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Proofpoint in 3Q15: Increases in Revenue versus Negative Bottom Line

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Operating expenses remain high

Previously in this series, we discussed how Proofpoint achieved cost efficiency from the revenues it generated in 3Q15. But it remained inefficient in implementing its operations. For example, Proofpoint’s expenses from R&D (research & development), sales and marketing, and G&A (general and administrative) showed relative increases of 28.92%, 57.95%, 14.41%, respectively, compared to the previous year’s relative increases of 26.74%, 51.01% 14.18%, respectively. That makes for an overall increase of operating expenses of $70.0 million compared to $46.2 million in the same quarter last year.

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In 3Q15, Proofpoint generated an operating loss of $21.9 million compared to its previous year loss of $13.2 million on a GAAP (generally accepted accounting principle) basis. However, on a non-GAAP basis, the company generated a loss of $0.93 million compared to its previous year loss of $2.2 million. So there’s a huge gap between the company’s GAAP and the non-GAAP operating expenses, primarily due to stock-based compensation expenses, which stood at $16 million compared to $8 million the previous year.

Net income remains negative

Proofpoint’s 3Q15 earnings report shows that the company made an addition of $340.7 million to its existing convertible senior notes compared to $161.4 million it added in 4Q14—an increase of 111.1%. This indicates that the company has made changes to their capital structure by increasing more debt, which in turn increased its interest expenses and made its bottom line even more narrow.

The company’s net profits show a loss of $28.4 million compared to its previous year loss of $17.3 million—a decrease of 63.9%. Proofpoint has reported negative diluted EPS (earnings per share) of $0.71 compared to its previous year of negative $0.46 on a GAAP basis. The company’s non-GAAP diluted EPS stood at $0.06 compared to $0.11 during the same period the previous year.

Cash flow

According to its 3Q15 earnings report, Proofpoint’s balance sheet shows cash and cash equivalents at $368.1 million compared to $180.3 million during the same period the previous year—an increase of 104.2%. Primarily due to a 30.23% increase in deferred revenues and non-cash expenses such as stock-based compensation expenses.

Proofpoint reported cash flows from operating activities of $37.5 million compared to $5.8 million the previous year—an increase of 176.8 million. The company reported a non-GAAP free cash flow of $16.2 million compared to $4.2 million in 3Q14.

The First Trust ISE Cloud Computing Index Fund (SKYY) is a portfolio of 36 stocks, of which the top four stocks—Amazon.com (AMZN), Netflix (NFLX), Facebook (FB), and Google (GOOG)—constitute 4.98%, 4.54%, 4.54, and 4.52%, respectively.

Continue to the next and final part of this series for a look analyst recommendations for Proofpoint.

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