NetScreen Technologies, Inc. Reports Record Fiscal First Quarter 2004 Financial Results
Sunnyvale, CA - January 21, 2004—NetScreen Technologies, Inc. (Nasdaq: NSCN), today announced financial results for its fiscal first quarter ended December 31, 2003.
Revenue in the quarter ended December 31, 2003 was a record $81.0 million, an increase of 59 percent over revenue of $51.1 million in the same quarter last year and an increase of 13 percent over revenue of $71.6 million in the quarter ended September 30, 2003.Net income calculated on the basis of generally accepted accounting principles (GAAP) for the quarter ended December 31, 2003 was $6.4 million, or $0.07 per basic and diluted share, compared to a net income of $3.2 million or $0.04 per basic and diluted share, in the same quarter last year. GAAP income from operations for the quarter ended December 31, 2003 was $10.9 million. GAAP net income and GAAP income from operations for the quarter ended December 31, 2003 include a non-cash charge of $7.1 million for stock-based compensation associated primarily with stock options granted prior to the company's initial public offering and stock options assumed in conjunction with the November 2003 acquisition of Neoteris, Inc. GAAP net income and GAAP income from operations for the quarter ended December 31, 2003 also include a charge of $2.0 million for amortization of intangible assets associated with the acquisition of Neoteris and the September 2002 acquisition of OneSecure, Inc. GAAP net income in the same quarter last year includes the effect of non-cash charges of $6.1 million for stock-based compensation associated primarily with stock options granted prior to the company's initial public offering and a charge of approximately $244,000 for amortization of intangible assets associated with the OneSecure acquisition.
Pro forma net income for the quarter ended December 31, 2003 was $12.9 million, or $0.15 per basic and $0.14 per diluted share, compared to pro forma net income of $10.9 million, or $0.14 per basic and $0.13 per diluted share, in the same quarter last year and pro forma net income of $11.9 million, or $0.15 per basic and $0.14 per diluted share, in the quarter ended September 30, 2003. Pro forma net income and pro forma net income per share information differs from the GAAP results because it excludes the effect of the non-cash stock-based compensation charges and amortization of intangibles charges and the related tax effects.
"The December quarter was very eventful for NetScreen," said Robert Thomas, president and chief executive officer. "We closed the acquisition of Neoteris, the market leader in SSL VPN products, launched three significant new products and had another superbly executed quarter from a financial perspective. We are very pleased with the rapid progress we've made in integrating Neoteris into the NetScreen family. We introduced new products such as the NetScreen-5GT appliance that has embedded antivirus protection provided through our partnership with Trend Micro, Inc., the Deep Inspection firewall, which provides application-level attack prevention and we launched NetScreen-Security Manager 2004, our next generation central management platform. Combined, we believe the acquisition of Neoteris and the new product introductions will be key contributors to our future growth."
Remo Canessa, NetScreen's chief financial officer, stated, "Strong sales in the Americas and Europe in the December quarter led NetScreen to another quarter of record revenues. We were pleased to see pro forma income from operations increase to $20.0 million, 7 percent over the September quarter despite the incremental operating expenses incurred with Neoteris. NetScreen generated a record $30.3 million in operating cash flow in the December quarter bringing our cash and short-term investments balance as of December 31, 2003 to $379.2 million."
Recent Company Highlights
- Completed the acquisition of Neoteris, Inc., the market leader in the SSL VPN product category, as well as a leader in the application security gateway market.
- Launched the NetScreen-Hardware Security Client, a low-cost, centrally managed appliance with firewall, VPN, Deep Inspection and antivirus capabilities, designed for very large deployments in a distributed large enterprise or service provider managed service.
- Delivered embedded antivirus functionality on the NetScreen-5GT, the industry's first appliance to tightly integrate best-of-breed firewall, VPN, intrusion prevention and gateway antivirus security functionality in a single platform.
- Expanded the NetScreen-5 series with the NetScreen-5GT Extended, which includes functionality for smaller sites of a large enterprise that require multiple redundancy options and additional network segmentation.
