McAfee Newsroom: McAfee, Inc. Reports Record Quarterly Revenue and Operating Cash Flow for the First Quarter of 2009

SANTA CLARA, Calif., April 30, 2009 - McAfee, Inc. (NYSE:MFE) today reported financial results for the first quarter ended March 31, 2009.

First Quarter Financial Highlights:

• Revenue reached a record $448 million, an increase of 21 percent compared with the same period last year
• Deferred revenue was $1.27 billion, up 17 percent compared with the same period last year
• Cash flow from operations reached $146 million, an increase of 105 percent compared with the same period last year
• GAAP and non-GAAP earnings per diluted share were $0.34 and $0.57, respectively
• Record non-GAAP earnings per diluted share of $0.57 included an after-tax benefit of approximately $0.03 per share from an insurance reimbursement related to historical litigation expenses and $0.02 per share dilution resulting from the acquisition of Secure Computing

Executive Commentary:
"McAfee’s first quarter 2009 performance reflected record quarterly revenue of $448 million and our continued focus on improving profitability and operating cash flow. Non-GAAP earnings per share for the first quarter of 2009 reached a record quarterly high, while operating cash flow increased 105 percent compared to the first quarter of 2008 to $146 million, also a quarterly record for the company," said Dave DeWalt, McAfee’s president and chief executive officer.

“Despite the challenging economic environment, McAfee continues to deliver strong financial results," continued DeWalt. "This financial stability is the platform on which McAfee is building industry leadership. Customers from the consumer to the largest enterprise see the value in our unique and comprehensive security solutions, which provide improved protection, increased manageability and better return on their security investments."

First Quarter Financial Summary and Operational Metrics:

*A complete reconciliation of GAAP to non-GAAP results is set forth in the attachment to this press release.

Marking the 13th consecutive quarter of double-digit, year-over-year revenue growth, first quarter 2009 revenue reached $448 million, an increase of 21 percent, or $78 million, year-over-year. Secure Computing contributed $41 million to revenue, while foreign currency negatively impacted revenue by approximately $15 million year-over-year.

Deferred revenue at the end of the first quarter 2009 was $1.27 billion, a decrease of two percent or $24 million compared to the preceding quarter. Foreign currency negatively impacted deferred revenue by approximately $35 million compared to the preceding quarter.

Corporate Business:

• Revenue grew 28 percent to a record $276 million in the first quarter of 2009, compared with the same period last year
• In the first quarter of 2009, McAfee closed 350 deals of greater than $100,000 in value, including 41 deals over $500,000 and 16 deals of greater than $1 million in value

Consumer Business:

• Revenue reached a record $172 million in the first quarter of 2009, an increase of 12 percent compared with the same period last year
• In the first quarter of 2009, McAfee signed or extended 15 agreements and launched 69 new or enhanced online partnerships, bringing the total to over 200 brand name partners worldwide

North America:

• Revenue grew 34 percent to $254 million in the first quarter of 2009, compared with the same period last year
• North American revenue accounted for 57 percent of total revenue for the first quarter of 2009, compared with 51 percent of total revenue for the first quarter of 2008

International:

• Revenue grew seven percent to $194 million in the first quarter of 2009, compared with the same period last year. Foreign currency negatively impacted revenue by approximately $15 million year-over-year.
• As reported in U.S. dollars, year-over-year revenue from Europe, the Middle East and Africa declined one percent, Asia Pacific grew 14 percent, Japan grew 31 percent and Latin America grew 31 percent
• International revenue accounted for 43 percent of total revenue for the first quarter of 2009, compared with 49 percent of total revenue for the first quarter of 2008

Key Announcements:

