Blue Coat Systems (BCSI)
Q4 2010 Earnings Call
May 27, 2010 5:00 pm ET
Jane Underwood - Senior Director for investor relations
Brian NeSmith - Chief Executive Officer, President, Executive Director and Member of Stock Option Committee
Gordon Brooks - Chief Financial Officer, Principal Accounting Officer and Senior Vice President
Scott Zeller - Needham & Company, LLC
Alex Henderson - Citigroup
Andrew Nowinski - Piper Jaffray
Kevin Shea - MKM Partners
Anthony Carbone - Auriga USA LLC
Jess Lubert - Wells Fargo Securities, LLC
Erik Suppiger - Signal Hill
Daniel Ives - FBR Capital Markets & Co.
Tal Liani - BofA Merrill Lynch
Jonathan Ruykhaver - ThinkEquity LLC
Previous Statements by BCSI
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Ladies and gentlemen, thank you for standing by. Welcome to the Blue Coat Systems Fourth Quarter Results Conference call. [Operator Instructions] I would now like to turn the conference over to our host, Jane Underwood. Please go ahead.
Good afternoon, and thank you for joining us to discuss Blue Coat's financial results for the fourth quarter of fiscal year 2010. With me today on today's call is Brian NeSmith, our President and Chief Executive Officer; and Gordon Brooks, our Chief Financial Officer.
Before I turn the call over to Gordy, let me remind you that during the course of this call, we will make forward-looking statements about Blue Coat Systems, Inc. These statements regarding expectations concerning market growth and business opportunities, including levels of IT spending, expectations regarding future revenues, expenses, margins, profits, tax rates and other financial metrics, plans to develop and offer new products and services and enter new markets, success of our business strategy, acquisitions, restructuring and changes in our business model and operations, and other matters impacting Blue Coat's financial outlook and future business.
All statements, other than statements of historical facts, are statements that could be deemed forward-looking statements, including statements of expectations or beliefs and any statements of assumptions underlying any of the foregoing. Risks, uncertainties and assumptions include the risks that are described from time to time in the reports filed by Blue Coat with the Securities and Exchange Commission, including but not limited to, the risks described in Blue Coat's annual report on Form 10-K for the year ended April 30, 2009, and quarterly report on Form 10-Q for the quarter ended January 31, 2010.
No assurances can be given that any of the events anticipated by the forward-looking statements will transpire or occur, or if any of them do, what impact they will have on the results of operations or financial condition of Blue Coat. Blue Coat assumes no obligation and does not intend to update these forward-looking statements except as required by applicable laws. Now I'd like to turn the call over to Gordy.
Thank you, Jane. Good afternoon. Today, we are pleased to announce company record net revenue of $133 million for fiscal Q4, an increase of 4% sequentially and an increase of 17% compared with the same quarter a year ago. Net revenue for the fiscal year ended April 30, 2010, was $496 million, an increase of 12% compared with net revenue of $445 million for fiscal year ended April 30, 2009.
Product revenue for fiscal Q4 was $88 million, an increase of 4% sequentially and an increase of 18% compared with the same quarter a year ago. This includes PacketShaper product revenue of $16 million and Blue Coat WebFilter product revenue of $6 million.
Product revenue for fiscal year 2010 was $322 million, an increase of 5% over fiscal year 2009. Service revenue, which is primarily composed of revenue related to support and maintenance, was $45 million, an increase of 4% sequentially and an increase of 14% compared with the same quarter a year ago. This includes PacketShaper Service revenue of $10 million and Blue Coat WebFilter Service revenue of $3 million. Service revenue for fiscal year 2010 was $174 million, an increase of 25% over fiscal year 2009.
On a geographic basis in Q4, net revenue in the Americas was $58.3 million and represented 44% of total revenue. Net revenue in EMEA was $47.9 million and represented 36% of total revenue, and net revenue in Asia-Pac was $26.3 million and represented 20% of total revenue.
Net revenue in EMEA declined 5% sequentially, and product revenue declined 9%. This trend was not in line with our expected performance in EMEA. We believe that the softness we experienced in EMEA was due to recent uncertainty of E.U. economic environment. We saw sequential product revenue declines in the majority of the countries in Europe.
In Q4, we had four deals in the quarter whose total value is greater than $1 million. All of which were in North America. On a non-GAAP basis, gross margin increased to 78.7% in Q4 compared with 76.3% in the previous quarter due to an improvement on our product margin. This improvement was primarily driven by product mix as our new ProxySG 9000, which replaces the 8100 appliance to the higher gross margin. Non-GAAP operating expenses increased to $76.8 million in Q4 from $71.7 million in the previous quarter, and increased from $73.2 million in the same period a year ago.
Total employee headcount was 1,261 as of April 30 as compared with 1,356 as of January 31. Approximately 90 employees affected by our restructuring program and on the transition plan ended employment during the quarter. In Q1, we have less than five employees remaining on transition.
With regard to non-GAAP functional expenses, sales and marketing increased sequentially to $44.5 million or 34% of net revenue compared with $41.3 million and 32% in the prior quarter. The sequential increase in sales and marketing expense resulted from increased commission expense and related social taxes totaling approximately $2 million. This increase was a consequence of the additional revenue generated in the quarter and the year-end commission accelerators that are part of our annual sales commission plan.