August 3, 2005

NetIQ Announces Fourth Quarter and Fiscal 2005 Results

NetIQ Corp. (Nasdaq: NTIQ), a leading provider of integrated systems and security management solutions, today announced financial results for its fourth quarter and fiscal year ended June 30, 2005.


Press Release

SAN JOSE, Calif.

NetIQ Corp. (Nasdaq: NTIQ), a leading provider of integrated systems and security management solutions, today announced financial results for its fourth quarter and fiscal year ended June 30, 2005.

GAAP Financial Results

Revenue from continuing operations for the fourth quarter of fiscal 2005 was $50.1 million, compared with $56.7 million in revenue from continuing operations for the same quarter of the prior year. GAAP net loss from continuing operations was $6.2 million or $0.12 per basic and diluted share in the fourth quarter of fiscal 2005, compared with a GAAP net loss from continuing operations of $5.8 million or $0.10 per basic and diluted share in the fourth quarter of fiscal 2004.

Revenue from continuing operations for the twelve month period ended June 30, 2005 was $213.2 million, compared with $217.0 million in revenue from continuing operations for the twelve month period ended June 30, 2004. GAAP net loss from continuing operations was $10.5 million or $0.19 per basic and diluted share in the twelve month period ended June 30, 2005, compared with a GAAP net loss from continuing operations of $159.2 million or $2.81 per basic and diluted share in the twelve month period ended June 30, 2004.

The company's WebTrends business unit is included in discontinued operations as a consequence of NetIQ's sale of that business unit on April 30, 2005.

GAAP net income was $48.7 million or $0.94 per basic and diluted share in the quarter ended June 30, 2005, compared with a GAAP net loss of $6.9 million or $0.12 per basic and diluted share in the quarter ended June 30, 2004.

GAAP net income was $46.7 million or $0.87 per basic and diluted share in the twelve month period ended June 30, 2005, compared with a GAAP net loss from operations of $191.4 million or $3.37 per basic and diluted share in the twelve month period ending June 30, 2004.

Non-GAAP Operating Results

Non-GAAP net income from continuing operations for the fourth quarter was $7,000 or $0.00 per diluted share, compared with non-GAAP net income from continuing operations of $1.3 million or $0.02 per diluted share for the same period in the prior fiscal year.

Non-GAAP net income from continuing operations for the twelve month period ended June 30, 2005 was $3.7 million or $0.07 per diluted share, compared with non-GAAP net income from continuing operations of $945,000 or $0.02 per diluted share for the same period in the prior fiscal year.

Non-GAAP net income from continuing operations presents the company's financial results from continuing operations adjusted to exclude the following: amortization and impairment of purchased technology and other intangible assets, employee stock-based compensation, impairment of goodwill, restructuring, write-off of acquired in-process research and development, impairment of or gains on sale of long-term investment, cumulative effect of change in accounting principle, and related income tax effect, each as detailed under "Reconciliation of non-GAAP Information" in the attached financial statements. The exclusion of such items is not in accordance with generally accepted accounting principles, is not intended as a substitute for GAAP net income or loss or any other GAAP measure, and may not be consistent with similar measures used by other companies.

NetIQ's management and Board of Directors believe that the non-GAAP information is an additional, meaningful measure of operating performance because it measures the principal operating results that can be directly influenced by management and provides more consistent comparability of the company's financial results against historical results and the results reported by other software companies. Accordingly, it is used by management and the Board of Directors to measure the performance of the company against its operational objectives.

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 this information in any way or for any reason prior to disclosing actual results.

"NetIQ made significant progress during fiscal 2005 in developing its Knowledge-Based Service Assurance Strategy. We've narrowed our product focus to the top five strategic product areas that support KBSA, and we have realigned our corporate structure around those products. During the first half of fiscal 2006 we plan to deliver strategically important product updates for each of these products, while continuing to drive cost efficiency into the organization," said Chuck Boesenberg, Chairman & CEO.

