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Press release from Business Wire

Ixia Announces Second Quarter 2012 Results

<p class='bwalignc'> <i>Achieves Record Revenue of $92.3 Million</i> </p>

Thursday, July 26, 2012

Ixia Announces Second Quarter 2012 Results16:03 EDT Thursday, July 26, 2012 CALABASAS, Calif. (Business Wire) -- Ixia (NASDAQ:XXIA) today reported its financial results for the second quarter ended June 30, 2012. Total revenue for the 2012 second quarter was $92.3 million, compared with $69.0 million reported for the 2011 second quarter and $85.6 million reported for the 2012 first quarter. Second quarter 2012 revenue includes approximately $3.9 million attributable to the recently acquired Anue Systems, Inc. for the period following the June 1, 2012 closing date. On a GAAP basis, the company recorded net income for the 2012 second quarter of $26.9 million, or $0.33 per diluted share, compared with net income of $0.5 million, or $0.01 per diluted share, for the 2011 second quarter. GAAP results for the second quarter of 2012 include a tax benefit of approximately $22.6 million, or $0.27 per diluted share, for the reversal of valuation allowances related to deferred tax assets. Non-GAAP net income for the 2012 second quarter was a record $14.0 million, or $0.18 per diluted share, compared with non-GAAP net income of $5.8 million, or $0.08 per diluted share, for the 2011 second quarter. Non-GAAP results exclude the above mentioned valuation allowance reversal related to deferred tax assets. Additional non-GAAP information and a reconciliation of our non-GAAP measures to the most directly comparable GAAP measures for the three and six months ended June 30, 2012 and 2011 may be found in the attached financial tables. “Our solid second quarter results were driven by healthy demand for our high-speed Ethernet, LTE and Wi-Fi products,” commented Vic Alston, Ixia's president and chief executive officer. “We are very pleased with the momentum of our organic business -- on a standalone basis we generated record revenue and non-GAAP operating profit in the quarter.” Alston continued, “Over the past three months, with the acquisition of Anue Systems and the pending acquisition of BreakingPoint Systems, we have taken decisive measures to strategically invest in the fast growing network visibility and security markets. We are creating a powerful solution for managing scale, performance and security across networks and applications from the lab into the live network. Looking forward, while there is some uncertainty about the global economic environment in the near term, we believe the combination of Ixia's strong financial model and these new high-growth addressable markets should deliver positive results to our investors.” Ixia ended the second quarter with approximately $287 million in cash and investments, compared with $422 million at March 31, 2012. The cash and investments balance at the end of the second quarter 2012, reflects the $152 million purchase price of Anue Systems, Inc. on June 1, 2012. Conference Call and Webcast Information Ixia will host a conference call today, at 5:00 p.m., Eastern time, for analysts and investors to discuss its 2012 second quarter results and its business outlook for the 2012 third quarter. Open to the public, investors may access the call by dialing (678) 825-8347. A live webcast of the conference call, along with supplemental financial information, will be accessible from the "Investors" section of Ixia's web site (www.ixiacom.com). Following the live webcast, an archived version will be available in the "Investors" section on the Ixia web site for 90 days. Non-GAAP Information To supplement our consolidated financial results prepared in accordance with Generally Accepted Accounting Principles ("GAAP"), we have included certain non-GAAP financial measures in this press release and in the attachments hereto. Specifically, we have provided non-GAAP financial measures (e.g., non-GAAP cost of revenues, non-GAAP operating expenses, non-GAAP operating margin, non-GAAP income tax expense, non-GAAP net income, and non-GAAP diluted earnings per share) that exclude certain non-cash and/or non-recurring income and expense items such as proceeds and expenses from certain legal and contractual settlements, stock-based compensation expenses, acquisition and other related costs, the amortization of acquisition-related intangible assets, and the related income tax