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NetScreen Technologies, Inc. Reports Record Second Quarter Results

Sunnyvale, CA - April 23, 2003 - NetScreen Technologies, Inc. (Nasdaq: NSCN), today announced financial results for its second fiscal quarter and six months ended March 31, 2003.

Revenue in the quarter ended March 31, 2003 was a record $58.3 million, an increase of 82 percent over revenue of $32.0 million in the same quarter last year and an increase of 14 percent over revenue of $51.1 million in the quarter ended December 31, 2002. Revenues for the first six months of fiscal 2003 were $109.4 million, an increase of 79 percent over revenues of $61.0 million recorded in the same period last year.

Net income applicable to common stockholders calculated on the basis of GAAP (generally accepted accounting principles) for the quarter ended March 31, 2003 was $5.9 million, or $0.08 per basic and $0.07 per diluted share, compared to a net loss applicable to common stockholders of $3.3 million, or ($0.05) per basic and diluted share, in the same period last year. GAAP net income applicable to common stockholders in the quarter ended March 31, 2003 includes the effect of a non-cash charge of $5.5 million for stock-based compensation associated with stock options granted prior to the company's initial public offering and approximately $245,000 for amortization of intangible assets associated with the September 2002 acquisition of OneSecure Inc. and a $1.4 million negative tax impact resulting from the inclusion of stock-based compensation and the amortization of intangible assets. GAAP net loss applicable to common stockholders in the same period last year includes the effect of a non-cash charge of $6.1 million for stock-based compensation associated with stock options. GAAP net income for the first six months of fiscal 2003 was $9.1 million, or $0.12 per basic and $0.11 per diluted share, compared to a net loss of $37.7 million, or ($0.77) per basic and diluted share in the same period last year.

Pro forma net income for the quarter ended March 31, 2003 was a record $13.0 million, or $0.17 per basic and $0.15 per diluted share, representing a 371 percent increase over pro forma net income of $2.8 million, or $0.04 per basic and $0.03 per diluted share, in the same quarter last year and an increase of 19 percent over pro forma net income of $10.9 million, or $0.14 per basic and $0.13 per diluted share, in the quarter ended December 31, 2002. Pro forma net income and per share information excludes non-cash, stock-based compensation associated with stock options and amortization of intangible assets.

"We built upon our excellent reputation in the marketplace as a leader in security performance, technology and total cost of ownership to gain market share and mind share from our competitors, enabling NetScreen to show continued strong product revenue growth," said Robert Thomas, president and chief executive officer.

Remo Canessa, NetScreen's chief financial officer, stated, "Strength in product sales and our ability to control operating expenses have enabled NetScreen to post another quarter of solid financial performance. In addition to record revenues, we achieved a record pro forma operating profit margin of 24.4% in the March quarter. GAAP operating profit margin was 14.6%. We were also pleased to see our deferred revenue increase 26.7% over the prior fiscal quarter and to see our DSOs remain under 40 days. Cash flow from operations remained strong at $20.4 million for the quarter ended March 31, 2003, bringing our cash, cash equivalents and short-term investments balance up to $294.3 million as of March 31, 2003."

Recent Company Highlights

  • Received Network Magazine's 2003 Product of the Year Award in the firewall category for the NetScreen-5000 Series.
  • Achieved No. 1 position in unit market share of the high-end (greater than $30,000) price-banded category of VPN and firewall appliances in the December quarter, according to Infonetics Research.
  • Expanded IDP product line with the new NetScreen-IDP 10 to protect remote offices and secure extranet links.
  • Announced a software upgrade for IDP product line that makes it the first intrusion prevention platform to protect against exploitation of instant messaging and peer-to-peer file sharing application vulnerabilities
  • Enhanced the NetScreen-200 series appliances, enabling customers to leverage a single device to extend firewall protection and VPN capabilities to multiple network segments.
  • Selected as the official network firewall provider for the InteropNet Event Network (eNet) at NetWorld+Interop 2003 in Las Vegas.
  • Announced new large enterprise and service provider customer wins including Interim HealthCare Inc., Metropolitan Regional Information Systems Inc., and Inforonics.
  • Expanded our Global Alliance Program to include SmartPipes, a leader in policy-based networking software for secure large-scale IP VPN and firewall networks, and Radware, a leading provider of intelligent application switching.