• McAfee has entered into a global reseller agreement with HP where HP will sell McAfee’s entire line of enterprise security products and services globally
• Leading research firm Gartner, Inc. has placed the company in the leader’s quadrant in its “Magic Quadrant for Network Intrusion Prevention System Appliances, 1H09” as published in April 2009
• McAfee announced the release of its line of McAfee® Unified Threat Management (UTM) Firewalls
• McAfee announced availability of McAfee Web Protection Service—the industry’s first software-as-a-service (SaaS) Web security solution providing protection from malware and other Web-borne threats without any on-premise requirements
• McAfee announced a significant expansion to the McAfee Security Innovation Alliance™ (SIA) program. Since January 2009, McAfee has added 13 new “McAfee Compatible” solutions to its current SIA program and now has 59 SIA partners committed to helping customers drive operational savings with McAfee Compatible products. McAfee has also opened the program to System Integrators.
• McAfee announced that it has won three 2009 SC Magazine Awards in the following categories, Best Security Company, Best Endpoint Security Solution and Best Email Security Solution

Balance Sheet and Cash Flow Summary:
At March 31, 2009, the company reported cash and marketable securities of $801 million, compared with $594 million at the end of the fourth quarter of 2008. This quarter-over-quarter increase was primarily due to increased operating cash flow generation, as well as a $100 million unsecured term loan drawn down in January 2009 as part of a credit agreement entered into with a group or consortium of banks in late 2008.

During the first quarter of 2009, the company generated approximately $146 million in cash flow from operations, up 105 percent compared with the first quarter of 2008. Operating cash flow used during the quarter includes approximately $14 million for a litigation settlement. Days sales outstanding (DSOs) were 48 days compared to 48 days for the same period last year.

Deferred revenue was $1.269 billion at the end of the first quarter of 2009, including a negative foreign currency impact of approximately $35 million quarter-over-quarter. Approximately 81 percent of revenue during the first quarter of 2009 came from prior period deferred revenue.

Financial Outlook:
McAfee expects net revenue in the second quarter of 2009 of $455 million to $475 million.

The company expects second quarter 2009 GAAP net income of $0.28 to $0.32 per diluted share and non-GAAP net income of $0.54 to $0.58 per diluted share. Non-GAAP net income of $0.54 to $0.58 per diluted share is expected to include $0.01 to $0.02 per share dilution from the acquisition of Secure Computing.

This guidance reflects an assumed 12 percent annual GAAP tax rate and a 24 percent annual non-GAAP tax rate for 2009. Guidance does not reflect the future impact of the company’s stock repurchase program. See the reconciliation of projected GAAP net income per share to projected non-GAAP net income per share attached to this press release.

Conference Call Information:

• The company will host a conference call today at 1:30 P.M. Pacific, 4:30 P.M. Eastern to discuss its quarterly results. Participants should call (800) 809-7467 (U.S. toll-free) or (706) 679-4671 (international). The passcode is 88151192.
• Attendees should dial in at least 15 minutes prior to the conference call
• A replay of the call will be available until May 14, by calling (800) 642-1687 (U.S. toll-free) or (706) 645-9291 (international)
• A Web cast of the call may also be found on the Internet through McAfee’s Investor Relations Web site at http://inves tor.mcafee.com

Disclosure Statements and Discussion of Non-GAAP Financial Measures:
Management evaluates and makes operating decisions using various performance measures. In addition to reporting financial results in accordance with GAAP, we also consider adjusted gross profit, operating income and net income, which we refer to as “non-GAAP gross profit,” “non-GAAP operating income” and “non-GAAP net income.” In calculating non-GAAP gross profit, non-GAAP operating income and non-GAAP net income, management excludes certain items to facilitate its review of the comparability of the company's operating performance on a period-to-period basis because such items are not, in management's review, related to the company's ongoing operating performance.

