Press Releases
NetScreen Technologies, Inc. Reports Record Fiscal Fourth Quarter and 2003 Financial Results
Reports 11 Percent Revenue Growth Over Prior Fiscal Quarter Achieves 77 Percent Revenue Growth Over Prior Fiscal Year
Sunnyvale, CA - October 29, 2003—NetScreen Technologies, Inc. (Nasdaq: NSCN), today announced financial results for its fourth fiscal quarter and full fiscal year ended September 30, 2003.
Revenue in the quarter ended September 30, 2003 was a record $71.6 million, an increase of 74.4 percent over revenue of $41.1 million in the same quarter last year and an increase of 11.3 percent over revenue of $64.3 million in the quarter ended June 30, 2003. Revenue for fiscal 2003 was $245.3 million, an increase of 77.2 percent over revenue of $138.5 million for fiscal 2002.
Net income calculated on the basis of generally accepted accounting principles (GAAP) for the quarter ended September 30, 2003 was $7.1 million, or $0.09 per basic and $0.08 per diluted share, compared to a net loss of $925,000, or ($0.01) per basic and diluted share, in the same quarter last year. GAAP net income for the quarter ended September 30, 2003 includes a non-cash charge of $5.6 million for stock-based compensation associated primarily with stock options granted prior to the company’s initial public offering and approximately $244,000 for amortization of intangible assets associated with the September 2002 acquisition of OneSecure, Inc. GAAP net loss in the same quarter last year includes the effect of a non-cash charge of $6.1 million for stock-based compensation associated primarily with stock options. GAAP net income applicable to common stockholders for fiscal 2003 was $51.5 million, or $0.65 per basic and $0.61 per diluted share, compared to a GAAP net loss applicable to common stockholders of $41.1 million, or ($0.68) per basic and diluted share in fiscal 2002. GAAP net income for fiscal 2003 included a non-cash net tax benefit of $29.6 million resulting from the non-recurring recognition of previously reserved deferred tax assets such as net operating losses, a non-cash charge of $23.2 million for stock-based compensation associated primarily with stock options granted prior to the company’s initial public offering and a non-cash charge of approximately $978,000 for amortization of intangible assets associated with the September 2002 acquisition of OneSecure. GAAP net income for fiscal 2002 included the effect of a non-cash charge of $24.3 million for stock-based compensation associated primarily with stock options.
Pro forma net income for the quarter ended September 30, 2003 was $11.9 million, or $0.15 per basic and $0.14 per diluted share, compared to pro forma net income of $5.2 million, or $0.07 per basic and diluted share, in the same quarter last year and pro forma net income of $15.4 million, or $0.19 per basic and $0.18 per diluted share, in the quarter ended June 30, 2003. Pro forma net income for fiscal 2003 was $51.2 million, or $0.65 per basic and $0.60 per diluted share, compared to pro forma net income of $11.9 million, or $0.20 per basic and $0.16 per diluted share for fiscal 2002. Pro forma net income and pro forma net income per share information differs from the GAAP results because it excludes the effect of non-cash stock-based compensation charges and non-cash amortization of intangibles charges noted above. In addition, pro forma net income for the quarter ended September 30, 2003 reflects the company’s normalized pro forma effective tax rate of approximately 39 percent. Pro forma net income for the quarter ended June 30, 2003 reflects the company’s previous pro forma tax rate of 15 percent.
“Our superb execution in the September quarter capped off another outstanding fiscal year for NetScreen,” said Robert Thomas, president and chief executive officer. “We completed our fiscal 2003 with exceptional results and strong momentum as NetScreen’s value proposition and layered security approach continues to resonate with our enterprise and service provider customers on a global basis.”
Remo Canessa, NetScreen’s chief financial officer, stated, “Strong sales in North America and a continued strong presence in other geographies helped NetScreen post record revenues in the September quarter and during the 2003 fiscal year. The strength of our products also allowed us to achieve record pro forma gross margins of 79.3 percent in the September quarter and, equally important, allowed us to achieve pro forma income from operations of $61.4 million in fiscal 2003, 386 percent above fiscal 2002. NetScreen also generated $25.3 million in operating cash flow in the September quarter bringing our total operating cash flow to $85.0 million for fiscal 2003. Our cash and short-term investments balance as of September 30, 2003 was $340.7 million.”
Recent Company Highlights
- Signed a definitive agreement to acquire Neoteris Inc., the market leader in the SSL VPN market as well as a leader in the application security gateway market.