Business Outlook

The following is with respect to financial information from continuing operations.

  • NetIQ anticipates revenue from continuing operations for its first quarter ending September 30, 2005 to be in the range of $43 to $47 million, compared with $53.9 million in revenue for the quarter ended September 30, 2004.
  • NetIQ anticipates GAAP results of ($0.44) to ($0.36) per diluted share for the first quarter of fiscal 2006, compared with ($0.07) in the prior year period. Non-GAAP results are expected to be ($0.10) to ($0.02) per diluted share, compared with $0.02 in the prior year period.
  • The reconciliation to non-GAAP EPS guidance is based on a preliminary estimate of approximately $16 million of excluded items that include approximately $2 million in cash restructuring charges, but does not include an estimate for any charge related to the possible impairment of the company's corporate headquarters facility. Other excluded items include amortization of employee stock based compensation, amortization of purchased technology and amortization of other intangible assets.
  • NetIQ anticipates its sales and marketing, research and development and general and administrative expenses from continuing operations to be in the range of $41 to $43 million in the first quarter of fiscal 2006, compared with expenses from continuing operations of $45.4 million in the prior year quarter. These expenses are expected to include approximately $2 million that will eventually be eliminated under the previously announced restructuring program.

Fourth Quarter Continuing Operations Business Overview

The following is with respect to financial information from continuing operations.

  • Revenue for the fourth quarter of 2005 declined 12% compared with the fourth quarter of fiscal 2004:
  • License revenue declined 27%
  • Services revenue increased 9%
  • International license revenue represented 41% of total license revenue for the fourth quarter of 2005, compared with 34% in the fourth quarter of 2004.
  • Indirect revenue was 53% of revenue in the fourth quarter of 2005, compared with 58% in the fourth quarter of 2004.
  • Sales pipeline declined from the same quarter one year ago.
  • Bookings for our five strategic products, NetIQ® AppManager® Suite, NetIQ Security Manager™, NetIQ Vulnerability Manager™, NetIQ® Security Administration Suite, and the company's VoIP products, were down by 20% compared with the same quarter of the prior year, and represented 91% of total bookings for the quarter.
  • Sales and Marketing, Research and Development, and General and Administrative expenses from continuing operations were $44.3 million, or 88% of revenue, compared with $48.0 million, or 85% of revenue, for Q4 2004.
  • NetIQ ended Q4 2005 with total cash and cash equivalents and short-term investments of $296.7 million, compared with $286.1 million held at the end of Q3 2005.
  • NetIQ repurchased 6.8 million shares of its common stock for a total purchase price of $74.8 million during the quarter.
  • Through August 2, 2005, the total shares repurchased under the program was 8.6 million for $94.6 million.
  • NetIQ spent approximately $600,000 on capital acquisitions during the quarter.
  • There were 2 deals over $1 million completed during the quarter.
  • Federal license bookings represented approximately 9% of license bookings during the quarter.
  • 4 of the top 10 deals were sales to new customers.
  • 4 of the top 10 deals were compliance driven.
  • 6 of the top 10 deals included a security product.
  • 6 of the top 10 deals included sales of AppManager licenses.
  • 40 new UNIX and Linux customers were added during the quarter
  • Headcount was 1,006 at the end of Q4 2005, compared to 1,042 at the end of Q3 2005

Recent Product Awards

  • NetIQ AppManager Suite was awarded Redmond magazine's Most Valuable Product award.
  • NetIQ Security Manager and NetIQ AppManager Suite won W2KNews Target Awards in the Intrusion Detection and System/Application Monitoring categories for the second year in a row.
  • NetIQ® MailMarshal™ SMTP was named a mid-market "Product of the Year" by CMP Media's VARBusiness Magazine.
  • VigilEnt™ Policy Center was the winner of the CMP Media LLC's Network Computing Well-Connected Award in the Policy Management Systems category.
  • NetIQ was recognized for the second time by CMP Media's VARBusiness magazine as one of North America's top information technology (IT) vendors.

