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Sourcefire, Inc. (FIRE)

Q3 2008 Earnings Call Transcript

October 30, 2008, 5:00 pm ET

Executives

Tania Almond – IR Officer

John Burris – CEO

Todd Headley – CFO and Treasurer

Tom McDonough – President and COO

Analysts

Aaron Husaf [ph]

Jeremy Grant – Stanford Group

Robert Breza – RBC Capital Markets

Keith Weiss [ph]

Presentation

Operator

Good day ladies and gentlemen and welcome to the Q3 2008 Sourcefire earnings conference call. My name is Latrice, and I will be your coordinator for today. (Operator instructions). At this time, I would like to hand the presentation over to your host for today’s call, Ms. Tania Almond, Investor Relations Officer. Please proceed.

Tania Almond

Thank you, Latrice. This is Tania Almond, Sourcefire’s Investor Relations Officer. I want to thank you for joining our third quarter 2008 earnings conference call. Joining me today on the call is John Burris, Sourcefire’s Chief Executive Officer, Tom McDonough, Sourcefire’s Chief Operating Officer, and Todd Headley, our Chief Financial Officer.

Before we begin, I must remind you that statements made in this conference call and our public filings, releases and websites, which are not historical facts, may be forwardlooking statements that involved risks and uncertainties and are subject to change at any time.

We caution investors that any forward-looking statements made by us are management’s beliefs based on currently available information and should not be taken as a guarantee of future results or performance which may differ materially as a result of a variety of factors discussed in our earnings release and our latest Form 10-Q, filed with the Securities and Exchange Commission.

We disclaim any obligations to update any such factors or to announce publicly the results of any revisions to any of the forward-looking statement that reflect future events or developments. There is more complete information regarding forward-looking statements, risks, and uncertainties in the company’s filings with the SEC available on our website.

In addition, we may discuss non-GAAP financial information on the call. This information is reconciled to comparable GAAP financial information in the earnings release. The full earnings release can be found on our website at www.sourcefire.com. An online replay of this call will be available on the Investors section of our website for at least 90 days.

With that, I’ll turn the call over to John Burris, Sourcefire’s CEO.

John Burris

Thanks, Tania. Happy Halloween everyone, and thank you for joining us for our third quarter 2008 earnings call.

Let’s start today’s call with a brief review of the quarterly results, highlight some of our accomplishments in the third quarter, provide an update on trends in the business, and then provide our financial guidance for the fourth quarter and for the year 2008. Additionally, I will touch on the other announcement we issued today regarding our recently adopted shareholder rights agreement.

As we announced in our press release earlier today, total revenues for the third quarter of 2008 were $20.3 million, 37% of our third quarter 2007 revenues. Gross profit increased 35% to $15.4 million or 76% of revenues compared to $11.3 million or 77% of revenues in the third quarter of 2007, and net loss for the third quarter of 2008 improved to $1.7 million compared with net loss of $2.8 million in the third quarter of 2007.

Obviously, we had a very strong quarter meeting the top end of our guidance range. However, I’m equally as pleased with the marked improvement in our bottom line. As you remember on the last call, I talked about my joining Sourcefire and how important it is that we focus on overall results. We saw improvement in our operating expense margins in Q3 versus last quarter. We will continue to focus on the absolute dollars we are spending in all areas especially in light of the present macroeconomic environment.

During the quarter, our sales force and channel closed 40 six-figure transactions, 20 of which represent new Sourcefire 3D product customers. We had seven transactions in the quarter with an excess of 500,000 including our largest transaction in the company’s history.

We expanded our international sales delivering revenues of $3.9 million this quarter, up from $3.4 million a year ago or an increase of about 15%. Our international channel initiatives continue to make progress. During the third quarter, we added five new premier partners and technically trained 14 partner companies in our near region. In our Asia-Pacific region, we signed distribution agreements with new partners in Australia and Vietnam and held several training sessions at user’s conferences and seminars. During Q3, we continue to emphasize the importance of ongoing training with our existing channel partners, both domestically and internationally, training approximately 100 individuals representing 47 partner companies on the latest enhancements to our products and services.

Federal sector performance shows significant improvement over third quarter of ’07 with revenues of $7.5 million or 37% of total revenue versus the year-ago period revenues of $2.6 million or 17% of revenues. This year, we have continued to see a very different spending environment in the federal sector than what we experienced last year when the sector was operating under a continuing resolution. Additionally, the CNCI which is the Comprehensive National Cyber Security Initiative, has been a positive driving force for our business that did not exist in the year-ago period. While we anticipated improvement in the federal sector, given our investment and activity levels earlier this year, our results exceeded our preliminary expectations. We expect the CNCI to continue to positively influence our federal business in 2009. Like all tech companies, we continue to monitor the financial sector as it works its way to the financial crisis. Interestingly, none of the financial services companies that have failed or have been acquired to date had been Sourcefire customers. Our costumers in the financial sector continue to invest in our network security though at a lower rate. We remain guarded about the timing of transactions due to potential budgetary cuts and related purchase deferrals as this particular sector continues to work through the effects of this historic global financial crisis.

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