11,981 11,471 37,931 35,913 Acquisition- and disposition-related expense 1,075 - 1,315 1,082 Restructuring - - 2,551 667 Facilities exit costs 559 - 559 - Legal settlement - - 2,393 - Non-routine consulting related to our restructuring and strategy - - 1,700 - Amortization of purchased intangibles   644   133     908     582   Non-GAAP operating income $ 14,725 $ 11,391   $ 32,212   $ 21,731     GAAP net income (loss) $ 1,058 $ (370 ) $ (31,782 ) $ 19,223 Plus: Stock-based compensation expense 11,981 11,471 37,931 35,913 Acquisition- and disposition-related expense 1,075 - 1,315 1,082 Restructuring - - 2,551 667 Non-routine consulting related to our restructuring and strategy - - 1,700 - Legal settlement - - 2,393 - Facilities exit costs 559 - 559 - Amortization of purchased intangibles 644 133 908 582 Gain on sale of business - - - (35,871 ) Provision for income taxes on sale of business   -   -     -     901   Non-GAAP net income $ 15,317 $ 11,234   $ 15,575   $ 22,497     Weighted average shares outstanding, basic 35,066 33,907 34,782 33,590   Weighted average shares outstanding, diluted 35,745 34,430 35,407 34,118   Non-GAAP net income, basic $ 0.44 $ 0.33

 

$

0.45 $ 0.67   Non-GAAP net income, diluted $ 0.43 $ 0.33

 

$

0.44 $ 0.66     IMPERVA, INC. AND SUBSIDIARIES Billings (In thousands) (Unaudited)     Three months ended

 

Nine months ended

September 30,

 

September 30,

2018   2017 2018   2017 Total revenue $ 91,633 $ 83,892 $ 260,677 $ 230,635 Change in deferred revenue 17,185 8,121 32,581 11,800 Adjustment for acquired deferred revenue (2,295 ) - (2,295 ) - Deferred revenue adjustment due to adoption of the new revenue recognition standard   -     -   3,562     - Billings $ 106,523   $ 92,013 $ 294,525   $ 242,435     IMPERVA, INC. AND SUBSIDIARIES Reconciliation of Free Cash Flow (In thousands) (Unaudited)     Nine months ended September 30 2018   2017 Net cash provided by operating activities $ 68,575 $ 49,466 Less: Net purchases of property and equipment   (5,724 )   (9,835 ) Total free cash generated $ 62,851   $ 39,631    

Use of Non-GAAP Financial Information

In addition to the reasons stated under “Non-GAAP Financial Measures” above, which are generally applicable to each of the items Imperva excludes from its non-GAAP financial measures, Imperva believes it is appropriate to exclude or give effect to certain items for the following reasons:

Stock-based Compensation. When evaluating the performance of its consolidated results, Imperva does not consider stock-based compensation expense. Likewise, the Imperva management team excludes stock-based compensation expense from its operating plans. In contrast, the Imperva management team is held accountable for cash-based compensation and such amounts are included in its operating plans. Further, when considering the impact of equity award grants, Imperva places a greater emphasis on overall stockholder dilution rather than the accounting charges associated with such grants.

Imperva excludes stock-based compensation expense from its non-GAAP financial measures primarily because it does not consider such expense as part of its ongoing operating results when assessing the performance of its business, and the exclusion of the expense facilitates the comparison of current period results with results from prior periods.

Amortization of Purchased Intangibles. When analyzing the operating performance of an acquired entity, Imperva’s management focuses on the total return provided by the investment (i.e., operating profit generated from the acquired entity as compared to the purchase price paid) without taking into consideration any allocations made for accounting purposes. Because the purchase price for an acquisition necessarily reflects the accounting value assigned to intangible assets (including acquired technology and goodwill), when analyzing the operating performance of an acquisition in subsequent periods, Imperva’s management excludes the GAAP impact of acquired intangible assets to its financial results. Imperva believes that such an approach is useful in understanding the long-term return provided by an acquisition and that investors benefit from a supplemental non-GAAP financial measure that excludes the accounting expense associated with acquired intangible assets.