- Announced the Deep Inspection firewall, a new class of firewall with application-level intrusion prevention capabilities providing protection against more than 250 application-level attacks and protocol deviations.
- Unveiled the new NetScreen-Security Manager 2004, the industry’s first security management platform to combine device-, network- and security policy-level control and monitoring while enabling role-based delegation of tasks, responsibilities and access to the system.
- Expanded international “Rapid Response” customer support services to include more than 200 countries and 1,100 locations.
- Announced new large enterprise, government and service provider customer wins including Indiana University, ManagedStorage International, Virginia Hospital Center, Dutch Railways, the office of Mexico’s Federal Attorney General, China Unicom, PCCW Limited and Ubizen.
- Gained the No. 1 position in unit market share in the overall security appliance market in Japan in the second half of 2002, according to IDC Japan.
- Achieved 16 percent factory revenue market share in the worldwide security appliance market for the quarter ended June 30, 2003, up from 9.1 percent the same quarter in the previous year, according to IDC.
- Established a new Emerging Technologies sales group -- a special global sales task force established to drive adoption of NetScreen's newest product and technology offerings, such as NetScreen's Intrusion Detection and Prevention (IDP) and antivirus products.
- Signed a distribution agreement allowing NEC Corporation to offer co-branded NetScreen products in Japan.
- Ranked as the 24th fastest growing technology company on the 2003 Deloitte Technology Fast 500, a ranking of the fastest growing technology companies in North America.
“We have grown our business substantially over the course of the past year while we continue to invest in the future of the company,” continued Thomas. “Over the course of our fiscal 2004 we plan to introduce several new products and upgrades to existing products that I believe will further our competitive advantage in the marketplace. In addition, I believe our anticipated acquisition of Neoteris, which we expect to complete later this quarter, will help accelerate the realization of our goal to become the No. 1 network security company in the world.”
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 December 31, 2003, excluding the impact from the company’s planned acquisition of Neoteris, Inc., NetScreen currently expects to achieve revenue growth of between 7 and 9 percent over the September 2003 quarter. On a GAAP basis, gross margins are expected to be between 75 and 76 percent and operating expenses are expected to increase by 3 to 4 percent in the December 2003 quarter. Pro forma gross margins are expected to be between 76 and 77 percent. In addition, the company expects pro forma operating expenses for the December 2003 quarter to increase by 6 to 7 percent over the September 2003 quarter. Pro forma operating expense and pro forma gross margin expectations exclude stock-based compensation and the amortization of intangible assets.
Assuming a December 1, 2003 close of the company’s planned acquisition of Neoteris, NetScreen believes it will incur an additional $3 to $4 million in additional pro forma operating expenses, including integration costs, in the December 2003 quarter while revenue contribution to the December 2003 quarter is not expected to be significant.
For the fiscal year ending September 30, 2004, including revenue contribution from the company’s planned acquisition of Neoteris, NetScreen is projecting total revenue to range between $350 million and $370 million, representing year over year revenue growth of approximately 43 percent to 51 percent.
Conference Call
NetScreen will host a public conference call to discuss the fourth quarter results and current business developments, and to provide guidance for the first 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 November 30, 2003.
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 November 7, 2003. 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: 3266319.