- Received Common Criteria EAL4+ certification for the NetScreen-5200 using NSA developed protection profiles, becoming the first firewall platform to achieve this certification level for the stringent profiles. Common Criteria is a standard that helps government organizations evaluate IT security products more effectively.
- Recognized by market research firm IDC, as the only security appliance vendor among the top 5 to grow worldwide factory revenue market share year-over-year.
- Awarded the 2003 Security Technologies Product of the Year for our Neoteris Secure Access products by industry analyst firm Frost & Sullivan.
- Ranked as a market leader in market research firm META Group's METAspectrum(SM) for enterprise firewalls.
- Won the coveted Editor's Choice Award from CMP Media LLC's Network Computing magazine, for the NetScreen-SA 5000 series SSL VPN appliances.
Outlook
The following statements are based on information the company has available today, and will be the company's only statements of this nature until updated in the future. NetScreen assumes no duty to update this information at any time. These statements are forward-looking, and actual results may differ materially.
For the quarter ending March 31, 2004, NetScreen currently expects to achieve revenue growth of between 10 and 12 percent over the December 2003 quarter. On a GAAP basis, gross margins are expected to be between 74 and 75 percent and operating expenses are expected to increase by 13 to 15 percent in the March 2004 quarter. Pro forma gross margins are expected to be between 77 and 78 percent. In addition, the company expects pro forma operating expenses for the March 2004 quarter to increase by 12 to 14 percent over the December 2003 quarter. Pro forma operating expense and pro forma gross margin expectations exclude stock-based compensation and the amortization of intangible assets.
For the fiscal year ending September 30, 2004, NetScreen is raising its projected total revenue to range between $360 million and $375 million, representing year over year revenue growth of approximately 47 percent to 53 percent.
Conference Call
NetScreen will host a public conference call to discuss the first quarter results and current business developments, and to provide guidance for the second quarter and full year fiscal 2004 today at 5:00 p.m. Eastern Time (2:00 p.m. Pacific Time). A live webcast of the call can be accessed at: http://ir.netscreen.com/ireye/ir_site.zhtml?ticker=nscn&script=2100. A replay of the webcast will be available at the same web address starting approximately two hours after the conclusion of the live webcast and running through February 29, 2004.
Institutional investors and research analysts can access the live conference by calling 877-266-4218 (U.S. and Canada) or 706-679-3421 (International). A taped replay of this call will be available starting approximately two hours after the conclusion of the live call and running through January 30, 2004. The dial-in numbers for the replay are 800-642-1687 (U.S. and Canada) and 706-645-9291 (International). The call's ID number is: 4861311.
(tables to follow) NETSCREEN TECHNOLOGIES, INC. GAAP CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) (in thousands, except per share amounts) Three Months Ended December 31, 2003 2002 Revenues: Product $64,922 $42,451 Maintenance and service 16,095 8,619 Total revenues 81,017 51,070 Cost of revenues: Product (A) (B) 14,778 9,283 Maintenance and service (A) 4,249 2,417 Total cost of revenues 19,027 11,700 Gross margin 61,990 39,370 Operating expenses: Research and development (A) (B) 13,597 9,782 Sales and marketing (A) (B) 31,522 20,162 General and administrative (A) 5,970 4,191 Total operating expenses 51,089 34,135 Income from operations 10,901 5,235 Interest and other income, net 1,126 1,063 Income before taxes 12,027 6,298 Provision for income taxes (5,653) (3,086) Net income $6,374 $3,212 Basic net income per share $0.07 $0.04 Shares used in computing basic net income per share 86,539 77,003 Diluted net income per share $0.07 $0.04 Shares used in computing diluted net income per share 90,730 82,893 (A) Includes stock-based compensation of the following: Cost of product revenues $280 $411 Cost of maintenance and service revenues 341 277 Research and development 2,689 1,983 Sales and marketing 2,709 2,697 General and administrative 1,064 724 Total stock-based compensation $7,083 $6,092 (B) Includes amortization of intangible assets of the following: Cost of product revenues $1,425 $186 Research and development 23 23 Sales and marketing 538 35 Total amortization of intangible assets $1,986 $244
Certain amounts have been reclassified to conform to the current presentation.