In addition, in accordance with GAAP, Imperva generally recognizes expense for internally-developed intangible assets as they are incurred until technological feasibility is reached, notwithstanding the potential future benefit such assets may provide. Unlike internally-developed intangible assets, however, and also in accordance with GAAP, Imperva generally capitalizes the cost of acquired intangible assets and recognizes that cost as an expense over the useful lives of the assets acquired (other than goodwill, which is not amortized, as required under GAAP). As a result of their GAAP treatment, there is an inherent lack of comparability between the financial performance of internally-developed intangible assets and acquired intangible assets. Accordingly, Imperva believes it is useful to provide, as a supplement to its GAAP operating results, a non-GAAP financial measure that excludes the amortization of acquired intangibles.

Acquisition and Disposition-related Expense, Gain on Sale of Business, and Provision for Income Taxes on Sale of Business. Imperva completed the acquisition of Prevoty on August 9, 2018 and on October 10, 2018 announced that it had entered into a definitive agreement to be acquired by Thoma Bravo, LLC. During the first quarter of 2017 Imperva completed the disposition of the Skyfence business. Imperva incurred legal, accounting, advisory and other transaction-related expense in connection with these transactions and excluded the associated acquisition and disposition-related expenses from its non-GAAP financial measures because they are not representative of ongoing operating costs. Imperva also excluded the gain on the sale of the Skyfence business and the related tax effects given that such gain and the associated taxes are not representative of Imperva’s ongoing operations. Imperva does not acquire or dispose of businesses on a predictable cycle and the expenses, gains (if any) and the associated taxes from these transactions vary significantly and are unique to each transaction. Imperva records acquisition- and disposition-related expense as operating expense when incurred and the gain on sale of business and provision for income taxes associated with the sale were recorded at the time the Skyfence transaction closed. As a result, when they occur, these expenses, gains and taxes affect comparability from period to period and Imperva believes that investors benefit from a supplemental non-GAAP financial measure that excludes these expenses, gains and taxes to facilitate the comparison of current period results with the results from prior periods.

Facility Exit Costs. In September 2018, Imperva exited and subleased a portion of its facilities located in Redwood Shores, California and recorded charges in connection with the exit. These charges are not representative of ongoing costs to the business as they were part of a site consolidation plan that has been completed and is not expected to recur. As a result, these charges are being excluded to provide investors with a more comparable measure of costs associated with ongoing operations.

Restructuring Charges and Related Non-routine Consulting Expenses. Imperva undertook a restructuring plan in the fourth quarter of 2016 and recorded restructuring charges in connection with the plan during the first quarter of 2017, substantially all of which were related to stock-based compensation expense associated with accelerated vesting of equity awards for certain terminated employees. Imperva undertook a separate restructuring plan in the first quarter of 2018, and recorded restructuring charges in connection with the plan related to cash severance payments. Imperva also incurred non-routine consulting fees and expenses related to developing the restructuring plan and company strategy. In contrast to cost-reduction initiatives that are part of ongoing operations, the restructuring plan and the consulting fees that went into developing the plan resulted in severance and consulting costs that we believe are not representative of ongoing operating costs. Imperva has excluded the expense associated with these activities to provide investors with a more comparable measure of costs associated with ongoing operations.

Legal Settlements. During the second quarter of 2018, Imperva entered into an agreement in principle to settle two class action lawsuits and accrued the amounts of the settlements, which remain subject to court approvals, among other conditions prior to being funded. When planning and evaluating the performance of its consolidated results, Imperva does not consider the amount of legal settlements it was required to recognize in the second quarter of 2018 as representative of ongoing operating costs due to the unusual and one-time nature of the charges. Imperva will recognize charges related to in-period settlement activities for future periods, and does not expect to exclude such charges from its non-GAAP financial measures.

Billings. Imperva believes billings provide management and investors with important information about the health of the business particularly as sales of subscription and support services and related renewals grow.

Free Cash Flow. Imperva considers free cash flow to be a profitability and liquidity measure that provides useful information to management and investors about the amount of cash generated by the business after necessary capital expenditures.

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Investor Relations Contact InformationSunil Shah650.832.6852IR@imperva.comSunil.Shah@imperva.com