Tumbleweed Reports Results for Fourth Quarter and Full Year 2007

Tumbleweed® Communications Corp. (NASDAQ:TMWD), an industry leader in managed file transfer and email security, today reported financial results for its fourth quarter and full year ended December 31, 2007. Revenue was $14.3 million for the quarter ended December 31, 2007, compared to $16.7 million for the same period last year. Product revenue for the fourth quarter of 2007 was $6.0 million, compared to $8.7 million in the fourth quarter of 2006. Service revenue for the fourth quarter of 2007 was $8.3 million, compared to $7.6 million in the fourth quarter of 2006. Revenue from core managed file transfer and email security products increased to $11.9 million in the fourth quarter of 2007 from $9.8 million in the fourth quarter of 2006. Revenue from the identity validation product decreased to $2.3 million in the fourth quarter of 2007 from $6.5 million in the fourth quarter of 2006. Non-GAAP net loss for the fourth quarter of 2007 was $1.9 million, or $(0.04) per share, compared to a non-GAAP net loss of $242,000, or $(0.00) per share, in the fourth quarter of 2006. Non-GAAP results exclude stock-based compensation expense and intangible asset amortization expense of $1.2 million for the fourth quarter of 2007 and $1.3 million for the fourth quarter of 2006. On a GAAP basis, net loss for the fourth quarter of 2007 was $3.1 million, or $(0.06) per share, compared to a net loss of $1.5 million, or $(0.03) per share, for the fourth quarter of 2006. A reconciliation of GAAP and non-GAAP results is presented in the tables below. Cash and cash equivalents were $26.3 million at December 31, 2007 compared to $27.0 million at September 30, 2007 and $30.5 million at December 31, 2006. For the full year 2007, Tumbleweed reported revenue of $57.5 million, compared to $62.0 million for the full year 2006. Revenue from core managed file transfer and email security products increased to $49.0 million in the fourth quarter of 2007 from $43.5 million in the fourth quarter of 2006. Revenue from the identity validation product decreased to $7.1 million in the fourth quarter of 2007 from $14.8 million in the fourth quarter of 2006. Non-GAAP net loss for the full year 2007 was $5.0 million, or $(0.10) per share, compared to non-GAAP net income of $2.2 million, or $0.04 per share, for the full year 2006. Non-GAAP results exclude stock-based compensation expense and intangible asset amortization expense of $5.7 million for the full year 2007 and $7.1 million for the full year 2006. On a GAAP basis, the net loss for the full year 2007 was $10.8 million, or $(0.21), compared to a net loss of $4.9 million, or $(0.10) for the full year 2006. "2007 was a transformational year for Tumbleweed,” said James P. Scullion, Chief Executive Officer of Tumbleweed. "To maximize our growth opportunities and extend our leadership in our target markets, we refined our product strategy, expanded our indirect sales model, and implemented operational changes throughout the company. While a transformation like this is difficult, and we saw a decline in our Validation Authority business, the investments we made in 2007 will be a critical part of our success in 2008 and beyond. I am optimistic that we will be able to expand our product offerings and increase our addressable markets, and I believe that we are well-positioned to achieve solid growth with improved operating margins in 2008.” "I’m pleased that we are already beginning to reap the benefits of our updated strategy,” continued Scullion. "In the fourth quarter, we achieved a 21% increase in revenue from our core managed file transfer and email security products, and our channel program gained momentum throughout the year. In the fourth quarter alone we added more than a dozen key partners globally, and during this period nearly half of the company’s orders from commercial customers were driven via our channel partners. Internationally, the investments we made are paying off, with last quarter’s contribution from our international operations providing 14% of total revenue. And to support our key operations initiatives, we significantly enhanced the leadership of our product and sales teams.” Recent Highlights Tumbleweed’s core product revenues grew 21% for the quarter ended December 31, 2007 compared to the same period last year. These core products include award-winning SecureTransportTM, Secure MessengerTM and MailGate® , a suite of managed file transfer and email security solutions that enable businesses to safely utilize the internet for mission-critical communications. Tumbleweed’s channel program delivered 48% of the company’s non-renewal commercial bookings for the fourth quarter of 2007 compared with 26% for the fourth quarter of 2006. With a focus on recruiting and enabling leading partners in 2007, Tumbleweed increased the contribution from its channel business throughout the year. In North America, new partners include DynTek, Secure