April 24, 2003

NetIQ Announces Third Quarter Results

Company Exceeds Revenue Guidance and Meets Earnings Per Share Target


Press Release

SAN JOSE, Calif.

NetIQ Corp. (Nasdaq:NTIQ), a leading provider of Systems & Security Management and Web Analytics solutions, today announced financial results for the third fiscal quarter and nine months ended March 31, 2003.

Revenue for the quarter was $80.2 million, compared with $74.5 million for the same period last year and $80.3 million for the second quarter of fiscal 2003, representing an 8% increase year-over-year and flat sequential performance. GAAP net loss was $3.2 million or $0.06 per diluted share for the third quarter, compared with $180.3 million or $3.35 per diluted share for the third quarter of fiscal 2002 and net income of $1.3 million or $0.02 per diluted share for the second quarter of fiscal 2003.

Revenue for the nine months ended March 31, 2003 was $237.6 million, compared with $202.0 million for the same period last year, an increase of 18%. GAAP net loss for the nine months ended March 31, 2003 was $574.1 million or $10.70 per diluted share, compared to $549.6 million or $10.28 per diluted share for the same period a year ago.

Non-GAAP net income was $5.6 million or $0.10 per diluted share for the third quarter, compared with $14.1 million or $0.25 per diluted share for the third quarter of fiscal 2002 and $12.3 million or $0.23 per diluted share for the second quarter of fiscal 2003. Non-GAAP net income for the nine months ended March 31, 2003 was $30.8 million or $0.57 per diluted share, compared to $36.0 million or $0.65 per diluted share for the same period a year ago.

During the third quarter of fiscal 2003, NetIQ recorded a non-cash $745,000 impairment charge on an investment in a non-public company due to a decline in value judged to be other than temporary. NetIQ has excluded the impairment charge, and the related tax benefit, from non-GAAP net income.

Revenue pursuant to the previously announced licensing agreement with Microsoft was $10.0 million in the quarter ended March 31, 2003, down as expected from $25.0 million in the year ago third quarter, and $20.0 million in the quarter ended December 31, 2002. Revenue from the Microsoft agreement was $55.0 million in the nine months ended March 31, 2003, compared to $60.0 million in the comparable period one year ago. Core revenue, or revenue excluding these license fees, increased 16% sequentially and 42% year-over-year to $70.2 million for the third quarter of fiscal year 2003. Core revenue for the nine months ended March 31, 2003 increased 29% from the year ago period to $182.6 million.

"Our third quarter marked a milestone in our corporate strategy. In addition to meeting our revenue and earnings targets during a very challenging period and achieving significant growth in our core revenue, we developed plans to reduce operating costs through the combination of our systems and security business units and streamlining our organization structure throughout the company," said Chuck Boesenberg, chief executive officer & Chairman of NetIQ. "This new structure supports our strategy of offering integrated systems and security management solutions, making NetIQ one of the best positioned companies to capitalize on the emerging convergence of systems and security management."

"We are continuing to tightly manage the balance sheet, and by combining our systems and security business units we expect to provide significant operating savings, improve efficiency, and deliver solutions that address our customers' needs," said Jim Barth, senior vice president and chief financial officer of NetIQ. "Beginning in our September quarter, we expect to reduce our operating expenses to a level between $60 and $62 million, on a non-GAAP basis. In addition, we successfully have replaced the diminishing revenue from the Microsoft agreement through strong core revenue growth."

Non-GAAP net income (formerly presented as supplemental net income) is intended to present the company's results of operations excluding the cumulative effect of changes in accounting principles, acquisition-related charges, restructuring charges, impairment of long term investment, employee stock-based compensation, and related income tax effects. The exclusion of such items is not in accordance with and is not intended as a substitute for generally accepted accounting principles, and may not be consistent with similar measures used by other companies.

Presentation of non-GAAP net income, earnings per share and core revenue information is intended to provide greater comparability of NetIQ's financial results against historical results as well as those of other enterprise software companies and financial models of securities analysts. The management team of NetIQ believes that the above non-GAAP information is an additional meaningful measure of operating performance and it is the principal measure of performance used by management.

