Blue Coat Reports Financial Results for Third Quarter Ended January 31, 2009

Blue Coat Systems, Inc. (NASDAQ:BCSI), the technology leader in Application Delivery Networking, today reported its financial results for its third quarter of fiscal 2009 ended January 31, 2009. Total net revenue for the third quarter of fiscal 2009 was $109.6 million, an increase of 35% compared to net revenue of $81.4 million in the same quarter last year, and a decrease of 8% compared to net revenue of $119.0 million in the immediately preceding quarter. Excluding net revenue associated with the acquisition of Packeteer, Inc. on June 6, 2008, net revenue for the third quarter of fiscal 2009 was $86.4 million, an increase of 6% compared to net revenue of $81.4 million in the same quarter last year, and a decrease of 8% compared to net revenue of $93.9 million in the immediately preceding quarter.

"In the face of economic headwinds, Blue Coat delivered a solid third quarter,” said Brian NeSmith, president and chief executive officer, Blue Coat Systems. "Blue Coat experienced good top and bottom line performance and continued strong cash generation from operations. The Company is well positioned to compete and win with its clear vision for the Application Delivery Network that's designed to help the enterprise CIO regain control of the network, reduce bandwidth and infrastructure costs, improve user productivity and protect users from malware and malicious threats.”

On a GAAP basis, the Company reported net income of $1.1 million, or $0.02 per diluted share, in the third quarter of fiscal 2009, compared to net income of $10.5 million, or $0.26 per diluted share, in the third quarter of fiscal 2008, and a net loss of $0.3 million, or ($0.01) per diluted share, in the second quarter of fiscal 2009.

The Company reported non-GAAP net income of $9.3 million, or $0.21 per diluted share, in the third quarter of fiscal 2009, compared to non-GAAP net income of $15.3 million, or $0.38 per diluted share, in the third quarter of fiscal 2008, and net income of $11.6 million, or $0.27 per diluted share, in the second quarter of fiscal 2009.

Excluded from current quarter non-GAAP net income is $1.4 million in expense related to the fair value write-up of acquired inventory that was sold during the quarter, $4.5 million in stock-based compensation expense, $3.2 million in amortization of intangible assets, and $0.4 million in expenses associated with matters related to the stock option investigation. Non-GAAP net income for the current quarter also includes $1.2 million in additional income tax expense based on a 30% effective tax rate applied to non-GAAP pre-tax income.

In the third quarter of fiscal 2008, non-GAAP net income excluded $4.0 million in stock-based compensation expense, $0.4 million in amortization of intangible assets, and $0.4 million in expenses associated with matters related to the stock option investigation. Non-GAAP net income in the second quarter of fiscal 2008 did not include additional tax expense for non-GAAP items as the Company’s tax liability at that time was limited to foreign and state tax obligations.

Excluded from non-GAAP net income in the second quarter of fiscal 2009 was $7.2 million in expense related to the fair value write-up of acquired inventory that was sold during the quarter, $5.1 million in stock-based compensation expense, $3.2 million in amortization of intangible assets, and $0.7 million in expenses associated with matters related to the stock option investigation. Non-GAAP net income in the second quarter of fiscal 2009 also included $4.3 million in additional income tax expense based on a 30% effective tax rate applied to non-GAAP pre-tax income.

Blue Coat ended the quarter on January 31, 2009, with cash, cash equivalents, and restricted cash of $111.8 million, an increase of $14.0 million from the prior quarter. Cash flow provided by operations in the third quarter of fiscal 2009 was $24.0 million.

Financial Outlook

For the fourth fiscal quarter ending April 30, 2009, the Company is currently planning net revenue in the range of $112.5 to $117.5 million. On a GAAP basis, the Company expects net income of $0.01 to $0.07 per share. On a non-GAAP basis, the Company expects net income of $0.18 to $0.24 per diluted share. Non-GAAP net income per diluted share excludes expense related to stock-based compensation, the fair value write-up of acquired inventory sold during the quarter, amortization of intangible assets, and expenses associated with the stock option investigation, and assumes an effective tax rate of 30% on non-GAAP pre-tax income.

About Non-GAAP Financial Measures

Blue Coat uses non-GAAP financial measures of income for internal evaluation and to report the results of its business. These non-GAAP financial measures include non-GAAP gross profit, non-GAAP operating income, non-GAAP net income, and non-GAAP net income per share. These measures are not in accordance with, nor an alternative to, GAAP. These measures are intended to supplement GAAP financial information, and may be different from non-GAAP financial measures used by other companies. Blue Coat believes that these measures provide useful information to its management, board of directors and investors regarding its ongoing operating activities and business trends related to its financial condition and results of operations. Blue Coat believes that it is useful to provide investors with information to understand how specific line items in the statement of operations are affected by certain items, such as expense related to the fair value write-up of acquired inventory sold, stock-based compensation expense, amortization of intangible assets, expenses associated with matters related to the stock option investigation, restructuring expenses, and related tax adjustments at a 30% effective tax rate. In addition, the Company’s management and board of directors use certain non-GAAP financial measures in developing operating budgets and in reviewing the Company’s financial results of operations, since items such as expense related to the fair value write-up of acquired inventory sold, stock-based compensation expense, amortization of intangible assets, expenses associated with matters related to the stock option investigation, restructuring expenses, and related tax adjustments do not impact its current resource allocation decisions. Additionally, the Company believes that inclusion of these non-GAAP financial measures provides consistency and comparability with its past reports of financial results. However, investors should be aware that non-GAAP measures have inherent limitations and should be read in conjunction with the Company’s consolidated financial statements prepared in accordance with GAAP. Refer to the accompanying tables for a detailed reconciliation of GAAP to non-GAAP gross profit, operating income, net income/loss and net income/loss per share.

Conference Call & Webcast

The Company will hold its quarterly conference call to discuss results for the third quarter of fiscal 2009 and the outlook for the fourth quarter of fiscal 2009 on Thursday, February 26, 2009 at 2:00 p.m. PST (5:00 p.m. EST). Participants in the United States should call (800) 230-1085. International participants should call (612) 288-0337. The passcode for the call is: 985683. A replay of the call will be available starting on Thursday, February 26, 2009 at 4:00 p.m. PST (7:00 p.m. EST), and can be accessed by calling (800) 475-6701 for U.S. participants and (320) 365-3844 for international participants. The passcode for the replay is: 985683. An audio Webcast of the call will also be available at http://www.bluecoat.com/aboutus/investor_relations.

About Blue Coat Systems

Blue Coat Systems, Inc. is the technology leader in Application Delivery Networking. Blue Coat offers an Application Delivery Network Infrastructure that provides the visibility, acceleration and security required to optimize and secure the flow of information to any user, on any network, anywhere. This application intelligence enables enterprises to tightly align network investments with business requirements, speed decision making and secure business applications for long-term competitive advantage. For additional information, please visit www.bluecoat.com.

FORWARD LOOKING STATEMENTS: This document contains certain forward looking statements. All statements other than statements of historical fact are statements that could be deemed forward-looking statements including: statements regarding the Company’s expected net revenue, GAAP net income/loss per share and non-GAAP net income per share in the third fiscal quarter of 2009; any statements of expectation or belief; 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 Securities and Exchange Commission reports filed by Blue Coat, including but not limited to the risks described in Blue Coat’s Annual Report on Form 10-K for the year ended April 30, 2008 and in its Quarterly Report on Form 10-Q for the quarter ended October 31, 2008. Accordingly, 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 so, 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 law.