Links, Conscious Security, Enterprise Air, TRM, Prosys Information Systems, GTC Systems, and Sirius Computer Solutions. Internationally, new partners include Trustco and Blue Cube in the UK, Rainbow Technologies Components and Systems (RTCS) in Russia, ParaRede in Portugal, Primex in Hong Kong, and Nortech Infonet, Softcell Technologies, and Texport Technologies in India. Tumbleweed further strengthened its product development organization with the appointment of Jorge Rodriguez as senior vice president of product development. Rodriguez will oversee day-to-day engineering operations while playing a hands-on role in delivering on the company's product vision and roadmap. Tumbleweed was positioned in the Leaders Quadrant of the 2007 Gartner Email Encryption Magic Quadrant. The Gartner Magic Quadrant for Email Encryption looks at email encryption products securing email content data and attachments. According to Gartner, "leaders” are vendors who are performing well today, have a clear vision of market direction, and are actively building competencies to sustain their leadership position in the market. Tumbleweed was awarded the FIPS 140-2 security certification by the U.S. Government for the security kernel contained in its SecureTransport™, MailGate® and Validation Authority™ products. This certification meets the toughest data security standard for all U.S. government agencies. Financial Outlook First Quarter of 2008: Tumbleweed currently expects total revenue for the first quarter of 2008 to be between $13.0 million and $14.5 million. Non-GAAP results are expected to range from $(0.01) to $(0.03) per share. Non-GAAP results exclude expected costs for stock-based compensation expense and intangible asset amortization expense of a combined $(0.03) per share for the first quarter of 2008. GAAP results are expected to range from $(0.04) to $(0.06) per share. Per share amounts are based on an estimated 51.2 million shares outstanding. Conference Call Information Tumbleweed management will host a conference call on Tuesday, February 5, 2008 at 2:00 p.m. PST (5:00 p.m. EST) to discuss the fourth quarter and full year 2007 results. The call can be accessed by dialing (800) 218-0204 and giving the company name, "Tumbleweed." Participants are asked to call the assigned number approximately 10 minutes before the conference call begins. A replay of the conference call will be available after 5:00 p.m. PST on February 5, 2008 through February 19, 2008 by dialing (800) 405-2236 and entering pass code 11106213#. The conference call and supplemental financial information will also be available on the investor relations portion of the Tumbleweed website. Safe Harbor Statement Except for the historical information contained herein, the matters discussed in this press release may constitute forward-looking statements that could cause actual results to differ materially from those currently expected, particularly with respect to Tumbleweed’s financial outlook for the first quarter of 2008 (including estimated revenue, loss, and loss per share on both a GAAP and a non-GAAP basis), as well as Tumbleweed’s beliefs about the transformation of the company, expansion of its product offerings, increase in its addressable markets, improved operating margins, and its future growth and success. In some cases, forward-looking statements can be identified by terminology such as "may,” "will,” "should,” "potential,” "continue,” "expects,” "anticipates,” "intends,” "plans,” "believes,” "estimates,” and similar expressions. For further cautions about the risks of investing in Tumbleweed, we refer you to the documents Tumbleweed files from time to time with the Securities and Exchange Commission, particularly Tumbleweed's Form 10-K filed March 14, 2007, Form 10-Q filed November 7, 2007, and such filings for the periods referred to above, to be filed subsequently. Tumbleweed assumes no obligation to update information contained in this press release. Although this release may remain available on Tumbleweed's website or elsewhere, its continued availability does not indicate that Tumbleweed is reaffirming or confirming any of the information contained herein as of a later date. Non-GAAP Information The non-GAAP financial information included in this press release is not prepared in accordance with GAAP as it excludes amortization of intangible assets and stock-based compensation expense. Management believes that the presentation of non-GAAP information may provide useful information to investors because Tumbleweed has historically provided this information and understands that some investors consider it useful in evaluating Tumbleweed's expenses. Management also uses this non-GAAP information, along with GAAP information, in evaluating Tumbleweed's expenses and comparing Tumbleweed’s performance with that of its competitors. The non-GAAP results should not be considered a substitute for financial information presented in accordance with generally