Business Outlook

The following statements are based on current expectations as of the date of this release. These statements are forward-looking, and actual results may differ materially. NetIQ does not undertake to update these targets in any way or for any reason.

  • NetIQ anticipates revenue for its fourth quarter ending June 30, 2003 to be in the range of $75.0 - $80.0 million.
  • NetIQ anticipates GAAP net loss per share of $0.05 to $0.08 and non-GAAP net income per share of $0.05 to $0.08 in the fourth quarter. The reconciliation to non-GAAP EPS guidance is based on the following assumptions: amortization of stock based compensation of $230,000, amortization of intangibles of $11.4 million and NetIQ management's evaluation of fair value of investments and goodwill.
  • NetIQ expects to provide guidance regarding fiscal year 2004, when it reports results for the fourth quarter and fiscal year ended June 30, 2003.

Third Quarter Operating and Product Highlights:

  • Grew core revenue sequentially for 6th consecutive quarter, with 16% sequential and 42% year-over-year growth.
  • Cash, cash equivalents and short-term investments increased $12.2 million during the quarter and working capital increased $11.2 million.
  • Days Sales Outstanding decreased to 39 as the result of strong collections efforts and improved revenue linearity.
  • NetIQ products continue to garner industry accolades: Vivinet Diagnostics won the Product of the Year Award from Internet Telephony Magazine; VigilEnt Policy Center won SC Magazine Best Buy and NetIQ MailMarshal SMTP won Best Buy Award from SC Magazine for e-Mail filtering.
  • Delivered additional cross platform functionality:
    • Expanded VigilEnt product portfolio and added support for Oracle and SunOne.
    • Added management capabilities for Oracle, ATG Dynamo Application Server and Sun ONE Directory Server to AppManager
    • VigilEnt Password Management product now streamlines password management for Windows, Linux and UNIX environments.
  • Enhanced capabilities to deliver actionable insight to NetIQ customers as either software or a service with the launch of WebTrends Reporting Center 6.0 as a common platform.
  • Entered the market for securing instant messaging in the enterprise with the release of NetIQ imMarshal.

NetIQ Analyst/Investor Conference Call:

NetIQ will conduct a conference call at 1:30 p.m. pacific time today to discuss the quarter's results in more detail.

Call-in numbers are 1-877-440-8703 and 1-706-645-0115 (outside the U.S.). A replay will be available through May 1, 2003 at 1-800-642-1687 and 1-706-645-9291 (outside the U.S.). The passcode for the live call and replay is "9363808". An audio webcast of the call and a historical as well as "guidance" reconciliation of GAAP and non-GAAP financial data and other information can be accessed from the company's website, http://www.netiq.com/about_netiq/inv estor_relations/investorconferencecall.asp.

About NetIQ

Founded in 1995, NetIQ Corporation (Nasdaq:NTIQ) is a leading provider of Systems & Security Management and Web Analytics solutions. Historically focused on the Windows management market, NetIQ now delivers cross-platform solutions that enhance business performance resulting in higher returns on infrastructure and Web investments. NetIQ products are sold across all continents directly and through a network of authorized NetIQ partners and resellers. The company is headquartered in San Jose, Calif., with development and operational personnel in Houston, Texas; Raleigh, N.C.; Bellevue, Wash.; Portland, Ore; and Auckland, New Zealand. For more information, please visit the company's web site at www.netiq.com or call 1-888-323-6768.