"Geographically we saw growth in both the Americas and Europe while revenue from the Asia Pacific region remained a strong component of our total revenues," continued Thomas. "Large enterprise sales remain a key focus area for NetScreen and we saw continued success in a number of verticals including government, education, financial institutions and technology companies. Our government business was not just within the United States - NetScreen has sold products to over 130 government organizations in over 20 countries around the world and we believe we are well positioned to expand on this business in the future. We remain committed to our goal of becoming 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 June 30, 2003, NetScreen currently expects to achieve revenue growth of between 8 and 10 percent over the March 2003 quarter. Pro forma gross margins are expected to be between 75 and 76 percent. In addition, the company expects pro forma operating expenses for the June 2003 quarter to increase by 10 to 12 percent over the March 2003 quarter. Pro forma operating expense and pro forma gross margin expectations exclude stock-based compensation and the amortization of intangible assets. On a GAAP basis, gross margins are expected to be between 74 and 75 percent and operating expenses are expected to increase by 10 to 12 percent in the June 2003 quarter.

For the fiscal year ending September 30, 2003, NetScreen is raising its revenue projection to between $237 million and $240 million, representing year over year revenue growth of approximately 71 to 73 percent. Prior projected revenue for fiscal 2003 had been between $225 million and $230 million.

Conference Call

NetScreen will host a public conference call to discuss the second quarter results and current business developments, and to provide guidance for the third quarter and fiscal 2003 today at 4:30 p.m. Eastern Time (1:30 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 May 23, 2003.

Institutional investors and research analysts can access the live conference by calling 800-309-8225 (U.S. and Canada) or 706-634-0672 (International). A taped replay of this call will be available for one week following the call. 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: 9597619. The replay will be available starting approximately two hours after the conclusion of the live call and running through April 30, 2003.

About NetScreen Technologies

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.
   GAAP CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
               (in thousands, except per share amounts)
                                Three Months Ended  Six Months Ended
                                    March 31,           March 31,
                                ------------------ -------------------
                                   2003     2002      2003      2002
                                --------- -------- --------- ---------
Revenues:
 Product                        $ 47,937  $26,494  $ 90,388  $ 50,593
 Maintenance and service          10,405    5,543    19,024    10,417
                                --------- -------- --------- ---------
  Total revenues                  58,342   32,037   109,412    61,010
                                --------- -------- --------- ---------
Cost of revenues:
 Product (1) (2)                  10,630    6,566    19,913    13,856
 Maintenance and service (1)       3,231    1,963     5,648     3,165
                                --------- -------- --------- ---------
  Total cost of revenues          13,861    8,529    25,561    17,021
                                --------- -------- --------- ---------
Gross margin                      44,481   23,508    83,851    43,989
                                --------- -------- --------- ---------
Operating expenses:
 Research and development (1) (2) 11,077    8,232    20,859    15,614
 Sales and marketing (1) (2)      20,037   14,990    40,199    29,591
 General and administrative (1)    4,858    4,196     9,049     8,434
                                --------- -------- --------- ---------
  Total operating expenses        35,972   27,418    70,107    53,639
                                --------- -------- --------- ---------
Income (loss) from operations      8,509   (3,910)   13,744    (9,650)
Interest and other income, net     1,004      955     2,067     1,285
                                --------- -------- --------- ---------
Income (loss) before taxes         9,513   (2,955)   15,811    (8,365)
Provision for income taxes        (3,622)    (339)   (6,708)     (639)
                                --------- -------- --------- ---------
Net income (loss)                  5,891   (3,294)    9,103    (9,004)
Deemed dividend on Series E
 and F redeemable convertible
 preferred stock                      --       --        --   (28,743)
                                --------- -------- --------- ---------
Net income (loss) applicable to
 common stockholders            $  5,891  $(3,294) $  9,103  $(37,747)
                                ========= ======== ========= =========
Basic net income (loss) per
 share applicable to common
 stockholders                   $   0.08  $ (0.05) $   0.12  $  (0.77)
                                ========= ======== ========= =========
Shares used in computing basic
 net income (loss) per share
 applicable to common
 stockholders                     78,377   70,573    77,690    49,071
                                ========= ======== ========= =========
Diluted net income (loss)
 per share applicable to common
 stockholders                   $   0.07  $ (0.05) $   0.11  $  (0.77)
                                ========= ======== ========= =========
Shares used in computing diluted
 net income (loss) per share
 applicable to common
 stockholders                     84,312   70,573    83,603    49,071
                                ========= ======== ========= =========
(1) Includes stock-based    compensation of the following:
  Cost of product revenues      $    411  $   411  $    822  $    821
  Cost of maintenance and
   service revenues                  277      238       554       468
  Research and development         1,965    1,947     3,948     3,767
  Sales and marketing              2,160    2,764     4,857     5,592
  General and administrative         656      691     1,380     1,340
                                --------- -------- --------- ---------
    Total stock-based
     compensation               $  5,469  $ 6,051  $ 11,561  $ 11,988
                                ========= ======== ========= =========
(2) Includes amortization of    intangible assets of the    following:
  Cost of product revenues      $    186  $    --  $    372  $     --
  Research and development            23       --        46        --
  Sales and marketing                 36       --        71        --
                                --------- -------- --------- ---------
  Total amortization of
   intangible assets            $    245  $    --  $    489  $     --
                                ========= ======== ========= =========
   Certain amounts have been reclassified to conform to the current
                             presentation.


