McAfee Inc. (MFE) reported first quarter 2010 earnings per share of 41 cents, below the Zacks Consensus Estimate of 50 cents per share.

Revenue

McAfee Inc. reported first quarter 2010 revenue of $502.7 million, up 12.0% from $447.7 million reported in the year-ago quarter. This increase may be attributed to the revenue increase across all business segments, especially the consumer business, which moved ahead of the company’s expectations.

McAfee reported increase in revenue across all its segments. The Corporate Business segment reported first quarter revenue of $313.0 million, up 13.0% year over year. In this segment, the company closed 376 deals, greater than $100,000 in value, including 56 deals greater than $500,000 in value and 19 deals summing up to more than $1.0 million in value.

The Consumer Business reported revenue of $190.0 million, up 11.0% year over year. In this segment the company signed or extended 24 agreements and launched 72 new online partnerships, bringing the total to over 200 brand name partners globally.

The North America segment reported revenue of $284.0 million, up 12.0% year over year. The International segment reported revenue of $219.0 million, up 13.0% year over year. Within International, Europe, Middle East and Africa (EMEA) grew 14.0%, Asia Pacific 22.0%, Japan 3.0% and Latin America 17.0%. Currency fluctuation positively impacted revenue by $11.0 million on a year-over-year basis, but negatively impacted revenue by $12.0 million on a sequential basis.

Operating Results

First quarter GAAP gross profit was $370.2 million, up 10.6% on a year-over-year basis. Excluding special items, non-GAAP gross profit for the quarter was $392.6 million, up 10.5% on a year-over-year basis. This resulted in a gross margin of 73.6% in the current quarter, compared to 74.7% in the year-ago quarter. The decline in gross margin may be attributed to unfavorable product mix.

Operating income on a GAAP basis was $51.6 million, flat on a year-over-year basis. Excluding special items, non-GAAP operating income for the quarter was $126.8 million, up 12.0% on a year-over-year basis. This resulted in an operating margin of 10.3% in the current quarter, compared to 11.6% in the year-ago quarter.

GAAP net income for the quarter was $37.6 million or $0.23 per share, down from $53.5 million or $0.34 per share reported in the year-ago quarter. Excluding special items like stock based compensation, restructuring, amortization, restructuring charges, etc., non-GAAP net income was $96.4 million or $0.60 per share, up from $88.6 million or $0.57 per share in the year-ago quarter. Including stock based compensation; the adjusted EPS was $0.41.

Balance Sheet & Cash Flow

During the recently concluded quarter, the company generated around $157.2 million in cash flow from operations. Days sales outstanding (DSOs) were 41 days. At the end of the fourth quarter, the company reported cash and marketable securities of $902.0 million, down from $950.2 million reported in the previous quarter. Deferred revenue at the end of the first quarter of 2010 was $1.38 billion. During the first quarter, the company repurchased around 3.7 million shares worth $150.0 million.

Guidance

Management expects second quarter 2010 revenue in the range of $500.0 to $520.0 million. Second quarter 2010 GAAP net income is expected to be in the range of $0.29 to $0.33 per diluted share and non-GAAP net income in the range of $0.58 to $0.62 per diluted share.
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