January 25, 2005

NetIQ Announces Second Quarter Fiscal 2005 Results

Revenue and Earnings per Share Exceed Guidance; $70.5 Million in Revenue, $0.09 EPS


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 its second fiscal quarter ended December 31, 2004.

GAAP Financial Results

Revenue for the second quarter of fiscal 2005 was $70.5 million compared with $64.0 million in revenue for the same quarter of the prior year. Revenue for the second quarter increased 10% year over year. GAAP net income was $5.0 million or $0.09 per basic and diluted share in the second quarter of fiscal 2005, compared with a GAAP net loss of $10.2 million or $0.18 per basic and diluted share in the second quarter of fiscal 2004.

NetIQ previously provided guidance for the second quarter of fiscal 2005 of revenue from $64 million to $68 million, and a GAAP net loss of $0.02 to net income of $0.03 per basic and diluted share.

Non-GAAP Operating Results

Non-GAAP net income for the second quarter was $4.6 million or $0.08 per diluted share, compared with non-GAAP net income of $0.5 million or $0.01 per diluted share for the same period in the prior fiscal year. NetIQ previously provided guidance for the second quarter of fiscal 2005 of non-GAAP net income of $0.01 to $0.04 per diluted share.

Non-GAAP net income presents the company's net loss adjusted to exclude the following costs of revenue and expenses: amortization and impairment of purchased technology and other intangible assets, employee stock-based compensation, impairment of goodwill, restructuring charge, 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 it provides more consistent comparability of the company's financial results against historical results and the results of other software companies. Accordingly, it is the principal measure of performance used by management and the board of directors to measure the performance of the company against its operational objectives.

"Our second quarter revenue results exceeded our guidance, and both GAAP and Non-GAAP EPS came in significantly above our guidance. We saw strong revenue growth across our product lines. We're also pleased to report that our research, development, sales, marketing, general and administrative expenses declined considerably as a percent of revenue from the same quarter last year, resulting in a substantial improvement to our non-GAAP operating margin," said Chuck Boesenberg, Chairman & CEO.

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 prior to disclosing actual results.

  • NetIQ anticipates revenue for its third quarter ending March 31, 2005 to be in the range of $67 to $70 million, compared with $66.9 million in revenue for the quarter ended March 31, 2004, implying anticipated year over year growth of 0% to 5%. These results include the effect of the end of the revenue stream from the Ixia arrangement, which ended in the second quarter of fiscal 2005. In the third quarter of 2004, $3.5 million in revenue was recognized from the transaction with Ixia. Without including the $3.5 million revenue contribution from Ixia in the year ago period, the guidance suggests a revenue growth rate of 6% to 10%.
  • NetIQ anticipates GAAP results of ($0.03) to $0.02 per diluted share for the third quarter of fiscal 2005. Non-GAAP results are expected to be $0.02 to $0.05 per diluted share. The reconciliation to non-GAAP EPS guidance is based on the following assumptions for excluded items: amortization of purchased technology of $3.1 million, other income from Ixia's exercise of their option of $2.5 million, amortization of other intangible assets of $2.2 million, amortization of employee stock based compensation of $240,000, and related income tax costs of $924,000 at the upper end of guidance to a benefit of $7,000 at the lower end of guidance.
  • NetIQ anticipates its sales and marketing, research and development and general and administrative expenses to be in the range of $55 to $57 million in the third quarter of fiscal 2005.

Second Quarter Business Overview

  • Revenue for the second quarter of 2005 grew 10% compared with the second quarter of fiscal 2004:
    • License revenue grew 8% (Q2 2004 $34.0 million to $36.8 million for Q2 2005)
    • Services revenue increased 12% (Q2 2004 $29.9 million to $33.7 million for Q2 2005)
  • International license revenue represented 36% of total license revenue for the second quarter of 2005, the same as in the second quarter of 2004.
  • Indirect revenue grew to 64% of revenue in the second quarter of 2005, compared to 56% in the second quarter of 2004.
  • Sales pipeline grew from the same quarter one year ago.
  • Backlog for maintenance and license revenue increased compared with the second quarter of 2004.
  • Bookings for the top five products: AppManager® Suite, NetIQ Security Manager™, NetIQ Vulnerability Manager™, Security Administration Suite and WebTrends® were up over 10% compared with the same quarter of the prior year, and also represented 88% of total bookings for the quarter.
  • Sales, Marketing, General, Administrative, Research and Development expenses were $55.4 million, or 79% of revenue, compared with 84% of revenue for Q2 2004.
  • NetIQ generated $6.0 million in cash from operations, and ended the quarter with total cash and cash equivalents and short-term investments of $294.4 million, compared with $285.5 million in the previous quarter.
  • NetIQ repurchased 215,400 shares of its common stock for $2.6 million during the quarter.
  • NetIQ spent approximately $3.0 million on capital acquisitions during the quarter.
  • Headcount declined from 1,283 in Q1 2005 to 1,279 in Q2 2005.
  • Transactions over $250,000 grew to 37, compared with 22 the same quarter last year.
  • There were 3 deals over $1 million completed during the quarter.
  • Federal bookings represented approximately 12% of license bookings during the quarter.
  • 9 of the top 10 deals were sales to existing customers.
    • 3 of these were new product sales to existing customers.
  • 4 of the top 10 deals were compliance driven.
  • 6 of the top 10 deals included a security product.
  • 5 of the top 10 included AppManager product sales.
  • 46 new UNIX and Linux customers were added during the quarter, driving a 50% increase in year over year bookings.