effects of these items, as well as the income tax impacts of the valuation allowance recorded against certain deferred tax assets. The aforementioned items represent income and expense items that may be difficult to estimate from period to period and/or that we believe are not directly attributable to the underlying performance of our business operations. These non-GAAP financial measures are provided to enhance the user's overall understanding of our financial performance. We believe that by excluding these items, our non-GAAP measures provide supplemental information to both management and investors that is useful in assessing our core operating performance, in evaluating our ongoing business operations and in comparing our results of operations on a consistent basis from period to period. These non-GAAP financial measures are also used by management to plan and forecast future periods and to assist in making operating and strategic decisions. The presentation of this additional information is not prepared in accordance with GAAP. The information therefore may not necessarily be comparable to that of other companies and should be considered as a supplement to, not a substitute for, or superior to, the corresponding measures calculated in accordance with GAAP. Investors are encouraged to review the reconciliations of GAAP to non-GAAP financial measures which are included below in the attached financial tables. About Ixia Ixia provides the industry's most comprehensive converged IP network validation and network visibility solutions. Equipment manufacturers, service providers, enterprises, and government agencies use Ixia's solutions to design, verify, and monitor a broad range of wired, Wi-Fi, and 3G/LTE equipment and networks. Ixia's test solutions emulate realistic media-rich traffic and network conditions so that customers can optimize and validate the design, performance, and security of their pre-deployment networks. Ixia's intelligent network visibility platforms provide clarity into physical and virtual production networks for improved performance, security, resiliency, and application delivery of cloud, data center, and service provider networks. For more information, visit www.ixiacom.com. Safe Harbor Under the Private Securities Litigation Reform Act of 1995: Certain statements made in this press release are forward-looking statements, including, without limitation, statements regarding the pending acquisition of BreakingPoint Systems, growth, profitability, financial performance and future business. In some cases, such forward-looking statements can be identified by terms such as may, will, should, expect, plan, believe, estimate, predict or the like. Such statements reflect our current intent, belief and expectations and are subject to risks and uncertainties that could cause our actual results to differ materially from those expressed or implied in the forward-looking statements. Factors that may cause future results to differ materially from our current expectations include the risk that the conditions to the closing of our acquisition of BreakingPoint will not be met or that the anticipated benefits and synergies of the proposed acquisition of BreakingPoint or our recent acquisition of Anue Systems, Inc. will not be realized, changes in the global economy, competition, consistency of orders from significant customers, our success in developing and producing new products, market acceptance of our products, war, terrorism, political unrest, natural disasters and other circumstances that could, among other consequences, reduce the demand for our products, disrupt our supply chain and/or impact the delivery of our products. Such factors also include those identified in our Annual Report on Form 10-K for the year ended December 31, 2011, and in our other filings with the U.S. Securities and Exchange Commission. We undertake no obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise.     