Non-GAAP gross profit excludes amortization of purchased technology and patents, non-cash stock-based compensation charges and stock-based compensation charges related to tender offer. Non-GAAP net income and non-GAAP operating income exclude amortization of purchased technology, patents and intangibles, non-cash stock-based compensation charges and stock-based compensation charges related to tender offer, acquisition related costs, loss on sale/disposal of assets and technology, restructuring charges, investigation-related and other costs, impairment of marketable securities, provision for income taxes and certain other items. Management used a 27 percent non-GAAP effective tax rate to calculate non-GAAP net income in 2008. For 2009, management uses an assumed 24 percent non-GAAP effective tax rate. Management believes the 24 percent effective tax rate is reflective of a long-term normalized tax rate under the global McAfee legal entity and tax structure.

We present non-GAAP gross profit, non-GAAP operating income and non-GAAP net income because we consider each to be an important supplemental measure of our performance. Management uses these non-GAAP financial measures to make operational and investment decisions, to evaluate the company’s performance, to forecast and to determine compensation. Further, management utilizes these performance measures for purposes of comparison with its business plan and individual operating budgets and allocation of resources. In addition, when evaluating potential acquisitions, management excludes the items described above from its consideration of target performance and valuation.

We further believe that these non-GAAP financial measures are useful to investors in providing greater transparency to the information used by management in its operational decision making. We believe that calculating non-GAAP gross profit, non-GAAP operating income and non-GAAP net income also facilitates a comparison of McAfee’s underlying operating performance with that of other companies in our industry, which may from time to time use similar non-GAAP financial measures to supplement their GAAP results. However, non-GAAP gross profit, non-GAAP operating income and non-GAAP net income have limitations as analytical tools, and you should not consider these measures in isolation or as a substitute for GAAP gross profit, operating income and net income or any other performance measure determined in accordance with GAAP. In the future, we expect to continue to incur expenses similar to certain of the non-GAAP adjustments described above and exclusion of these items in the presentation of our non-GAAP financial measures should not be construed as an inference that all of these costs are unusual, infrequent or non-recurring. Investors and potential investors are cautioned that there are material limitations associated with the use of non-GAAP financial measures as analytical tools. Some of the limitations in relying on non-GAAP net income are:

• Amortization of purchased technology, patents and intangibles, though not directly affecting our current cash position, represents the loss in value as the technology in our industry evolves, is advanced or is replaced over time. The expense associated with this loss in value is not included in the non-GAAP net income presentation and therefore does not reflect the full economic effect of the ongoing cost of maintaining our current technological position in our competitive industry which is addressed through our research and development program.
• The company regularly engages in acquisition and integration activities as part of its ongoing business. Therefore, we expect to continue to experience acquisition and retention bonuses, direct acquisition costs and integration costs related to acquisition activity in future periods.
• The company’s income tax expense will ultimately be based on its GAAP taxable income and actual tax rates in effect, which may differ significantly from the 24 percent rate assumed in our non-GAAP financial measures for 2009 and the 27 percent rate assumed in our non-GAAP financial measures for 2008.
• Other companies, including companies in our industry, may calculate non-GAAP net income differently than we do, limiting its usefulness as a comparative tool

In addition, many of the adjustments to our GAAP financial statements result in the exclusion of items that are recurring and will be reflected in the company’s financial results for the foreseeable future. The company compensates for these limitations by providing specific information regarding the GAAP amounts excluded from the non-GAAP financial measures. The company further compensates for the limitations of our use of non-GAAP financial measures by presenting comparable GAAP measures more prominently. The company evaluates the non-GAAP financial measures together with the most directly comparable GAAP financial measure.

Investors and potential investors are encouraged to review the reconciliation of non-GAAP financial measures contained within this press release with our GAAP gross profit, operating income and net income. For more information, see the consolidated statements of income and the “Reconciliation of GAAP to Non-GAAP Financial Measures” contained in this press release.

