SOURCE: NetIQ Corporation

August 03, 2005 16:00 ET

NetIQ Announces Fourth Quarter and Fiscal 2005 Results

SAN JOSE, CA -- (MARKET WIRE) -- August 3, 2005 -- 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
                                      ==========    ==========

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