Second Quarter Product Releases

  • AppManager® Connector for NetIQ Security Manager™ is a new addition to NetIQ's AppManager Suite of products. It is NetIQ's first product to centralize performance and availability and security event management.
  • AppManager® Analysis Center 2.0 is an enterprise reporting and analysis tool designed specifically for AppManager data. It provides administrators with the ability to gain deep insight into the health and performance of IT systems and applications.
  • AppManager® Control Center 6.0 allows users to monitor, manage, and have unified views of servers, events and jobs spanning multiple AppManager repositories.
  • NetIQ Group Policy Administrator™ makes managing Group Policy settings more efficient while, at the same time, improving the security of the Windows environment and assists the customer in meeting regulatory compliance requirements.
  • Directory and Resource Administrator™ provides powerful, policy-based privilege and content management, as well as extensive auditing and reporting capabilities.
  • WebPosition® Gold 3 optimizes a web site's relevancy, visibility and overall performance with search engines.

Second Quarter Product Awards

  • NetIQ's VigilEnt™ Policy Center won the Tester's Choice award from Secure Enterprise Magazine.
  • NetIQ Security Administration Suite™ won the CRN Test Center Product of the Year award in the Management category.
  • WebTrends was ranked #1 in market suitability and cited as a leader in Jupiter Research's constellation report.
  • WebTrends was chosen as top Business Intelligence provider by readers of DM Review.

Share Repurchase Program

NetIQ purchased 215,400 shares of its Common Stock during the quarter at a cost of $2.6 million. In September 2004, NetIQ's board of directors approved a program to repurchase shares valued at an aggregate of up to $50.0 million, on the open market, from time to time, over a 12 month period. To date, the Company has purchased 607,280 shares for $6.7 million as part of this program.

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. Call-in numbers are (877) 440-8703 and 1-706-645-0115 (outside the U.S.). A replay will be available for one year at (800) 642-1687 and 1-706-645-9291 (outside the U.S.). The passcode for the live call and replay is "3163809". An audio webcast of the call, reconciliations of GAAP and non-GAAP financial data with respect to historical results, the company's guidance and other information can be accessed from the company's website

About NetIQ

NetIQ Corp. (Nasdaq: NTIQ) is a leading provider of Systems & Security Management and Web Analytics solutions. In addition to managing Windows-based applications, NetIQ delivers cross-platform solutions that enhance business performance resulting in higher returns on infrastructure and Web investments. NetIQ products are sold worldwide, directly and through a network of authorized NetIQ distributors and resellers. The company is headquartered in San Jose, Calif., with development and operational personnel in Houston, Texas; Portland, Ore; Raleigh, N.C.; Bellevue, Wash.; and Galway, Ireland. For more information, please visit the company's web site 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 could differ materially from the expectations discussed herein. Factors that could cause or contribute to such differences include (1) the effect of weak demand for software and services that results in increased uncertainty as to the company's expected revenue; (2) risks inherent in technology businesses generally, including the timing and successful development of new products; customer acceptance of new product offerings; 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; changing relationships with customers, suppliers and strategic partners; and (3) the fact that the company typically receives a substantial portion of its orders at the end of the quarter and if an order shortfall occurs at the end of a quarter it could negatively impact the company's operating results for the quarter. 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, 2004. All of the information in this press release is as of January 25, 2005, and NetIQ undertakes no responsibility to update this information.

NetIQ, WebTrends, AppManager, WebPosition, NetIQ Security Manager, NetIQ Vulnerability Manager, VigilEnt, NetIQ Group Policy Administrator and Directory and Resource Administrator 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 December 31,

Six Months
Ended December 31,

2004
2003
2004
2003








Software license revenue $36,849
$34,012
$69,849
$69,037
Service revenue 33,658
29,949
65,400
57,780








Total revenue 70,507
63,961
135,249
126,817








Cost of software license revenue 1,167
2,564
2,515
5,353
Cost of service revenue 8,787
7,671
17,329
15,467
Amortization of purchased technology 3,095
5,801
6,190
11,602








Total cost of revenue 13,049
16,036
26,034
32,422








Gross profit 57,458
47,925
109,215
94,395








Operating expenses:






Sales and marketing 31,300
30,869
62,076
58,893
Research and development 16,020
16,465
32,161
32,989
General and administration 8,121
6,391
14,558
13,486
Employee stock-based
compensation
325
85
500
186
Amortization of other intangible
assets
2,179
4,263
4,344
8,526
Impairment of goodwill -
-
-
150,842
Restructuring credit (27)
(138)
(8)
(504)








Total operating expenses 57,918
57,935
113,631
264,418








Loss from operations (460)
(10,010)
(4,416)
(170,023)