NETSCREEN TECHNOLOGIES, INC. PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) (excludes stock-based compensation, amortization of intangible assets and related tax effects) (in thousands, except per share amounts) Three Months Ended December 31, 2003 2002 Revenues: Product $64,922 $42,451 Maintenance and service 16,095 8,619 Total revenues 81,017 51,070 Cost of revenues: Product (A) (B) 13,073 8,686 Maintenance and service (A) 3,908 2,140 Total cost of revenues 16,981 10,826 Gross margin 64,036 40,244 Operating expenses: Research and development (A) (B) 10,885 7,776 Sales and marketing (A) (B) 28,275 17,430 General and administrative (A) 4,906 3,467 Total operating expenses 44,066 28,673 Pro forma income from operations 19,970 11,571 Interest and other income, net 1,126 1,063 Pro forma income before taxes 21,096 12,634 Provision for income taxes (8,228) (1,712) Pro forma net income $12,868 $10,922 Basic pro forma net income per share $0.15 $0.14 Shares used in computing basic pro forma net income per share 86,539 77,003 Diluted pro forma net income per share $0.14 $0.13 Shares used in computing diluted pro forma net income per share 90,730 82,893 (A) Excludes stock-based compensation of the following: Cost of product revenues $280 $411 Cost of maintenance and service revenues 341 277 Research and development 2,689 1,983 Sales and marketing 2,709 2,697 General and administrative 1,064 724 Total stock-based compensation $7,083 $6,092 (B) Excludes amortization of intangible assets of the following: Cost of product revenues $1,425 $186 Research and development 23 23 Sales and marketing 538 35 Total amortization of intangible assets $1,986 $244
Certain amounts have been reclassified to conform to the current presentation.
NETSCREEN TECHNOLOGIES, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands) December 31, September 30, 2003 2003 (Unaudited) Assets Current assets: Cash and cash equivalents $73,597 $53,914 Short-term investments 305,622 286,738 Restricted cash 38 38 Accounts receivable, net 37,722 35,874 Refundable income taxes 48 943 Inventories 2,924 2,501 Deferred income taxes 27,220 28,368 Other current assets 6,048 6,613 Total current assets 453,219 414,989 Property and equipment 11,370 10,667 Restricted cash 139 823 Long-term deferred income taxes 1,439 5,640 Intangible assets 38,370 4,781 Goodwill 250,420 54,271 Other assets 762 552 Total assets $755,719 $491,723 Liabilities and Stockholders' Equity Current liabilities: Accounts payable $9,804 $8,230 Accrued expenses 24,281 17,204 Accrued compensation 12,963 12,234 Deferred revenue 63,750 54,364 Current portion of restructuring liabilities 1,019 648 Current portion of debt and capital lease obligations -- 72 Total current liabilities 111,817 92,752 Restructuring liabilities, less current portion 3,754 2,042 Total liabilities 115,571 94,794 Total stockholders' equity 640,148 396,929 Total liabilities and stockholders' equity $755,719 $491,723
Certain amounts have been reclassified to conform to the current presentation.