IXIACondensed Consolidated Balance Sheets(in thousands) (unaudited)   June 30,December 31,20122011   Assets Current assets: Cash and cash equivalents $ 45,396 $ 42,729 Short-term investments in marketable securities 96,458 156,684 Accounts receivable, net 71,521 65,357 Inventories 33,153 27,239 Prepaid expenses and other current assets   18,819   12,700 Total current assets 265,347 304,709   Investments in marketable securities 144,924 185,608 Property and equipment, net 27,313 25,060 Intangible assets, net 111,829 46,028 Goodwill 156,885 66,429 Other assets   5,800   6,633 Total assets $712,098$634,467     Liabilities and Shareholders' Equity Current liabilities: Accounts payable $ 9,320 $ 5,005 Accrued expenses 35,208 27,301 Deferred revenues 51,306 40,963 Income taxes payable   861   895 Total current liabilities 96,695 74,164   Deferred revenues 11,218 10,092 Other liabilities 9,032 5,849 Convertible senior notes   200,000   200,000 Total liabilities   316,945   290,105     Shareholders' equity: Common stock, without par value; 200,000 shares authorized at June 30, 2012 and December 31, 2011; 71,889 and 70,240 shares issued and outstanding as of June 30, 2012 and December 31, 2011, respectively 142,914 132,330 Additional paid-in capital 154,521 145,840 Retained earnings 95,194 63,962 Accumulated other comprehensive income   2,524   2,230 Total shareholders' equity   395,153   344,362   Total liabilities and shareholders' equity $712,098$634,467       IXIACondensed Consolidated Statements of Operations(in thousands, except per share data) (unaudited)   Three months endedSix months endedJune 30,June 30,2012   20112012   2011   Revenues: Products $ 75,938 $ 54,992 $ 144,981 $ 119,919 Services   16,405     13,981     33,005     27,515   Total revenues   92,343     68,973     177,986     147,434     Costs and operating expenses:(1) Cost of revenues – products 14,220 13,014 29,002 27,035 Cost of revenues – services 2,730 1,631 4,860 3,109 Research and development 22,546 18,545 43,397 37,064 Sales and marketing 24,556 21,210 49,163 44,128 General and administrative 11,090 8,074 22,606 16,472 Amortization of intangible assets 5,358 3,789 9,403 7,479 Acquisition and other related   3,739     474     4,164     474   Total costs and operating expenses   84,239     66,737     162,595     135,761     Income from operations 8,104 2,236 15,391 11,673 Interest income and other, net 602 253 712 791 Interest expense   (1,800 )   (1,800 )   (3,600 )   (3,600 ) Income before income taxes 6,906 689 12,503 8,864 Income tax (benefit) expense   (19,944 )   235     (18,729 )   1,301   Net income $26,850   $454   $31,232   $7,563     Earnings per share: Basic $ 0.38 $ 0.01 $ 0.44 $ 0.11 Diluted $ 0.33 $ 0.01 $ 0.40 $ 0.11   Weighted average number of common and common equivalent shares outstanding: Basic 71,579 69,156 71,079 68,643 Diluted 83,803 71,885 83,508 71,628       (1) Stock-based compensation included in: Cost of revenues - products $ 75 $ 112 $ 171 $ 248 Cost of revenues - services 29 43 66 94 Research and development 945 1,082 2,224 2,456 Sales and marketing 911 826 1,934 1,867 General and administrative 1,809 1,183 3,475 2,442     IXIANon-GAAP Information and Reconciliation to Comparable GAAP Financial Measures(in thousands, except percentages and per share data) (unaudited)   Three months ended June 30,2012   2011Amount ($)   % TotalRevenuesAmount ($)   % TotalRevenues Total revenues $ 92,343 100 % $ 68,973 100 %   Total cost of revenues – GAAP $ 16,950 18.4 % $ 14,645 21.2 % Stock-based compensation(a)   (104 ) -0.2%   (155 ) -0.2% Total cost of revenues – Non-GAAP $16,846   18.2%$14,490   21.0%   Operating expenses – GAAP $ 67,289 72.9 % $ 52,092 75.5 % Amortization of intangible assets(b) (5,358 ) -5.8 % (3,789 ) -5.5 % Acquisition and other related(c) (3,739 ) -4.0 % (474 ) -0.7 % Stock-based compensation(a) (3,665 ) -4.1 % (3,091 ) -4.4 % Legal, contract settlements and other(d)   (401 ) -0.4%   —   —   Operating expenses – Non-GAAP $54,126   58.6%$44,738   64.9%   Operating margin – GAAP $ 8,104 8.8 % $ 2,236 3.2 % Amortization of intangible assets(b) 5,358 5.8 % 3,789 5.5 % Acquisition and other related(c) 3,739 4.0 % 474 0.7 % Stock-based compensation(a) 3,769 4.1 % 3,246 4.7 % Legal, contract settlements and other(d)   401   0.4%   —   —   Operating margin – Non-GAAP $21,371   23.1%$9,745   14.1%   Income tax (benefit) expense – GAAP $ (19,944 ) -21.6 % $ 235 0.3 % Effect of reconciling items(e)   26,093   28.3%   2,133   3.1% Income tax expense – Non-GAAP $6,149   6.7%$2,368   3.4%   Net income – GAAP $ 26,850 29.1 % $ 454 0.7 % Effect of reconciling items(f)   (12,826 ) -13.9%   5,376   7.8% Net income – Non-GAAP $14,024   15.2%$5,830   8.5%   Diluted earnings per share – GAAP $ 0.33 $ 0.01 Effect of reconciling items(g)   (0.15 )   0.07   Diluted earnings per share – Non-GAAP $0.18   $0.08       (a)   This reconciling item represents stock-based compensation expenses. As stock-based compensation represents a non-cash charge that is not directly attributable to the underlying performance of our business operations, we believe that by excluding stock-based compensation, we provide our investors with supplemental information that is useful in comparing our operating results from period to period and in evaluating our core operations and performance. While we expect to continue to recognize stock-based compensation expense in the future, management also excludes this expense when evaluating current performance, forecasting future results, measuring core operating results, and making operating and strategic decisions.   (b) This reconciling item represents the amortization of intangible assets related to the acquisitions of various businesses and technologies such as the acquisitions of Catapult Communications Corporation, Agilent Technologies' N2X Data Network Testing Product line, and VeriWave, Inc. and our recent acquisition of Anue Systems, Inc. As the amortization expense represents a non-cash charge that is not directly attributable to the underlying performance of our business operations, we believe that by excluding the amortization of acquisition-related intangible assets, we provide investors with supplemental information that is useful in evaluating our ongoing operations and performance. While the amortization of acquisition-related intangible assets is expected to continue in the future, management also excludes this expense when evaluating current performance, forecasting future results, measuring core operating results, and making operating and strategic decisions.   (c) This reconciling item represents costs associated with acquisition-related activities. Acquisition and other related costs consist primarily of transaction and integration related costs such as success-based banking fees, professional fees for legal, accounting and tax services, integration related consulting fees, certain employee, facility and infrastructure transition costs, and other related expenses. We believe that by excluding acquisition and other related costs, we provide investors with supplemental information that is useful in comparing our ongoing operating results from period to period and in evaluating our core operations and performance.   (d) This reconciling item represents a one-time charge of $401,000 recorded in the second quarter of 2012 to settle a legal matter. We believe that by excluding this one-time charge, we provide our investors with supplemental information that is useful in comparing our operating results from period to period and in evaluating our core operations and performance.   (e) This adjustment represents the income tax effects of the reconciling items noted in footnotes (a), (b), (c) and (d) as well as changes in the valuation allowance relating to the company's deferred tax assets, which included a $22.6 million partial release of our valuation allowance in the second quarter of 2012.   (f) This adjustment represents the effects of the reconciling items noted in footnotes (a), (b), (c) and (d), net of tax.   (g) This adjustment represents the effects of the reconciling items noted in footnotes (a), (b), (c) and (d), net of tax, on a diluted per share basis.     IXIANon-GAAP Information and Reconciliation to Comparable GAAP Financial Measures(in thousands, except percentages and per share data) (unaudited)   Six months ended June 30,2012   2011Amount ($)   % TotalRevenuesAmount ($)   % TotalRevenues Total revenues $ 177,986 100 % $ 147,434 100 %   Total cost of revenues – GAAP $ 33,862 19.0 % $ 30,144 20.4 % Stock-based compensation(a)   (237 ) -0.1%   (342 ) -0.2% Total cost of revenues – Non-GAAP $33,625   18.9%$29,802   20.2%   Operating expenses – GAAP $ 128,733 72.3 % $ 105,617 71.6 % Amortization of intangible assets(b) (9,403 ) -5.3 % (7,479 ) -5.1 % Acquisition and other related(c) (4,164 ) -2.3 % (474 ) -0.3 % Stock-based compensation(a) (7,633 ) -4.3 % (6,765 ) -4.6 % Legal, contract settlements and other(d)   (2,083 ) -1.2%   (900 ) -0.6% Operating expenses – Non-GAAP $105,450   59.2%$89,999   61.0%   Operating margin – GAAP $ 15,391 8.6 % $ 11,673 7.9 % Amortization of intangible assets(b) 9,403 5.3 % 7,479 5.1 % Acquisition and other related(c) 4,164 2.3 % 474 0.3 % Stock-based compensation(a) 7,870 4.5 % 7,107 4.8 % Legal, contract settlements and other(d)   2,083   1.2%   900   0.6% Operating margin – Non-GAAP $38,911   21.9%$27,633   18.7%   Income tax (benefit) expense – GAAP $ (18,729 ) -10.5 % $ 1,301 0.9 % Effect of reconciling items(e)   29,304   16.4%   5,524   3.7% Income tax expense – Non-GAAP $10,575   5.9%$6,825   4.6%   Net income – GAAP $ 31,232 17.5 % $ 7,563 5.1 % Effect of reconciling items(f)   (5,784 ) -3.2%   10,436   7.1% Net income – Non-GAAP $25,448   14.3%$17,999   12.2%   Diluted earnings per share – GAAP $ 0.40 $ 0.11 Effect of reconciling items(g)(h)   (0.07 )   0.14   Diluted earnings per share – Non-GAAP $0.33   $0.25       (a) This reconciling item represents stock-based compensation expenses. As stock-based compensation represents a non-cash charge that is not directly attributable to the underlying performance of our business operations, we believe that by excluding stock-based compensation, investors are provided with supplemental information that is useful in comparing our operating results from period to period and in evaluating our core operations and performance. While we expect to continue to recognize stock-based compensation expense in the future, management also excludes this expense when evaluating current performance, forecasting future results, measuring core operating results, and making operating and strategic decisions.   (b) This reconciling item represents the amortization of intangible assets related to the acquisitions of various businesses and technologies such as the acquisitions of Catapult Communications Corporation, Agilent Technologies' N2X Data Network Testing Product line, and VeriWave, Inc. and our recent acquisition of Anue Systems, Inc. As the amortization expense represents a non-cash charge that is not directly attributable to the underlying performance of our business operations, we believe that by excluding the amortization of acquisition-related intangible assets, we provide investors with supplemental information that is useful in evaluating our ongoing operations and performance. While the amortization of acquisition-related intangible assets is expected to continue in the future, management also excludes this expense when evaluating current performance, forecasting future results, measuring core operating results, and making operating and strategic decisions.   (c) This reconciling item represents costs associated with acquisition-related activities. Acquisition and other related costs consist primarily of transaction and integration related costs such as success-based banking fees, professional fees for legal, accounting and tax services, integration related consulting fees, certain employee, facility and infrastructure transition costs, and other related expenses. We believe that by excluding acquisition and other related costs, we provide investors with supplemental information that is useful in comparing our ongoing operating results from period to period and in evaluating our core operations and performance.   (d) This reconciling item represents a one-time charge of $900,000 incurred in the first quarter of 2011 to terminate and settle a development contract, a one-time transition charge of $1.7 million incurred in the first quarter of 2012 in connection with the previously announced departure of our former CEO and a one-time charge of $401,000 incurred in the second quarter of 2012 to settle a legal matter. We believe that by excluding these charges, we provide our investors with supplemental information that is useful in comparing our operating results from period to period and in evaluating our core operations and performance.   (e) This adjustment represents the income tax effects of the reconciling items noted in footnotes (a), (b), (c) and (d) as well as changes in the valuation allowance relating to the company's deferred tax assets, which included a $22.6 million partial release of our valuation allowance in the second quarter of 2012.   (f) This adjustment represents the effects of the reconciling items noted in footnotes (a), (b), (c) and (d), net of tax.   (g) This adjustment represents the effects of the reconciling items noted in footnotes (a), (b), (c) and (d), net of tax, on a diluted per share basis.   (h) This reconciling item for the six months ended June 30, 2011 non-GAAP diluted earnings per share calculation includes the impact of the convertible senior notes as these were anti-dilutive for the equivalent GAAP earnings per share calculations. The Blueshirt GroupInvestor RelationsMaria Riley, 415-217-7722orTom Miller, Chief Financial Officer, 818-444-2325tmiller@ixiacom.com