accepted accounting principles, and may be different from non-GAAP measures used by other companies. About Tumbleweed Tumbleweed Communications Corp. (NASDAQ:TMWD), an industry leader in managed file transfer and email security, provides enterprise-class solutions to organizations of all sizes. Tumbleweed's innovative products enable organizations to effectively manage and protect business-critical Internet communications, with capabilities that span secure file transfer, encryption, data loss prevention, and email security. Tumbleweed has more than 3,200 customers worldwide, including blue-chip companies across an array of industries such as Technology, Retail, Finance, Healthcare, Manufacturing, Consumer Packaged Goods, Telecom, Energy, and the U.S. Government. The world's most security conscious organizations rely upon Tumbleweed technology including Bank of America Securities, JP Morgan Chase & Co., the U.S. Food and Drug Administration, and the U.S. Department of Defense. Tumbleweed's award-winning products build on 14 years of R&D and 27 security patents in the U.S. alone -- many of which are licensed by other security vendors. More information can be found at www.tumbleweed.com. Tumbleweed, SecureTransport, Secure Messenger and MailGate are either registered trademarks or trademarks of Tumbleweed Communications Corp. in the United States and/or other countries. All other trademarks are the property of their respective owners. Tumbleweed Communications Corp. Condensed Consolidated Statements of Operations December 31, 2007 (in 000s, except per share data)           Three Months Ended Twelve Months Ended December 31, December 31, (unaudited) (unaudited) 2007 2006 2007 2006 REVENUES Product revenue $ 5,957 $ 8,731 $ 22,529 $ 28,683 Service revenue 8,259 7,597 33,559 29,664 Intellectual property revenue   44     366     1,367     3,647   NET REVENUE   14,260     16,694     57,455     61,994     COST OF REVENUE Cost of product revenue (1) 1,473 1,092 5,694 4,316 Provision for excess inventory - 933 164 933 Cost of service revenue (1) 1,953 1,901 7,672 6,750 Amortization of intangible assets   234     234     936     1,467     GROSS PROFIT 10,600 12,534 42,989 48,528   OPERATING EXPENSES Research and development (1) 3,537 3,833 15,107 14,836 Sales and marketing (1) 6,842 8,016 28,575 28,002 General and administrative (1) 2,608 2,308 10,157 10,622 Amortization of intangible assets 39 204 305 1,041 Restructuring costs   930     -     930     -     TOTAL OPERATING EXPENSES   13,956     14,361     55,074     54,501     OPERATING LOSS (3,356 ) (1,827 ) (12,085 ) (5,973 ) Other income, net   294     363     1,336     1,206     NET LOSS BEFORE TAXES (3,062 ) (1,464 ) (10,749 ) (4,767 ) Provision for income taxes   15     56     16     115     NET LOSS $ (3,077 ) $ (1,520 ) $ (10,765 ) $ (4,882 )   BASIC AND DILUTED NET LOSS PER SHARE $ (0.06 ) $ (0.03 ) $ (0.21 ) $ (0.10 )   RECONCILIATION TO NON-GAAP NET INCOME (LOSS) NET LOSS $ (3,077 ) $ (1,520 ) $ (10,765 ) $ (4,882 ) Stock-based compensation expense 888 840 4,504 4,605 Amortization of intangible assets   273     438     1,241     2,508   NON-GAAP NET INCOME (LOSS) $ (1,916 ) $ (242 ) $ (5,020 ) $ 2,231     NON-GAAP BASIC AND DILUTED NET INCOME (LOSS) PER SHARE $ (0.04 ) $ (0.00 ) $ (0.10 ) $ 0.04     WEIGHTED AVERAGE SHARES: BASIC 51,124 50,310 51,028 50,007 DILUTED 51,124 50,310 51,028 50,007     (1) Stock-based compensation expense is classified as follows:   Cost of product revenue $ - $ 3 $ - $ 9 Cost of service revenue 37 36 142 142 Research and development 186 287 946 1,256 Sales and marketing 164 69 1,205 569 General and administrative   501     445     2,211     2,629   $ 888   $ 840   $ 4,504   $ 4,605   Tumbleweed Communications Corp. Condensed Consolidated Balance Sheets December 31, 2007 (in 000s)     12/31/2007 12/31/2006 ASSETS (unaudited) (unaudited)   CURRENT ASSETS Cash and cash equivalents $ 26,299 $ 30,511 Accounts receivable, net 13,074 12,506 Other current assets   1,733     1,938     TOTAL CURRENT ASSETS   41,106     44,955     Goodwill 48,074 48,074 Intangible assets, net 233 1,470 Property and equipment, net 2,038 1,820 Other assets   385     612   TOTAL ASSETS $ 91,836   $ 96,931     LIABILITIES & EQUITY CURRENT LIABILITIES Accounts payable $ 820 $ 1,808 Accrued liabilities 6,795 7,522 Accrued merger-related and other costs - 97 Deferred revenue   20,996     20,003     TOTAL CURRENT LIABILITIES   28,611     29,430     LONG TERM LIABILITIES Deferred revenue, excluding current portion 5,401 4,728 Other long term liabilities   13     63     TOTAL LONG TERM LIABILITIES   5,414     4,791     TOTAL LIABILITIES   34,025     34,221     STOCKHOLDERS' EQUITY Common stock 52 51 Additional paid-in capital 365,155 359,238 Treasury stock (796 ) (796 ) Accumulated other comprehensive loss 94 29 Accumulated deficit   (306,694 )   (295,812 )   TOTAL STOCKHOLDERS' EQUITY   57,811     62,710     TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $ 91,836   $ 96,931