                     NETSCREEN TECHNOLOGIES, INC.
       PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                              (UNAUDITED)
    (excludes stock-based compensation, amortization of intangible
            assets and deemed dividends on preferred stock)
               (in thousands, except per share amounts)
                                 Three Months Ended  Six Months Ended
                                     March  31,         March  31,
                                  ----------------- ------------------
                                     2003     2002      2003     2002
                                  -------- -------- --------- --------
Revenues:
 Product                          $47,937  $26,494  $ 90,388  $50,593
 Maintenance and service           10,405    5,543    19,024   10,417
                                  -------- -------- --------- --------
  Total revenues                   58,342   32,037   109,412   61,010
                                  -------- -------- --------- --------
Cost of revenues:
 Product (1) (2)                   10,033    6,155    18,719   13,035
 Maintenance and service (1)        2,954    1,725     5,094    2,697
                                  -------- -------- --------- --------
  Total cost of revenues           12,987    7,880    23,813   15,732
                                  -------- -------- --------- --------
Gross margin                       45,355   24,157    85,599   45,278
                                  -------- -------- --------- --------
Operating expenses:
 Research and development (1) (2)   9,089    6,285    16,865   11,847
 Sales and marketing (1) (2)       17,841   12,226    35,271   23,999
 General and administrative (1)     4,202    3,505     7,669    7,094
                                  -------- -------- --------- --------
  Total operating expenses         31,132   22,016    59,805   42,940
                                  -------- -------- --------- --------
Pro forma income from operations   14,223    2,141    25,794    2,338
Interest and other income, net      1,004      955     2,067    1,285
                                  -------- -------- --------- --------
Pro forma income before taxes      15,227    3,096    27,861    3,623
Provision for income taxes         (2,241)    (339)   (3,953)    (639)
                                  -------- -------- --------- --------
Pro forma net income (3)          $12,986  $ 2,757  $ 23,908  $ 2,984
                                  ======== ======== ========= ========
Basic pro forma net income per
 share                            $  0.17  $  0.04  $   0.31  $  0.06
                                  ======== ======== ========= ========
Shares used in computing basic pro
 forma net income per share        78,377   70,573    77,690   49,071
                                  ======== ======== ========= ========
Diluted pro forma net income per
 share                            $  0.15  $  0.03  $   0.29  $  0.04
                                  ======== ======== ========= ========
Shares used in computing diluted
 pro forma net income per share    84,312   79,171    83,603   72,748
                                  ======== ======== ========= ========
(1) Excludes stock-based
    compensation of the following:
  Cost of product revenues        $   411  $   411  $    822  $   821
  Cost of maintenance and service
   revenues                           277      238       554      468
  Research and development          1,965    1,947     3,948    3,767
  Sales and marketing               2,160    2,764     4,857    5,592
  General and administrative          656      691     1,380    1,340
                                  -------- -------- --------- --------
  Total stock-based compensation  $ 5,469  $ 6,051  $ 11,561  $11,988
                                  ======== ======== ========= ========
(2) Excludes amortization of
    intangible assets of the
    following:
  Cost of product revenues        $   186  $    --  $    372  $    --
  Research and development             23       --        46       --
  Sales and marketing                  36       --        71       --
                                  -------- -------- --------- --------
  Total amortization of intangible
   assets                         $   245  $    --  $    489  $    --
                                  ======== ======== ========= ========
(3) 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)
                                             March 31,   September 30,
                                                2003           2002
                                            -----------  -------------
                                            (unaudited)
ASSETS
Current assets:
 Cash and cash equivalents                  $   27,572   $     11,153
 Short-term investments                        266,698        238,711
 Restricted cash                                   308          1,611
 Accounts receivable, net                       24,180         18,046
 Inventories                                     2,363          2,249
 Other current assets                            6,317          5,231
                                            -----------  -------------
     Total current assets                      327,438        277,001
Property and equipment                           9,514          6,264
Restricted cash                                    694             --
Intangible assets                                5,270          5,759
Goodwill                                        57,281         56,807
Other assets                                       714            853
                                            -----------  -------------
     Total assets                           $  400,911   $    346,684
                                            ===========  =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
 Accounts payable                           $    5,939   $      5,027
 Accrued expenses                               12,769         11,452
 Accrued compensation                            9,309          6,909
 Accrued income taxes                            5,047          1,865
 Deferred revenue                               44,725         26,150
 Current portion of restructuring
  liabilities                                      700            541
 Current portion of debt and capital lease
  obligations                                    1,659          1,761
                                            -----------  -------------
     Total current liabilities                  80,148         53,705
                                            -----------  -------------
Restructuring liabilities, less current
 portion                                         2,264          2,577
Long-term portion of debt and capital lease
 obligations                                       662          1,513
                                            -----------  -------------
Total stockholders' equity                     317,837        288,889
                                            -----------  -------------
 Total liabilities and stockholders' equity $  400,911   $    346,684
                                            ===========  =============
   Certain amounts have been reclassified to conform to the current
                             presentation.