About NetScreen
NetScreen Technologies, Inc., is a leading developer of integrated network security solutions that offer the security, performance and total cost of ownership required by enterprises and carriers. NetScreen’s innovative solutions provide key security technologies, such as virtual private network, denial of service protection, firewall and intrusion prevention, in a line of easy-to-manage security appliances and systems. NetScreen is located at 805 11th Ave., Sunnyvale, CA, 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 TECHNOLOGIES, INC. PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (excludes stock-based compensation, amortization of intangible assets and deemed dividends on preferred stock (in thousands, except per share amounts) Three Months Ended Twelve Months Ended September 30, September 30, 2003 2002 2003 2002 Revenues: Product $57,391 $33,259 $200,352 $113,943 Maintenance and service 14,199 7,802 44,990 24,539 Total revenues 71,590 41,061 245,342 138,482 Cost of revenues: Product (A) (B) 11,255 7,138 41,129 27,054 Maintenance and service (A) 3,589 2,303 11,584 6,855 Total cost of revenues 14,844 9,441 52,713 33,909 Gross margin 56,746 31,620 192,629 104,573 Operating expenses: Research and development (A) (B) 10,124 6,679 36,219 25,176 Sales and marketing (A) (B) 23,454 15,249 78,633 52,792 General and administrative (A) 4,558 3,413 16,390 13,979 Total operating expenses 38,136 25,341 131,242 91,947 Pro forma income from operations 18,610 6,279 61,387 12,626 Interest and other income, net 1,028 1,128 4,185 3,361 Pro forma income before taxes 19,638 7,407 65,572 15,987 Provision for income taxes (7,709) (2,169) (14,373) (4,058) Pro forma net income (C) $11,929 $5,238 $51,199 $11,929 Basic pro forma net income per share $0.15 $0.07 $0.65 $0.20 Shares used in computing basic pro forma net income per share 81,125 72,796 79,110 60,564 Diluted pro forma net income per share $0.14 $0.07 $0.60 $0.16 Shares used in computing diluted pro forma net income per share 86,390 77,242 84,694 74,783 (A) Excludes stock-based compensation of the following: Cost of product revenues $355 $412 $1,564 $1,644 Cost of maintenance and service revenues 269 275 1,099 1,017 Research and development 1,777 1,970 7,633 7,665 Sales and marketing 2,516 2,730 10,136 11,116 General and administrative 683 735 2,783 2,817 Total stock-based compensation $5,600 $6,122 $23,215 $24,259 (B) Excludes amortization of intangible assets of thefollowing: Cost of product revenues $186 $31 $744 $31 Research and development 23 4 92 4 Sales and marketing 35 6 142 6 Total amortization of intangible assets $244 $41 $978 $41 (C) Excludes deemed dividends on Series E and F convertible preferred stock $-- $-- $-- $28,743
Certain amounts have been reclassified to conform to the current presentation.
NETSCREEN TECHNOLOGIES, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands) September 30, September 30, 2003 2002 Assets Current assets: Cash and cash equivalents $53,914 $11,153 Short-term investments 286,738 238,711 Restricted cash 38 1,611 Accounts receivable, net 35,874 18,046 Refundable income taxes 943 -- Inventories 2,501 2,249 Deferred income taxes 28,368 -- Other current assets 6,613 5,231 Total current assets 414,989 277,001 Property and equipment 10,667 6,264 Restricted cash 823 -- Long-term deferred income taxes 5,640 -- Intangible assets 4,781 5,759 Goodwill 54,271 56,807 Other assets 552 853 Total assets $491,723 $346,684 Liabilities and Stockholders' Equity Current liabilities: Accounts payable $8,230 $5,027 Accrued expenses 17,204 11,452 Accrued compensation 12,234 6,909 Accrued income taxes -- 1,865 Deferred revenue 54,364 26,150 Current portion of restructuring liabilities 648 541 Current portion of debt and capital lease obligations 72 1,761 Total current liabilities 92,752 53,705 Restructuring liabilities, less current portion 2,042 2,577 Long-term portion of debt and capital lease obligations -- 1,513 Total stockholders' equity 396,929 288,889 Total liabilities and stockholders' equity $491,723 $346,684