Fourth Quarter Product Releases

  • NetIQ introduced NetIQ® Security Compliance Suite, which provides a customer with knowledge to ascertain that its enterprise is secure, available, performing optimally and is also compliant with legal and corporate policies.
  • NetIQ introduced NetIQ Group Policy Guardian™ 2.0, which helps customers minimize the risk associated with Group Policy Object (GPO) changes and comply with regulations through closed-loop change monitoring of Group Policy settings.

NetIQ Analyst/Investor Conference Call

NetIQ will conduct a conference call at 1:30 p.m. Pacific time today to discuss the results of the quarter in greater detail. The dial-in number for the call is (888) 285-1136 (Domestic) and (706) 643-7520 (International) the conference ID is 7574847. A replay of the call will be available at (800) 642-1687 (Domestic) and (706) 645-9291 (International) the conference ID is 7574847. A live audio webcast of the presentation and a replay will be available on the NetIQ corporate website, www.netiq.com/about_netiq/investor_relations/InvestorConferenceCall.asp. The replay of the webcast will be available starting within 24 hours of the actual presentation.

About NetIQ

NetIQ is a leading provider of integrated systems and security management solutions that empower the IT organization with the knowledge and ability to assure IT service. NetIQ's Knowledge-Based Service Assurance solution embeds knowledge and best practices to ensure operational integrity, better manage service levels and risk and ensure policy compliance. NetIQ's modular, best-of-breed solutions for Performance & Availability Management, Security Management, Configuration & Vulnerability Management, and Operational Change Control integrate through an open, service-oriented architecture allowing for common reporting, analytics and dashboards. For more information about NetIQ, visit www.netiq.com or call (888) 323-6768.

Safe Harbor Statement

Statements in this press release regarding future operating results and statements 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 may differ from the results predicted and from other forward-looking statements made by the company. As well, the company's fourth quarter results should not be considered as an indication of its future performance, due to variety of risks and uncertainties, including (1) the demand for the company's software and services; (2) risks inherent in technology businesses generally, including the timing and successful development of new products, customer acceptance of new product offerings and product strategies, pricing of new products and competition in the company's various product lines, the company's ability to retain and hire technical personnel and other employees, and the company's relationships with customers, suppliers and strategic partners; (3) the amount and impact of the restructuring charges to be incurred by the company in Fiscal Year 2006; and (4) the impact of the expensing of stock options and other stock-based compensation, under Financial Accounting Standards Board's Statement 123, the provisions of which became effective as to the company on July 1, 2005. For a more comprehensive discussion of risks and uncertainties relating to the company's business, please read the discussions of these risks in documents the company files from time to time with the Securities and Exchange Commission, including its Annual Report on Form 10-K for the fiscal year ended June 30, 2004, and its Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2005. All of the information in this press release is as of August 3, 2005, and the company undertakes no responsibility to update this information.

NetIQ, AppManager, NetIQ Security Manager, NetIQ Vulnerability Manager, NetIQ Group Policy Guardian, MailMarshal and VigilEnt 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.


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

Three Months




Ended June 30,
Year Ended June 30,

2005
2004
2005
2004








Software license revenue $23,514
$32,274
$109,627
$123,474
Service revenue 26,590
24,420
103,589
93,526








Total revenue 50,104
56,694
213,216
217,000








Cost of software license revenue 1,324
1,448
4,935
9,265
Cost of service revenue 6,543
6,119
26,475
22,490
Amortization of purchased technology 2,953
2,998
11,813
8,607








Total cost of revenue 10,820
10,565
43,223
40,362








Gross profit 39,284
46,129
169,993
176,638








Operating expenses:






Sales and marketing 24,640
27,222
102,561
106,400
Research and development 12,045
13,914
50,567
55,202
General and administration 7,627
6,840
29,316
26,904
Employee stock-based compensation 612
59
1,493
307
Amortization of other intangible assets 2,147
2,122
8,553
8,487
Impairment of goodwill -
-
-
134,255
Restructuring (7)
1,818
12
1,313








