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Press release from Business Wire

Ixia Announces Third Quarter 2012 Results

<p class='bwalignc'> <i>Achieves Record Revenue of $109.6 Million; Announces Stock Repurchase Program</i> </p>

Wednesday, October 24, 2012

Ixia Announces Third Quarter 2012 Results16:03 EDT Wednesday, October 24, 2012 CALABASAS, Calif. (Business Wire) -- Ixia (Nasdaq:XXIA) today reported its financial results for the third quarter ended September 30, 2012. Total revenue for the 2012 third quarter was $109.6 million, compared with $77.3 million reported for the 2011 third quarter and $92.3 million reported for the 2012 second quarter. The 2012 third quarter includes $17.3 million for a full quarter of revenue from the recent acquisition of Anue Systems, Inc. (“Anue”), which closed in June 2012, and approximately $3.5 million of revenue attributable to the recently acquired BreakingPoint Systems, Inc. (“BreakingPoint”) for the period following the August 24, 2012 closing date. On a GAAP basis, the company recorded net income for the 2012 third quarter of $11.4 million, or $0.15 per diluted share, compared with net income of $6.4 million, or $0.09 per diluted share, for the 2011 third quarter. GAAP results for the third quarter of 2012 include a tax benefit of approximately $12.7 million, or $0.15 per diluted share, for the reversal of valuation allowances related to deferred tax assets. Non-GAAP net income for the 2012 third quarter was a record $15.8 million, or $0.20 per diluted share, compared with non-GAAP net income of $12.0 million, or $0.16 per diluted share, for the 2011 third quarter. Our non-GAAP results include the exclusion of 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 financial measures for the three and nine months ended September 30, 2012 and 2011 may be found in the attached financial tables. “We delivered another record quarter driven by high-speed Ethernet and our Network Visibility Solutions,” commented Vic Alston, Ixia's president and chief executive officer. “Our geographic and customer mix in the third quarter reflected our two recent acquisitions that resulted in a higher percentage of domestic revenue as well as a stronger performance among service provider, enterprise and government accounts.” Alston continued, “Market trends are shifting to mobility, security, cloud and massive data centers, all areas where Ixia has invested heavily over the past several years. With the transformative acquisitions of Anue and BreakingPoint, we are building a broad service validation platform that enables customers to design, deploy and assess their networks. Going forward, we believe these investments will help Ixia address larger, higher growth markets, as well as diversify our customer base.” Ixia ended the third quarter with approximately $154 million in cash and investments, compared with $287 million at June 30, 2012. The cash and investments balance at the end of the third quarter 2012, reflects, among other items, the $164 million purchase price of BreakingPoint Systems, Inc. on August 24, 2012. Ixia's board of directors has authorized the repurchase of up to $25 million of the company's common stock from time to time during the next twelve months on the open market or in privately negotiated transactions. The timing of repurchases and the actual number of shares repurchased will depend on a variety of factors, including Ixia's stock price, regulatory requirements, and market conditions. The company may terminate the repurchase program at any time. 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 third quarter results and its business outlook for the 2012 fourth 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 (i.e., non-GAAP income from operations, 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, restructuring expenses, 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 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 anticipated benefits and synergies of our recent acquisitions of Anue Systems, Inc. and BreakingPoint 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)     September 30,   December 31,20122011   Assets Current assets: Cash and cash equivalents $ 51,188 $ 42,729 Short-term investments in marketable securities 20,161 156,684 Accounts