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 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 As a % of net revenue 78.1% 79.3% 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 As a % of net revenue 17.8% 26.0% Net interest & other income 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) Effective tax rate 48.2% 39.9% 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 Notes: [a] reflects amortization of intangible assets [b] reflects amortization of stock-based compensation [c] primarily reflects the GAAP adjustment 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 June 30, 2003 (in thousands, except per share amounts and percentages) GAAP to Pro Forma GAAP Adjustments Pro Forma Revenues: Product $52,573 $52,573 Maintenance and service 11,767 11,767 Total revenues 64,340 64,340 Cost of revenues: $(186) [a] Product 11,728 (387) [b] 11,155 Maintenance and service 3,177 (276) [b] 2,901 Total cost of revenues 14,905 (849) 14,056 Gross margin 49,435 849 50,284 As a % of net revenue 76.8% 78.2% Operating expenses: (23) [a] Research & development 11,161 (1,908) [b] 9,230 (36) [a] Sales & marketing 22,707 (2,763) [b] 19,908 General and administrative 4,883 (720) [b] 4,163 Total operating expenses 38,751 (5,450) 33,301 Income from operations 10,684 6,299 16,983 As a % of net revenue 16.6% 26.4% Net interest & other income 1,090 1,090 Income before income taxes 11,774 6,299 18,073 Benefit (provision) for income taxes 23,496 (26,207) [c] (2,711) Effective tax rate (199.6%) 15.0% Net income $35,270 $(19,908) $15,362 Basic net income per share $0.44 $0.19 Shares used in computing basic net income per share 79,935 79,935 Diluted net income per share $0.41 $0.18 Shares used in computing diluted net income per share 85,180 85,180 Notes: [a] reflects amortization of intangible assets [b] reflects amortization of stock-based compensation [c] primarily reflects the GAAP adjustment to provision for income taxes related to recognition of deferred tax assets, 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, 2002 (in thousands, except per share amounts and percentages) GAAP to Pro Forma GAAP Adjustments Pro Forma Revenues: Product $33,259 $33,259 Maintenance and service 7,802 7,802 Total revenues 41,061 41,061 Cost of revenues: $(31) [a] Product 7,581 (412) [b] 7,138 Maintenance and service 2,578 (275) [b] 2,303 Total cost of revenues 10,159 (718) 9,441 Gross margin 30,902 718 31,620 As a % of net revenue 75.3% 77.0% Operating expenses: (4) [a] Research & development 8,653 (1,970) [b] 6,679 (6) [a] Sales & marketing 17,985 (2,730) [b] 15,249 General and administrative 4,148 (735) [b] 3,413 Total operating expenses 30,786 (5,445) 25,341 Income from operations 116 6,163 6,279 As a % of net revenue 0.3% 15.3% Net interest & other income 1,128 1,128 Income before income taxes 1,244 6,163 7,407 Provision for income taxes (2,169) (2,169) Net income (loss) $(925) $6,163 $5,238 Basic net income (loss) per share $(0.01) $0.07 Shares used in computing basic net income (loss) per share 72,796 72,796 Diluted net income (loss) per share $(0.01) $0.07 Shares used in computing diluted net income (loss) per share 72,796 77,242 Notes: [a] reflects amortization of intangible assets [b] reflects amortization of stock-based compensation NetScreen Technologies, Inc. Condensed Consolidated Statements of Operations GAAP Reconciliation to Pro Forma Twelve Months Ended September 30, 2003 (in thousands, except per share amounts and percentages) GAAP to Pro Forma GAAP Adjustments Pro Forma Revenues: Product $200,352 $200,352 Maintenance and service 44,990 44,990 Total revenues 245,342 245,342 Cost of revenues: $(744) [a] Product 43,437 (1,564) [b] 41,129 Maintenance and service 12,683 (1,099) [b] 11,584 Total cost of revenues 56,120 (3,407) 52,713 Gross margin 189,222 3,407 192,629 As a % of net revenue 77.1% 78.5% Operating expenses: (92) [a] Research & development 43,944 (7,633) [b] 36,219 (142) [a] Sales & marketing 88,911 (10,136) [b] 78,633 General and administrative 19,173 (2,783) [b] 16,390 Total operating expenses 152,028 (20,786) 131,242 Income from operations 37,194 24,193 61,387 As a % of net revenue 15.2% 25.0% Net interest & other income 4,185 4,185 Income before income taxes 41,379 24,193 65,572 Benefit (provision) for income taxes 10,141 (24,514)[c] (14,373) Net income $51,520 $(321) $51,199 Basic net income per share $0.65 $0.65 Shares used in computing basic net income per share 79,110 79,110 Diluted net income per share $0.61 $0.60 Shares used in computing diluted net income per share 84,694 84,694 Notes: [a] reflects amortization of intangible assets [b] reflects amortization of stock-based compensation [c] reflects income tax provision at the pro forma effective tax rate NetScreen Technologies, Inc. Condensed Consolidated Statements of Operations GAAP Reconciliation to Pro Forma Twelve Months Ended September 30, 2002 (in thousands, except per share amounts and percentages) GAAP to Pro Forma GAAP Adjustments Pro Forma Revenues: Product $113,943 $113,943 Maintenance and service 24,539 24,539 Total revenues 138,482 138,482 Cost of revenues: $(31) [a] Product 28,729 (1,644) [b] 27,054 Maintenance and service 7,872 (1,017) [b] 6,855 Total cost of revenues 36,601 (2,692) 33,909 Gross margin 101,881 2,692 104,573 As a % of net revenue 73.6% 75.5% Operating expenses: (4) [a] Research & development 32,845 (7,665) [b] 25,176 (6) [a] Sales & marketing 63,914 (11,116) [b] 52,792 General and administrative 