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Proofpoint (PFPT) Rallies 31% on Takeover Deal, Stellar Q1 Results

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Proofpoint (PFPT - Free Report) stock soared 31% on Monday after the cybersecurity firm announced that it has agreed to be acquired by the software-focused private-equity buyout firm — Thoma Bravo — in an all-cash deal worth $12.3 billion. Additionally, a better-than-anticipated first-quarter 2021 result aided this price appreciation.

Proofpoint to Go Private

Proofpoint offers cloud-based solutions for threat protection, compliance, archiving and governance, and secure communications. Organizations around the globe depend on its expertise, patented technologies, and on-demand delivery system for protection from phishing, malware and spam, and to safeguard privacy, encrypt sensitive information, and archive and govern messages and critical enterprise information.

Per the terms of the deal, Proofpoint shareholders will receive $176 for each share held. The transaction price reflects a premium of approximately 34% from the Apr 23 closing price and nearly 36% premium to the three-month volume-weighted average closing share price.

The deal is likely to close during the third quarter of this calendar year. Upon its conclusion, Proofpoint will exit from the Nasdaq stock exchange and become a private company.

Q1 Earnings Top Estimates

Apart from the takeover announcement, Proofpoint reported first-quarter results on Monday, ahead of its previously-planned schedule of Apr 29.

The company delivered first-quarter 2021 non-GAAP earnings of 49 cents per share, handily outpacing the Zacks Consensus Estimate of 39 cents. Moreover, the figure is approximately 29% higher than the year-ago quarter’s earnings of 38 cents per share.

Top Line Details

Revenues came in at $287.8 million in the first quarter, which beat the consensus mark of $282.3 and increased 15% year over year as well.

This upside in the top-line number can be attributed to the exponential demand for the firm’s next-generation cloud security and compliance platform, ongoing migration to the cloud, solid international growth, and high renewal rates.

Total billings during the reported quarter grew 16% year on year to $276.7 million.

Subscription revenues came in at $283.6 million, up 16.2% from the year-ago quarter. However, hardware and service revenues dipped 26% year over year to $4.2 million.

The company has stopped reporting results for its advanced threat and compliance-oriented products as it believes the data is not informative in terms of measuring business performance.

Operating Details

Non-GAAP gross profit climbed 17.3% from the year-ago quarter to $232 million. Non-GAAP gross margin expanded 200 basis points (bps) to 81% on an impressive revenue performance.

Proofpoint’s non-GAAP operating income jumped 50% to $38.2 million.

Balance Sheet & Cash Flow

As of Mar 31, 2021, the company’s cash, cash equivalents and short-term investments were $882.6 million compared with $910.3 million as of Dec 31, 2020.

The company generated operating cash flow of $95.1 million compared with the $92.2 million reported in the year-ago quarter. Free cash flow was $88.5 million compared with the year-ago quarter’s $79.8 million.

Zacks Rank and Key Picks

Proofpoint currently carries a Zacks Rank #3 (Hold).

Better-ranked stocks in the broader technology sector include Lam Research Corporation (LRCX - Free Report) , Micron (MU - Free Report) and NVIDIA (NVDA - Free Report) . Lam Research and Micron sport a Zacks Rank #1 (Strong Buy), while NVIDIA carries a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

The long-term earnings growth rate for Lam Research,Micron, and NVIDIA is currently pegged at 21.3%, 15.7% and15.1%, respectively.

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