Safe Harbor Statement

Statements in this press release other than statements of historical fact are "forward-looking" statements within the meaning of the Private Securities Litigation Reform Act of 1995. The company's future results could differ materially from the expectations discussed herein. Factors that could cause or contribute to such differences include the current uncertain business climate; risks inherent in technology businesses, including the timing and successful development of new products; risks related to the integration of newly acquired companies and achievement of anticipated revenue and cost synergies; our ability to retain and hire technical personnel and other employees; changing relationships with customers, suppliers and strategic partners; unanticipated costs associated with integration and operating activities; customer acceptance of new product offerings; pricing of new products; our recent internal restructuring initiatives and competition in our various product lines. For a more comprehensive discussion of risks and uncertainties relating to our business, please read the discussions of these risks in documents we file from time to time with the Securities and Exchange Commission, including our Annual Report on Form 10-K for the fiscal year ended June 30, 2002.

NetIQ, WebTrends, AppManager, IMMarshal and WebTrends Reporting Center are trademarks or registered trademarks of NetIQ Corporation in the United States and certain other countries. All other products mentioned are trademarks or registered trademarks of their respective owners.



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NetIQ Corporation
Condensed Consolidated Statements of Operations
(In thousands, except per share amounts)
(Unaudited)


Three Months Nine Months

Ended March 31, Ended March 31,


2003 2002 2003 2002


Software license revenue $50,320 $55,805 $162,908 $151,143
Service revenue 29,845 18,695 74,655 50,897

Total revenue 80,165 74,500 237,563 202,040


Cost of software license revenue 2,546 854 7,057 2,784
Cost of service revenue 7,801 6,408 21,468 17,152

Total cost of revenue 10,347 7,262 28,525 19,936

Gross profit 69,818 67,238 209,038 182,104

Operating expenses:
Sales and marketing 36,408 27,193 98,897 78,865
Research and development 19,920 15,912 52,879 44,673
General and administration 6,864 5,691 17,711 14,616
Employee stock-based compensation 258 429 664 2,903
Write-off of acquired in-process research and development costs - - 1,396 -
Amortization of other intangible assets 12,881 10,362 31,765 30,899
Restructuring charge - - 5,280 -
Amortization of goodwill - 187,646 - 563,880

Total operating expenses 76,331 247,233 208,592 735,836

Income (loss) from operations (6,513) (179,995) 446 (553,732)
Interest income, net 1,588 4,693 9,333 15,097


Income (loss) before income taxes and cumulative
effect of change in accounting principle (4,925) (175,302) 9,779 (538,635)
Income tax expense (benefit) (1,770) 4,990 4,500 10,990

Income (loss) before cumulative effect of change in accounting principle (3,155) (180,292) 5,279 (549,625)
Cumulative effect of change in accounting principle - - (579,338) -

Net loss $(3,155) $(180,292) $(574,059) $(549,625)



Basic earnings per share:
Income (loss) before cumulative effect of change in accounting principle $(0.06) $(3.35) $0.10 $(10.28)
Cumulative effect of change in accounting principle - - (11.05) -

Net loss $(0.06) $(3.35) $(10.95) $(10.28)



Diluted earnings per share:
Income (loss) before cumulative effect of change in accounting principle $(0.06) $(3.35) $0.10 $(10.28)
Cumulative effect of change in accounting principle - - (10.80) -

Net loss $(0.06) $(3.35) $(10.70) $(10.28)



Shares used to compute basic earnings per share 55,063 53,832 52,408 53,455
Shares used to compute diluted earnings per share 55,063 53,832 53,667 53,455

NON-GAAP INFORMATION:

Net loss $(3,155) $(180,292) $(574,059) $(549,625)
Adjustments:
Employee stock-based compensation 258 429 664 2,903
Write-off of acquired in-process research and development costs - - 1,396 -
Amortization of other intangible assets 12,881 10,362 31,765 30,899
Restructuring charge - - 5,280 -
Amortization of goodwill - 187,646 - 563,880
Impairment of long-term investment in affiliate 745 - 745 -
Cumulative effect of change in accounting principle - - 579,338 -
Income taxes (5,178) (4,027) (14,360) (12,060)

Non-GAAP net income $5,551 $14,118 $30,769 $35,997



Non-GAAP diluted net income per share $0.10 $0.25 $0.57 $0.65

Shares used to compute non-GAAP diluted net income per share 56,388 55,644 53,720 55,657



