SurfControl Announces Fourth Quarter and FY 2004 Year End Results Showing 81 Percent Increase in Profit After Taxes

The company also reported:

• Record quarter invoicing: Q4 $34.3 million, a year-on-year increase of 14 percent
• Annual revenues and EBITDA in line with expectations at $87.3 million and $15.7 million
• Record operating and free cash flow in Q4 of $9.6 million and $8 million
• Annual profit after tax increased 81 percent to $11.5 million
• Integration of SecureM acquisition progressing well: E-mail appliance launch scheduled for fall 2004 and China Q4 revenues of $0.5 million
• Technology Roadmap on track with a significant series of launches scheduled during 2004/5
• Strong increase in deferred revenues to $75 million, a year-on-year increase of 38 percent

“The financial results for 2004 reflect success at every level – sales, profits and cash flow. The higher cash balances and higher levels of deferred income give us a strong platform for future investment and growth,” said SurfControl CEO Steve Purdham.  “With invoicing reaching more than $106.6 million, revenue of $87.3 million, cash of $87.5 million and pre-tax profits of $14.4 million, SurfControl has had another record year.”

Some earlier than expected sales helped Q4 finish strongly and ahead of expectations with record invoicing of $34.3 million. Purdham said the company expects Q1 to follow seasonal patterns and produce invoicing of between $19-22 million, with corresponding revenue of $22-23 million. EBITDA, excluding the exceptional costs of moving the U.S. headquarters to a new facility in Scotts Valley, California, will be in the range of $2.75 million to $3.75 million. 

Purdham said the coming year will be an important one as SurfControl delivers on a Technology Roadmap that calls for the introduction of improved and complementary technologies that should produce FY04/5 revenue of $97-102 million, with EBITDA (excluding exceptional items) of $20-25 million. 

Financial Highlights
Revenues for the quarter increased 20 percent to $24.5 million compared to $20.4 million in Q4 2003. Revenues for the year ended June 30, 2004, increased 19 percent to $87.3 million, compared to 2003 revenues of $73.2 million.  License revenue represented 26 percent of total revenue in the quarter, compared to 27 percent in the same time last year. Geographic expansion has continued with non-Americas revenues representing 37 percent of overall revenues in the quarter, compared to 30 percent in Q4 2003.

EBITDA for the quarter increased 28 percent to $4.1 million, compared to $3.2 million in Q4 2003, while EBITDA for the year increased 43 percent to $15.7 million, compared to $11 million last year.

The acquisition of assets from SecureM during the quarter resulted in a fourth quarter amortization charge of $1.4 million against intangible assets. Profit before tax for the quarter declined slightly to $2.6 million from $2.7 million in Q4 2003, as a result of the amortization charge.  Profit before tax for the year ended June 30, 2004, increased 62 percent to $14.4 million, compared to $8.9 million for 2003.

Basic earnings per share increased 27 percent to 8.5 cents in the quarter from 6.7 cents in Q4 2003.

Basic earnings per share increased 78 percent to 37.3 cents for the year ended June 30, 2004, compared to 20.9 cents in 2003.

Overall invoicing in the quarter was $34.3 million, representing a 14 percent annual increase over the same period last year. Invoicing for the year increased 16 percent to $106.6 million. New business sales represented 50 percent of invoicing, renewals 48 percent, and OEM/home sales 2 percent.  The company added 1,860 new customers in the fourth quarter.  Meanwhile, customer renewal rates improved and remain above 70 percent.  The fourth quarter showed 45 deals exceeding $50,000.

Deferred revenue increased annually by 38 percent to $75 million, compared to $54.3 million in 2003.    Of the deferred revenue balance, 65 percent is due to be recognized as revenue within the next 12 months.  Operating cash flow for the year increased 35 percent to $32.6 million, compared to $24.1 million in 2003.  

Following the end of the closed period, SurfControl will resume and extend the purchase of its own shares. “We believe that at current levels of valuation such purchases represent an excellent use of cash,” Purdham said.

Corporate Highlights
In the last 12 months SurfControl has defined the direction, objectives and technology that the company will develop to meet changing market dynamics. The investment in development during 2003-2004 was the greatest in the company’s history, and culminated in the May announcement of the Technology Roadmap. 

