RSA reports 3Q loss, plans 15% job cut

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 4^th 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.