                     NETSCREEN TECHNOLOGIES, INC.
      Reconciliation of Pro Forma to GAAP Net Income (Unaudited)
                               $ in 000s
                               Three Months Ended   Six Months Ended
                                    March 31,           March 31,
                                  2003      2002      2003      2002
                              ----------- -------- --------- ---------
Pro forma net income          $   12,986  $ 2,757  $ 23,908  $  2,984
Stock-based compensation          (5,469)  (6,051)  (11,561)  (11,988)
Amortization of intangible
 assets                             (245)       -      (489)        -
Provision for income taxes        (1,381)       -    (2,755)        -
Deemed dividends on
 Series E and F convertible
 preferred stock                       -        -         -   (28,743)
                              ----------- -------- --------- ---------
GAAP net income (loss)        $    5,891  $(3,294) $  9,103  $(37,747)
                              =========== ======== ========= =========


     Reconciliation of Pro Forma to GAAP Gross Margin (Unaudited)
                               $ in 000s
                                        Three Months Ended March 31,
                                          2003               2002
                                     ----------------- ---------------
                                                % of            % of
                                         $     Revenue    $    Revenue
Revenues - GAAP and Pro forma          58,342   100.0% 32,037   100.0%
                                     ========= ======= ======= =======
Pro forma gross margin                 45,355    77.7% 24,157    75.4%
 Stock based compensation - cost
  of product revenues                    (411)   -0.7%   (411)   -1.3%
 Amortization of intangible assets
  - cost of product revenues             (186)   -0.3%      -     0.0%
 Stock based compensation - cost
  of maintenance and service             (277)   -0.5%   (238)   -0.7%
                                     --------- ------- ------- -------
                                       44,481    76.2% 23,508    73.4%
                                     ========= ======= ======= =======