NetScreen Technologies, Inc. Condensed Consolidated Statements of Operations GAAP Reconciliation to Pro Forma Three Months Ended December 31, 2003 (in thousands, except per share amounts and percentages) GAAP to Pro Forma GAAP Adjustments Pro Forma Revenues: Product $64,922 $64,922 Maintenance and service 16,095 16,095 Total revenues 81,017 81,017 Cost of revenues: (1,425) [a] Product 14,778 (280) [b] 13,073 Maintenance and service 4,249 (341) [b] 3,908 Total cost of revenues 19,027 (2,046) 16,981 Gross margin 61,990 2,046 64,036 Operating expenses: (23) [a] Research & development 13,597 (2,689) [b] 10,885 (538) [a] Sales & marketing 31,522 (2,709) [b] 28,275 General and administrative 5,970 (1,064) [b] 4,906 Total operating expenses 51,089 (7,023) 44,066 Income from operations 10,901 9,069 19,970 Interest & other income, net 1,126 -- 1,126 Income before income taxes 12,027 9,069 21,096 Provision for income taxes (5,653) (2,575) [c] (8,228) Net income $6,374 $6,494 $12,868 Basic net income per share $0.07 $0.15 Shares used in computing basic net income per share 86,539 86,539 Diluted net income per share $0.07 $0.14 Shares used in computing diluted net income per share 90,730 90,730 Certain measures as a percentage of revenue: Product gross margin 77.2% 79.9% Maintenance and service gross margin 73.6% 75.7% Gross Margin 76.5% 79.0% Research & development expenses 16.8% 13.4% Sales & marketing expenses 38.9% 34.9% General and administrative expenses 7.4% 6.1% Operating expenses 63.1% 54.4% Income from operations 13.5% 24.6% Notes: [a] reflects amortization of intangible assets [b] reflects amortization of stock-based compensation [c] primarily reflects the GAAP adjustments to provision for income taxes related to stock based compensation and amortization of intangible assets. NetScreen Technologies, Inc. Condensed Consolidated Statements of Operations GAAP Reconciliation to Pro Forma Three Months Ended September 30, 2003 (in thousands, except per share amounts and percentages) GAAP to Pro Forma GAAP Adjustments Pro Forma Revenues: Product $57,391 $57,391 Maintenance and service 14,199 14,199 Total revenues 71,590 71,590 Cost of revenues: (186) [a] Product 11,796 (355) [b] 11,255 Maintenance and service 3,858 (269) [b] 3,589 Total cost of revenues 15,654 (810) 14,844 Gross margin 55,936 810 56,746 Operating expenses: (23) [a] Research & development 11,924 (1,777) [b] 10,124 (35) [a] Sales & marketing 26,005 (2,516) [b] 23,454 General and administrative 5,241 (683) [b] 4,558 Total operating expenses 43,170 (5,034) 38,136 Income from operations 12,766 5,844 18,610 Interest & other income, net 1,028 -- 1,028 Income before income taxes 13,794 5,844 19,638 Provision for income taxes (6,647) (1,062) [c] (7,709) Net income $7,147 $4,782 $11,929 Basic net income per share $0.09 $0.15 Shares used in computing basic net income per share 81,125 81,125 Diluted net income per share $0.08 $0.14 Shares used in computing diluted net income per share 86,390 86,390 Certain measures as a percentage of revenue: Product gross margin 79.4% 80.4% Maintenance and service gross margin 72.8% 74.7% Gross Margin 78.1% 79.3% Research & development expenses 16.7% 14.1% Sales & marketing expenses 36.3% 32.8% General and administrative expenses 7.3% 6.4% Operating expenses 60.3% 53.3% Income from operations 17.8% 26.0% Notes: [a] reflects amortization of intangible assets [b] reflects amortization of stock-based compensation [c] primarily reflects the GAAP adjustments to provision for income taxes related to stock based compensation and amortization of intangible assets. NetScreen Technologies, Inc. Condensed Consolidated Statements of Operations GAAP Reconciliation to Pro Forma Three Months Ended December 31, 2002 (in thousands, except per share amounts and percentages) GAAP to Pro Forma GAAP Adjustments Pro Forma Revenues: Product $42,451 $42,451 Maintenance and service 8,619 8,619 Total revenues 51,070 51,070 Cost of revenues: (186) [a] Product 9,283 (411) [b] 8,686 Maintenance and service 2,417 (277) [b] 2,140 Total cost of revenues 11,700 (874) 10,826 Gross margin 39,370 874 40,244 Operating expenses: (23) [a] Research & development 9,782 (1,983) [b] 7,776 (35) [a] Sales & marketing 20,162 (2,697) [b] 17,430 General and administrative 4,191 (724) [b] 3,467 Total operating expenses 34,135 (5,462) 28,673 Income from operations 5,235 6,336 11,571 Interest & other income, net 1,063 -- 1,063 Income before income taxes 6,298 6,336 