Forward-Looking Statements:
This release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward looking statements include statements regarding the preliminary results for the quarter ended March 31, 2009, guidance on expected results for the second quarter of 2009, the assumed tax rates for the second quarter and full-year 2009, and statements about McAfee’s financial stability, business strategy, business momentum, market position, relationships, opportunities, and the value of McAfee’s security solutions. Actual results could vary, perhaps materially, and the expected results may not occur. In particular, actual results are subject to other risks, including that McAfee may not achieve its planned revenue realization rates or sales targets, succeed in its efforts to grow its business or combat effectively the security threats of the future, build upon its technology leadership, leverage its relationships and opportunities to the degree expected, or capture market share, notwithstanding related commitment or related investment. The company may not benefit from its acquisitions, strategic alliances or partnerships as anticipated, customers may not respond as favorably as anticipated to the company’s product or technical support offerings, the company’s product and service offerings may not continue to interoperate effectively with newly developed operating systems, the company may experience delays in product development or the release of previously announced products, the company may experience delayed or lost sales and revenue as a result of outages in integrated systems on which it is highly dependent, the company may not satisfactorily anticipate or meet its customers’ needs or expectations, or the industry shift to security suites may not be adopted to the extent anticipated. Actual results are also subject to a number of other factors, including customer and distributor demand fluctuations, currency fluctuations and macro and other economic conditions both in the United States and internationally including the current credit crisis and adverse global economic conditions. The Company may experience further declines in the fair value of its investment securities or realize losses relating to other than temporary declines in its investment securities given the current credit crisis and adverse global economic conditions. The forward-looking statements contained in this release are also subject to other risks and uncertainties, including those more fully described in McAfee’s filings with the SEC including its annual report on Form 10-K for the period ended December 31, 2008. McAfee does not undertake to update any forward looking statements.

About McAfee, Inc.:
McAfee, Inc., headquartered in Santa Clara, California, is the world's largest dedicated security technology company. McAfee is relentlessly committed to tackling the world’s toughest security challenges. The company delivers proactive and proven solutions and services that help secure systems and networks around the world, allowing users to safely connect to the Internet, browse and shop the web more securely. Backed by an award-winning research team, McAfee creates innovative products that empower home users, businesses, the public sector and service providers by enabling them to prove compliance with regulations, protect data, prevent disruptions, identify vulnerabilities, and continuously monitor and improve their security.

McAfee and/or other noted McAfee related products contained herein are registered trademarks or trademarks of McAfee, Inc., and/or its affiliates in the U.S. and/or other countries. McAfee Red in connection with security is distinctive of McAfee brand products. Any other non-McAfee related products, registered and/or unregistered trademarks contained herein are only by reference and are the sole property of their respective owners. © 2009 McAfee, Inc. All rights reserved.

Items (A) through (J) on the “Reconciliation of GAAP to Non-GAAP Financial Measures” table are listed to the right of certain categories under “Gross profit,” “Operating income,” “Net income” and “Net income per share - diluted” and correspond to the categories explained in further detail below under paragraphs (A) through (J).

While we currently do not believe a non-GAAP net revenue metric is meaningful, GAAP net revenue has been provided to enable an understanding of the relationships between GAAP net revenue and the GAAP and non-GAAP financial measures included in the table above. As an example, this facilitates non-GAAP expense to revenue analysis. The non-GAAP financial measures are non-GAAP gross profit, non-GAAP operating income, non-GAAP net income and non-GAAP net income per share - diluted, which adjust for the following items: non-cash stock-based compensation charges and stock-based compensation charges related to tender offer, amortization of purchased technology, patents and intangibles, restructuring charges, acquisition related costs, loss on sale/disposal of assets and technology, investigation related and other costs, change in fair value of stock-based liability awards, impairment of marketable securities, income taxes and certain other items. We believe that the presentation of these non-GAAP financial measures is useful to investors, and such measures are used by our management, for the reasons associated with each of the adjusting items as described below:

McAfee, Inc.
Kelsey Doherty, 917-842-0334 (Investors)
kelsey_do herty@mcafee.com
or
Brandie Claborn, 972-987-2124 (Investors)
brandie_ claborn@mcafee.com
or
Tracy Ross, 650-245-8466 (Media)
tracy_ross@mc afee.com

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