                                         Six Months Ended March 31,
                                           2003             2002
                                      ---------------- ---------------
                                                % of            % of
                                         $     Revenue    $    Revenue
Revenues - GAAP and Pro forma         109,412   100.0% 61,010   100.0%
                                      ======== ======= ======= =======
Pro forma gross margin                 85,599    78.2% 45,278    74.2%
 Stock based compensation - cost
  of product revenues                    (822)   -0.8%   (821)   -1.3%
 Amortization of intangible assets
  - cost of product revenues             (372)   -0.3%      -     0.0%
 Stock based compensation - cost
  of maintenance and service             (554)   -0.5%   (468)   -0.8%
                                      -------- ------- ------- -------
                                       83,851    76.6% 43,989    72.1%
                                      ======== ======= ======= =======

    Reconciliation of Pro Forma to GAAP Tax Provision (Unaudited)
                              $ in 000s
                                Three Months Ended  Six Months Ended
                                     March 31,           March 31,
                                   2003     2002      2003      2002
                               ---------- -------- --------- ---------
Pro forma income before taxes  $  15,227  $ 3,096  $ 27,861  $  3,623
Pro forma provision for income
 taxes                            (2,241)    (339)   (3,953)     (639)
Pro forma effective tax rate        14.7%    10.9%     14.2%     17.6%
                               ---------- -------- --------- ---------
Proforma net income            $  12,986  $ 2,757  $ 23,908  $  2,984
                               ========== ======== ========= =========
Pro forma income before taxes  $  15,227  $ 3,096  $ 27,861  $  3,623
Stock-based compensation          (5,469)  (6,051)  (11,561)  (11,988)
Amortization of intangible
 assets                             (245)       -      (489)        -
                               ---------- -------- --------- ---------
GAAP income before taxes           9,513   (2,955)   15,811    (8,365)
                               ---------- -------- --------- ---------
Proforma provision for income
 taxes                            (2,241)    (339)   (3,953)     (639)
GAAP income tax adjustment        (1,381)       -    (2,755)        -
                               ---------- -------- --------- ---------
GAAP provision for income taxes   (3,622)    (339)   (6,708)     (639)
GAAP effective tax rate             38.1%   (A)        42.4%    (A)
                               ---------- -------- --------- ---------
GAAP net income                $   5,891  $(3,294) $  9,103  $ (9,004)
                               ========== ======== ========= =========
(A) Taxes paid for foreign jurisdiction purposes


                           Guidance Summary
                  Reconciliation of Pro Forma to GAAP
                   Gross Margin Guidance (Unaudited)
                               $ in 000s
                                     Three Months Ended  June 30, 2003
                                          Low (1)          High (2)
                                     ----------------- ---------------
                                                % of            % of
                                         $     Revenue    $    Revenue
Revenues - GAAP and Pro forma          63,025   100.0% 64,200   100.0%
                                     ========= ======= ======= =======
Pro forma gross margin                 47,270    75.0% 48,790    76.0%
  Stock based compensation - cost of
   product revenues                      (407)   -0.6%   (407)   -0.6%
  Amortization of intangible assets -
   cost of product revenues              (186)   -0.3%   (186)   -0.3%
  Stock based compensation - cost of
   maintenance and service               (276)   -0.4%   (276)   -0.4%
                                     --------- ------- ------- -------
                                       46,401    73.6% 47,921    74.6%
                                     ========= ======= ======= =======
(1) Low reflects 8% revenue increase over prior quarter and 75% gross
    margin.
(2) High reflects 10% revenue increase over prior quarter and 76%
    gross margin.  

NetScreen is a trademark of NetScreen Technologies, 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" 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, potential problems integrating acquired companies, long sales cycles that make the timing of sales difficult to predict, and statements 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.