12,634 Provision for income taxes (3,086) 1,374 [c] (1,712) Net income $3,212 $7,710 $10,922 Basic net income per share $0.04 $0.14 Shares used in computing basic net income per share 77,003 77,003 Diluted net income per share $0.04 $0.13 Shares used in computing diluted net income per share 82,893 82,893 Certain measures as a percentage of revenue: Product gross margin 78.1% 79.5% Maintenance and service gross margin 72.0% 75.2% Gross Margin 77.1% 78.8% Research & development expenses 19.2% 15.2% Sales & marketing expenses 39.5% 34.1% General and administrative expenses 8.2% 6.8% Operating expenses 66.8% 56.1% Income from operations 10.3% 22.7% Notes: [a] reflects amortization of intangible assets [b] reflects amortization of stock-based compensation [c] primarily reflects the GAAP adjustments to provision for income taxes related to stock based compensation and amortization of intangible assets. NETSCREEN TECHNOLOGIES, INC. Estimated Incremental Operating Expenses Related to the Acquisition of Neoteris, Inc. (3) (in thousands) Three Months Ended Dec. 31, 2003 Low (1) High (2) $ $ GAAP incremental operating expense 8,672 7,272 Stock based compensation (2,370) (2,370) Amortization of intangible assets (502) (502) Pro forma incremental operating expenses 4,000 4,400 (1) Low guidance reflects the high end of the estimated incremental operating expenses. (2) High guidance reflects the low end of the estimated incremental operating expenses. (3) Acquisition closed on November 14, 2003. NETSCREEN TECHNOLOGIES, INC. Guidance Summary Reconciliation of GAAP to Pro Forma Gross Margin and Operating Expense (Unaudited) (in thousands, except percentages) Three Months Ending Mar. 31, 2004 Low (1) High (2) % of % of $ Revenue $ Revenue Revenues - GAAP and Pro forma 89,119 100.0% 90,739 100.0% GAAP gross margin 66,212 74.3% 68,366 75.3% Stock based compensation 558 0.6% 558 0.6% Amortization of intangible assets 1,852 2.1% 1,852 2.0% Pro Forma gross margin 68,622 77.0% 70,776 78.0% GAAP operating expenses 58,527 65.7% 57,646 63.5% Stock based compensation (7,229) -8.1% (7,229) -8.0% Amortization of intangible assets (1,063) -1.2% (1,063) -1.2% Pro forma operating expenses 50,235 56.4% 49,354 54.4% Notes: (1) Low guidance reflects 10% revenue increase over the prior quarter, 77% pro forma gross margin and 14% pro forma operating expense increase over the prior quarter. (2) High guidance reflects 12% revenue increase over the prior quarter, 78% pro forma gross margin and 12% pro forma operating expense increase over the prior quarter.
SOURCE NetScreen Technologies, Inc. -0- 01/21/2004 /CONTACT: David Gennarelli, Investor Relations, +1-408-543-8125 ordgennarelli@netscreen.com, or Jennifer Jennings, Media Relations,+1-408-543-8243 or jjennings@netscreen.com, both of NetScreen Technologies,Inc./ /Web site: http://www.netscreen.com / (NSCN)CO: NetScreen Technologies, Inc.ST: CaliforniaIN: CPR HTS NET MLMSU: ERN ERP CCAJO -- SFW110 --6942 01/21/2004 16:01 EST http://www.prnewswire.co
About NetScreen Technologies
NetScreen Technologies, Inc., is a leading developer of network security and access solutions for enterprises and carriers worldwide. NetScreen's solutions offer customers multiple layers of network and application-level protection in purpose-built appliances and systems that optimize performance and reduce total operating costs. NetScreen is located at 805 11th Ave., Sunnyvale, Calif., 94089. More information on NetScreen's products can be found at <http://www.netscreen.com> or by calling toll free at 1-800-638-8296.
NetScreen, Neoteris, Neoteris Access Series and the NetScreen logo are trademarks of NetScreen Technologies, Inc. in the United States and other countries. Other trademarks are the property of their respective owners.
This press release contains forward-looking statements about events and circumstances that have not yet occurred. For example, words such as “will”, “can”, “allowing”, “believes”, “continue” and “continuing”, or other statements in the future tense, are forward-looking statements. Actual outcomes and results may differ materially from expectations in this press release due to a number of risks and uncertainties. Such risks and uncertainties include whether the market for security products will grow as projected, if at all, whether demand for NetScreen products will continue, whether new products, if and when introduced, will be successful and whether products will perform as expected.