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NetIQ Corporation
Condensed Consolidated Balance Sheets
(In thousands)


March 31, June 30,

2003 2002


(Unaudited)
ASSETS

Current assets:
Cash and cash equivalents $100,930 $64,032
Short-term investments 214,027 411,861
Accounts receivable, net 30,049 35,095
Prepaid expenses and other 8,427 4,511

Total current assets 353,433 515,499


Property and equipment, net 59,961 55,518
Other intangible assets, net 68,437 57,537
Goodwill, net 603,362 915,813
Long-term investments 6,564 2,652
Other assets 1,510 1,624

Total assets $1,093,267 $1,548,643



LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
Accounts payable $7,688 $5,612
Accrued compensation and related benefits 20,903 17,505
Other liabilities 18,420 15,363
Deferred revenue, current portion 54,723 46,603

Total current liabilities 101,734 85,083


Restructuring liability, net of current portion 1,000 -
Deferred revenue, net of current portion 4,697 2,100

Total liabilities 107,431 87,183


Stockholders' equity:
Common stock 2,923,280 2,876,462
Deferred employee stock-based compensation (1,202) (395)
Accumulated deficit (1,936,763) (1,327,592)
Accumulated other comprehensive income 521 1,625
Less treasury stock - (88,640)

Total stockholders' equity 985,836 1,461,460

Total liabilities and stockholders' equity $1,093,267 $1,548,643




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NetIQ Corporation
Condensed Consolidated Statement of Cash Flows
(In thousands)
(Unaudited)


Nine Months

Ended March 31,


2003 2002


Cash flows from operating activities:
Net loss $(574,059) $(549,625)
Adjustments to reconcile net loss to net cash provided
by operating activities:
Depreciation and amortization 41,755 603,972
Tax benefit from disqualifying dispositions 3,022 10,900
Amortization of employee stock-based compensation 664 2,903
Warrant issued in lieu of compensation - 1,501
Loss on sale of investments and property and equipment 527 803
Undistributed net loss in earnings of affiliate 343 42
Impairment of long-term investment in affiliate 745 -
Write-off of acquired in-process research and development costs 1,396 -
Cumulative effect of change in accounting principle 579,338 -
Changes in assets and liabilities, net of acquisitions:
Accounts receivable 11,276 (2,361)
Prepaid expenses and other (2,868) (749)
Accounts payable 316 929
Accrued compensation and related benefits (1,269) 3,208
Other liabilities (12,126) (6,556)
Restructuring liabilities 3,300 -
Deferred revenue 440 10,135

Net cash provided by operating activities 52,800 75,102


Cash flows from investing activities:
Purchases of property and equipment (12,707) (12,762)
Proceeds from sales of property and equipment 16 37
Cash used in acquisitions, net of cash received (202,800) -
Purchases of short-term investments (99,841) (264,778)
Proceeds from maturities of short-term investments 190,660 198,191
Proceeds from sales of short-term investments 106,737 -
Purchase of long-term investment (5,000) (2,800)
Other 476 (63)

Net cash used in investing activities (22,459) (82,175)

Net cash flows from financing activities, sale of common stock 6,564 11,675

Effect of exchange rate changes on cash (7) 334

Net increase in cash and cash equivalents 36,898 4,936
Cash and cash equivalents, beginning of period 64,032 89,494

Cash and cash equivalents, end of period $100,930 $94,430



Noncash investing activities:
Issuance of common stock and options in business combination $37,754 $-
Issuance of treasury stock in business combination $53,528 $-

Supplemental disclosure of cash flow information-cash paid for:
Interest $37 $4
Income taxes $1,230 $1,102

Let's Talk


Welcome, Want to talk to someone? Call our Sales team or request a call and we'll get right back to you.

  • Sales: (888) 323-6768

For support information, please visit Technical Support.

Amy Sachrison
Director
Media and Analyst Relations

Phone: (713) 418-5368
Email: amy.sachrison@netiq.com