The use of e-mail and the Web at work has been the most important business development in recent times, but has brought with it fundamental risks and challenges such as legal liability, risks to productivity, network capacity pressures, and increased security threats. The market for controlling Internet risks is known as the Secure Content Market, and includes three major segments: Web filtering, messaging security, and anti-virus. In 2003, the total Secure Content Market generated combined sales of $3.2 billion. This is predicted to rise to $7.2 billion (IDC) in 2008, growing at a Compound Annual Growth Rate (CAGR) of 17 percent. 

SurfControl has focused on providing high quality software solutions on multiple platforms to satisfy market demand for ways to control these risks, giving customers the power to ‘stop unwanted content’. However, as the Secure Content Market expands, it is evolving in multiple ways. SurfControl is monitoring these evolutionary developments and using its industry leading position and financial strength to exploit them.

While software still represents 44 percent of the messaging security market, hardware appliances now represent 27 percent, as do managed services. The additional market opportunity for the Secure Content Appliance is expected to exhibit 70 percent CAGR between now and 2007, and will be worth $1.6 billion.

“Following our Technology Roadmap, our plan is to launch both appliance and managed service versions of our filtering solution in the coming year,” Purdham said. “SurfControl’s ability to adapt to change has been one of the keys to our success.  Our special ability to adapt to change and our financial strength puts us in a strong position to take advantage of evolving market dynamics.”

SurfControl is extending its technology offerings into appliance and managed services solutions to provide customers with the choice to manage content using one or a combination of methods.  The company’s continuing investment in R&D will result in a pivotal year that includes the launch of:

• SurfControl Web Filter Version 5
• SurfControl Instant Message Filter 2.5
• SurfControl Mobile Filter (Nomad)
• Appliance Launch – US and Europe  
• SurfControl E-mail Filter Version 5
• SurfControl E-mail Filter Version 5 for Exchange

For many organizations, however, software remains the solution of choice, and SurfControl’s software is consistently viewed as being the best of breed.  During the year, SurfControl announced several enhancements to its software that added functionality and performance. These included upgrades to Web Filtering software for Microsoft Windows, Proxy server and ISA server, and Check Point Firewall 1 as well as new versions of our E-mail Filter. The delivery in the last quarter of our last financial year of Web filtering functionality for Cisco CE and Blue Coat Platforms gives the potential to be involved in bids previously not open to the company.

SurfControl’s E-mail appliance will be introduced in Europe, the UK and the United States in the next few weeks.  A managed services offering is envisioned for the first half of 2005.  SurfControl continues to expand geographically, with the bulk of revenue generated in the United States but Australia showing tremendous market share.  Additional focus in the coming year will be on Europe and China.

About SurfControl
SurfControl plc, the world leader in enterprise Web and e-mail filtering, delivers on its promise to help companies 'Stop Unwanted Content' in the workplace by continuous innovation, invention and expansion of its filtering products to address new content risks as they emerge. 

SurfControl is the industry's only complete solution to managing Internet risk. SurfControl technology protects all points of entry, and every way employees use the Internet for business -- Instant Messaging, Web, e-mail and peer-to-peer. It also works on every platform they work on - Blue Coat, Cisco, Check Point, Microsoft Exchange and ISA 2004, and many more.
 
The company's products and technology are used by more than 20,000 customers worldwide, including many of the world's largest corporations. SurfControl employs more than 500 people in offices across the United States, Europe and Asia/Pacific. For further information and news on SurfControl, please visit www.surfcontrol.com/.

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Caution concerning forward-looking statements: Any statements contained in this announcement that are not historical facts are forward-looking statements. Although the Company believes that its plans, intentions and expectations reflected in such forward-looking statements are reasonable, a number of important factors could cause SurfControl's actual future results to differ materially from those expressed in any such forward-looking statements. The forward-looking statements herein speak only as of today. SurfControl expressly disclaims any obligation or undertaking to update or revise such information.

Any references to pro-forma financial measures must be read in conjunction with the accompanying reconciliation to the nearest UK GAAP measure which can be found on our website.

Noot voor de redactie

Voor nadere informatie:
Henriëtte Oeschger, Marketing Manager Benelux, SurfControl
Tel: +31 (0)10-4020070 of +31 (0)6-51953833, e-mail: henriette.oeschger@surfcontrol.com, of Carroll Florentinus, Irene Management Consultancy b.v.
Tel. +31 (0)20-4961500 of +31 (0)6-53225853, e-mail: carrollf@irenemgnt.nl