Total operating expenses 47,064
51,975
192,502
332,868








Loss from operations (7,780)
(5,846)
(22,509)
(156,230)








Other income (expenses):






Interest income and other, net 2,086
987
6,608
4,765
Gain on sale of long-term investment -
-
4,100
-
Gain on sale of technology, net -
-
2,893
-
Impairment of long-term investment -
-
-
(4,100)








Other income , net 2,086
987
13,601
665








Loss before income taxes (5,694)
(4,859)
(8,908)
(155,565)








Income taxes 477
903
1,597
3,610








Loss from continuing operations (6,171)
(5,762)
(10,505)
(159,175)








Discontinued operations, net of tax:






Income (loss) from discontinued operations (1,981)
(1,150)
418
(32,205)
Gain on sale of discontinued operations 56,834
-
56,834
-
Income (loss) from discontinued operations 54,853
(1,150)
57,252
(32,205)








Net income (loss) $48,682
$(6,912)
$46,747
$(191,380)








Basic and diluted earnings (loss) per share:














Continuing operation $(0.12)
$(0.10)
$(0.19)
$(2.81)








Discontinued operations $1.06
$(0.02)
$1.06
$(0.57)








Net income (loss) per share $0.94
$(0.12)
$0.87
$(3.37)
















Shares used to compute basic and diluted earnings per share 51,792
55,953
54,019
56,729








RECONCILIATION OF NON-GAAP INFORMATION:














Net loss from continuing operations $(6,171)
$(5,762)
$(10,505)
$(159,175)








Adjustments:






Amortization of purchased technology 2,953
2,998
11,813
8,607
Employee stock-based compensation 612
59
1,493
307
Amortization of other intangible assets 2,147
2,122
8,553
8,487
Impairment of goodwill -
-
-
134,255
Restructuring (7)
1,818
12
1,313
Gain on sale of long-term investment -
-
(4,100)
-
Gain on sale of technology, net -
-
(2,893)
-
Impairment of long-term investment -
-
-
4,100








Total adjustments 5,705
6,997
14,878
157,069








Income tax effect 473
108
(624)
3,051








Non-GAAP net income $7
$1,343
$3,749
$945








Non-GAAP diluted earnings per share $0.00
$0.02
$0.07
$0.02








Shares used to compute non-GAAP diluted earnings per share 52,588
56,485
54,782
57,288

NetIQ Corporation
Condensed Consolidated Balance Sheets
(In thousands)





June 30,
June 30,

2005
2004
ASSETS






Current assets:


Cash and cash equivalents $101,432
$57,841
Short-term investments 195,311
229,781
Accounts receivable, net 25,989
31,081
Prepaid expenses and other 6,694
5,269




Total current assets 329,426
323,972




Property and equipment, net 40,594
49,706
Other intangible assets, net 15,758
39,040
Long-term investments 3,714
4,614
Other assets 929
2,489
Goodwill 96,034
124,081




Total assets $486,455
$543,902





LIABILITIES AND STOCKHOLDERS' EQUITY






Current liabilities:


Accounts payable $9,939
$8,278
Accrued compensation and related benefits 10,034
14,374
Other liabilities 12,523
11,812
Restructuring liability, current portion -
929
Deferred revenue, current portion 50,703
61,174




Total current liabilities 83,199
96,567




Restructuring liability, net of current portion -
393
Deferred revenue, net of current portion 2,621
5,442




Total liabilities 85,820
102,402




Stockholders' equity:


Common stock 2,835,822
2,905,610
Deferred employee stock-based compensation (17,594)
(313)
Accumulated deficit (2,416,078)
(2,462,825)
Accumulated other comprehensive loss (1,515)
(972)




Total stockholders' equity 400,635
441,500




Total liabilities and stockholders' equity $486,455
$543,902

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