16,796 (2,817) [b] 13,979 Total operating expenses 113,555 (21,608) 91,947 Income (loss) from operations (11,674) 24,300 12,626 As a % of net revenue -8.4% 9.1% Net interest & other income 3,361 3,361 Income (loss) before income taxes (8,313) 24,300 15,987 Provision for income taxes (4,058) (4,058) Net income (loss) (12,371) 24,300 11,929 Deemed dividends on Series E and F convertible preferred stock (28,743) 28,743 [d] -- Net income (loss) applicable to common stockholders $(41,114) $53,043 $11,929 Basic net income (loss) per share applicable to common stockholders $(0.68) $0.20 Shares used in computing basic net income (loss) per share applicable to common stockholders 60,564 60,564 Diluted net income (loss) per share applicable to common stockholders $(0.68) $0.16 Shares used in computing diluted net income (loss) per share applicable to common stockholders 60,564 74,783 Notes: [a] reflects amortization of intangible assets [b] reflects amortization of stock-based compensation [d] reflects deemed dividends on series E&F convertible preferred stock NETSCREEN TECHNOLOGIES, INC. Guidance Summary Reconciliation of GAAP to Pro Forma Gross Margin and Operating Expense (Unaudited) Excluding the Pending Acquisition of Neoteris, Inc. (in thousands) Three Months Ending Dec. 31, 2003 Low (1) High (2) % of % of $ Revenue $ Revenue Revenues - GAAP and Pro forma 76,601 100.0% 78,033 100.0% GAAP gross margin 57,507 75.1% 59,375 76.1% Stock based compensation 524 0.7% 524 0.7% Amortization of intangible assets 186 0.2% 186 0.2% Pro Forma gross margin 58,217 76.0% 60,085 77.0% GAAP operating expenses 44,969 58.7% 44,587 57.1% Stock based compensation (4,104) -5.4% (4,104) -5.3% Amortization of intangible assets (59) -0.1% (59) -0.1% Pro forma operating expenses 40,806 53.3% 40,424 51.8% Notes: (1) Low guidance reflects 7% revenue increase over the prior quarter, 76% gross margin and 7% pro forma operating expense increase over the prior quarter. (2) High guidance reflects 9% revenue increase over the prior quarter, 77% gross margin and 6% pro forma operating expense increase over the prior quarter. Reconciliation of GAAP to Pro Forma Incremental Operating Expenses Related to the Pending Acquisition of Neoteris, Inc. (3) (in thousands) Three Months Ending Dec. 31, 2003 Low (1) High (2) $ $ GAAP incremental operating expense 6,300 5,300 Stock based compensation (1,500) (1,500) Amortization of intangible assets (800) (800) Pro forma incremental operating expenses 4,000 3,000 Year Ending Sept. 30, 2004 Low (1) High (2) $ $ GAAP incremental operating expense 53,000 51,000 Stock based compensation (15,000) (15,000) Amortization of intangible assets (8,000) (8,000) Pro forma incremental operating expenses 30,000 28,000 (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) Assumes acquisition closing date of December 1, 2003.
NetScreen and the NetScreen logo are trademarks of NetScreen Technologies, Inc. in the United States and other countries. Neoteris is a registered trademark of Neoteris, Inc. 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. Statements under the caption “Outlook,” quotations from NetScreen executives and statements containing words such as "will," "expects," "believe," “growing,” “enable,” and other statements in the future tense are forward-looking statements. Actual outcomes and results may differ materially from the expectations contained in these statements due to a number of risks and uncertainties. These risks and uncertainties include volatility in the Internet infrastructure and networking market, increased competition from established and new companies, the possibility that the Neoteris acquisition will not be completed, for failure to obtain regulatory clearance under the Hart-Scott-Rodino Act or otherwise, unexpected difficulties or costs in integrating the Neoteris business with the NetScreen business, potential problems integrating other acquired companies, long sales cycles that make the timing of sales difficult to predict, and statements regarding product-related risks such as timing, performance and customer acceptance of new product introductions. Detailed information about potential factors that could affect NetScreen’s business, financial condition and results of operations is included in the company's periodic reports on Forms 10-K and 10-Q, including (without limitation) under the captions, "Factors That May Affect Our Business and Future Results of Operations and Financial Condition" and "Management's Discussion and Analysis of Financial Condition and Results of Operations," which are on file with the Securities and Exchange Commission and available at the SEC's website at www.sec.gov. The company undertakes no duty to update the information in this press release.
