RSA reports 3Q loss, plans 15% job cut

By : |October 11, 2001 0



Siobhan Kennedy

NEW YORK: Network security provider RSA Security Inc. on Thursday reported a
third-quarter loss wider than its previously lowered expectations and warned
that earnings for the fourth quarter and next year would fall short of
estimates.

The company also said it will cut up to 15 per cent of its work force, or 215
employees, and reduce salaries by up to 10 per cent for all its US employees to
cut costs. As a result, RSA will take a $10 million to $11 million
fourth-quarter restructuring charge, it said. "The weakening global economy
in the aftermath of the Sept. 11 attacks had a dramatic impact on our
business," Art Coviello, RSA’s chief executive told analysts on a
conference call late Thursday noting that the third quarter was the first time
RSA had posted a loss in its history as a public company.

RSA Security Inc. went public in 1995. "I am disappointed in our results
but they clearly were affected by forces beyond our control," he added.

RSA posted a net loss, including extra items, of $15.5 million, or 28 cents a
share for the third quarter, compared to a profit of $40 million, or 62 cents a
share in the prior year. The loss was below its lowered forecasts of a loss in
the range of 21 cents to 24 cents a share. Revenues for the third quarter fell
13.1 per cent to $62.6 million from $72 million a year ago.

Excluding a range of costs and investment gains, RSA said it recorded a loss
from core operations of $5.4 million or 10 cents a share. The Wall Street
consensus estimate was for a loss of 7 cents a share, which was in line with
RSA’s lowered guidance earlier this month.

Analysts said there were no surprises in RSA’s third-quarter earnings but
most expressed concern about the company’s cash position, which stood at about
$25 million at the end of the third quarter, down from $200 million the quarter
before.

"People are concerned about cash," Jordan Klein, an analyst with
UBS Warburg said. "The reality is these guys … have challenges with their
balance sheet," agreed Eugene Munster, an analyst with U.S Bancorp Piper
Jaffray. "They’ve got to get that fixed first," he added. "And I
think when they do, at that point the stock starts to move."

RSA also said it would wind down its RSA Capital division, which includes its
New and Emerging Security Technologies (NEST) unit and its RSA Ventures fund.
The company will merge NEST into its core operating business over the next 3
months and put a hold any new investments, RSA said.

Lower 4th quarter, 2002 guidance

For the fourth quarter, RSA said it expected to post earnings, before
charges, in the range of break-even to a profit of 2 cents a share on revenues
of $63 million to $65 million. Including charges, it said it expected to post a
fourth quarter per share loss in the range of 15 cents to 17 cents a share.

Analysts polled by research firm Thomson Financial/First Call on average were
expecting RSA to post a profit of 3 cents a share in the fourth quarter, with a
range of a loss of 8 cents to a profit of 13 cents a share. The consensus
estimate for revenues was $68.13 million.

Were it not for the Sept. 11 air attacks in New York and Washington, Coviello
said he would be "waxing fairly confident" about RSA’s fourth-quarter
customer prospects. He said RSA had already had 30 percent of its fourth-quarter
business in the bag. "The big question will be around the close rates and
whether or not … deals get cut back and by how much," he said, referring
to the remaining 70 percent of business RSA still has to close before Dec. 30.

For 2002, the company said it expected to post earnings before charges in the
range of 25 cents to 34 cents a share on revenues between $285 million and $295
million. Including charges, RSA said it anticipated recording net profits in the
range of 9 cents to 19 cents a share. The Wall Street earnings estimate was 39
cents a share for 2002, with a range of profit between 15 cents and 76 cents
Revenues were expected to be $345.35 million, according to First Call.

Earlier this month, RSA lowered its third-quarter guidance to a net loss of
between $12.5 million to $14.1 million, citing a delay or cancellation of orders
after the Sept. 11 attacks on the United States. Revenues were expected to be in
the range of $62 million to $63 million, it said, down from previous estimates
of a range between $72 million and $80 million. At the time, the mean First Call
revenue forecast was $91 million.

(C) Reuters Limited 2001.

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