Other income (expenses):






Interest income and other, net 2,162
853
3,102
2,162
Gain on sale of long-term
investment
4,100
-
4,100
-
Impairment of long-term
investment
-
-
-
(4,100)








Other income (expenses), net 6,262
853
7,202
(1,938)








Income (loss) before income taxes 5,802
(9,157)
2,786
(171,961)








Income taxes 795
1,090
1,658
1,900








Net income (loss) $5,007
$(10,247)
$1,128
$(173,861)








Basic income (loss) per share: $0.09
$(0.18)
$0.02
$(3.07)








Shares used to compute basic earnings (loss) per share 55,001
56,870
55,093
56,588








Diluted income (loss) per share: $0.09
$(0.18)
$0.02
$(3.07)








Shares used to compute diluted earnings (loss) per share 55,859
56,870
55,690
56,588
















RECONCILIATION OF NON-GAAP INFORMATION:














Net income (loss) $5,007
$(10,247)
$1,128
$(173,861)








Adjustments:






Amortization of purchased
technology
3,095
5,801
6,190
11,602
Employee stock-based
compensation
325
85
500
186
Amortization of other intangible
assets
2,179
4,263
4,344
8,526
Impairment of goodwill -
-
-
150,842
Restructuring credit (27)
(138)
(8)
(504)
Gain on sale of long-term
investment
(4,100)
-
(4,100)
-
Impairment of long-term
investment
-
-
-
4,100








Total adjustments 1,472
10,011
6,926
174,752








Income tax effect (1,911)
773
(1,955)
862








Non-GAAP net income $4,568
$537
$6,099
$1,753
Non-GAAP diluted earnings per share $0.08
$0.01
$0.11
$0.03








Shares used to compute non-GAAP diluted earnings per share 55,929
57,629
55,735
57,511









NetIQ Corporation
Condensed Consolidated Balance Sheets
(In thousands)





December 31,
2004

June 30,
2004

(Unaudited)

ASSETS






Current assets:


Cash and cash equivalents $68,932
$57,841
Short-term investments 225,457
229,781
Accounts receivable, net 35,501
31,081
Prepaid expenses and other 5,797
5,269




Total current assets 335,687
323,972




Property and equipment, net 48,118
49,706
Other intangible assets, net 28,806
39,040
Long-term investments 3,714
4,614
Other assets 1,970
2,489
Goodwill 124,614
124,081




Total assets $542,909
$543,902




LIABILITIES AND STOCKHOLDERS' EQUITY






Current liabilities:


Accounts payable $7,512
$8,278
Accrued compensation and related benefits 14,918
14,374
Other liabilities 12,323
11,812
Restructuring liability, current portion 297
929
Deferred revenue, current portion 65,126
61,174




Total current liabilities 100,176
96,567




Restructuring liability, net of current portion 261
393
Deferred revenue, net of current portion 2,638
5,442




Total liabilities 103,075
102,402




Stockholders' equity:


Common stock 2,903,295
2,905,610
Deferred employee stock-based compensation (678)
(313)
Accumulated deficit (2,461,697)
(2,462,825)
Accumulated other comprehensive loss (1,086)
(972)




Total stockholders' equity 439,834
441,500




Total liabilities and stockholders' equity $542,909
$543,902


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





Six Months
Ended December 31,

2004
2003




Cash flows from operating activities:


Net income (loss) $1,128
$(173,861)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:



Depreciation and amortization 17,525
28,219
Amortization of employee stock-based compensation 500
186
Loss on sale of short-term investments
and property and equipment
9
153
Impairment of goodwill -
150,842
Gain on sale of long-term investment (4,100)
-
Impairment of long-term investment -
4,100
Changes in:


Accounts receivable (5,167)
8,902
Prepaid expenses and other (10)
312
Accounts payable (1,012)
(473)
Accrued compensation and related benefits 216
(4,648)
Other liabilities 417
(1,132)
Restructuring liability (764)
(1,947)
Deferred revenue 1,224
12,363




Net cash provided by operating activities 9,966
23,016




Cash flows from investing activities:


Purchases of property and equipment, net (5,268)
(4,051)
Proceeds from sales of property and equipment 39
10
Cash used in acquisitions (533)
-
Purchases of short-term investments (73,029)
(101,351)
Proceeds from sales of short-term investments 4,912
580
Proceeds from maturities of short-term investments 72,341
91,366
Sale of long-term investment 5,000
-
Purchases of technology (300)
-
Other 106
(78)




Net cash provided by (used) in investing activities 3,268
(13,524)




Cash flows from financing activities


Proceeds from sale of common stock 3,540
8,747
Repurchase of common stock (6,721)
(2,054)
Net cash provided by (used in) financing activities (3,181)
6,693




Effect of exchange rate changes on cash 1,038
863




Net increase in cash and cash equivalents 11,091
17,048
Cash and cash equivalents, beginning of period 57,841
76,095




Cash and cash equivalents, end of period $68,932
$93,143
Supplemental disclosure of cash flow information:


Cash paid for interest $11
$32
Cash paid for income taxes $105
$603

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