receivable, net 102,776 65,357 Inventories 36,209 27,239 Prepaid expenses and other current assets   23,699   12,700 Total current assets 234,033 304,709   Investments in marketable securities 82,928 185,608 Property and equipment, net 28,793 25,060 Intangible assets, net 167,126 46,028 Goodwill 259,236 66,429 Other assets   5,605   6,633 Total assets $777,721$634,467     Liabilities and Shareholders' Equity Current liabilities: Accounts payable $ 14,590 $ 5,005 Accrued expenses 48,568 27,301 Deferred revenues 63,153 40,963 Income taxes payable   2,648   895 Total current liabilities 128,959 74,164   Deferred revenues 13,635 10,092 Other liabilities 12,425 5,849 Convertible senior notes   200,000   200,000 Total liabilities   355,019   290,105     Shareholders' equity: Common stock, without par value; 200,000 shares authorized at September 30, 2012 and December 31, 2011; 73,313 and 70,240 shares issued and outstanding as of September 30, 2012 and December 31, 2011, respectively 153,018 132,330 Additional paid-in capital 160,062 145,840 Retained earnings 106,595 63,962 Accumulated other comprehensive income   3,027   2,230 Total shareholders' equity   422,702   344,362   Total liabilities and shareholders' equity $777,721$634,467   IXIACondensed Consolidated Statements of Operations(in thousands, except per share data) (unaudited)     Three months ended   Nine months endedSeptember 30,September 30,2012   20112012   2011   Revenues: Products $ 88,656 $ 62,062 $ 233,637 $ 181,981 Services   20,896     15,209     53,901     42,724   Total revenues   109,552     77,271     287,538     224,705     Costs and operating expenses:(1) Cost of revenues – products 20,509 14,164 49,511 41,199 Cost of revenues – services 2,735 1,573 7,595 4,682 Research and development 25,763 18,932 69,160 55,996 Sales and marketing 30,633 20,397 79,796 64,525 General and administrative 11,058 9,420 33,664 25,892 Amortization of intangible assets 9,960 4,239 19,363 11,718 Acquisition and other related 4,308 377 8,472 851 Restructuring   2,098     —     2,098     —   Total costs and operating expenses   107,064     69,102     269,659     204,863     Income from operations 2,488 8,169 17,879 19,842 Interest income and other, net 928 1,022 1,640 1,813 Interest expense   (1,800 )   (1,800 )   (5,400 )   (5,400 ) Income before income taxes 1,616 7,391 14,119 16,255 Income tax (benefit) expense   (9,785 )   943     (28,514 )   2,244   Net income $11,401   $6,448   $42,633   $14,011     Earnings per share: Basic $ 0.16 $ 0.09 $ 0.59 $ 0.20 Diluted $ 0.15 $ 0.09 $ 0.55 $ 0.20   Weighted average number of common and common equivalent shares outstanding: Basic 72,805 69,613 71,659 68,968 Diluted 85,070 70,892 84,061 71,595       (1) Stock-based compensation included in: Cost of revenues - products $ 85 $ 81 $ 256 $ 329 Cost of revenues - services 33 31 99 125 Research and development 1,332 918 3,556 3,374 Sales and marketing 1,043 679 2,977 2,546 General and administrative 1,671 1,172 5,146 3,614   IXIANon-GAAP Information and Reconciliation to Most Directly Comparable GAAP Financial Measures(in thousands, except per share data) (unaudited)     Three months endedSeptember 30,   Nine months endedSeptember 30,2012   20112012   2011   GAAP income from operations $ 2,488 $ 8,169 $ 17,879 $ 19,842 Adjustments: Stock-based compensation(a) 4,164 2,881 12,034 9,988 Amortization of intangible assets(b) 9,960 4,239 19,363 11,718 Acquisition and other related(c) 4,308 377 8,472 851 Restructuring (d) 2,098 — 2,098 — Legal, contract settlements and other(e) — — 2,083 900 Inventory adjustments(f)   332     —     332     —   Non-GAAP income from operations$23,350   $15,666   $62,261   $43,299     GAAP net income $ 11,401 $ 6,448 $ 42,633 $ 14,011 Adjustments: Stock-based compensation(a) 4,164 2,881 12,034 9,988 Amortization of intangible assets(b) 9,960 4,239 19,363 11,718 Acquisition and other related(c) 4,308 377 8,472 851 Restructuring(d) 2,098 — 2,098 — Legal, contract settlements and other(e) — — 2,083 900 Inventory adjustments(f) 332 — 332 — Income tax effect related to non-GAAP adjustments and changes in valuation allowance(g)   (16,491 )   (1,906 )   (45,795 )   (7,430 ) Non-GAAP net income$15,772   $12,039   $41,220   $30,038     GAAP diluted earnings per share $ 0.15 $ 0.09 $ 0.55 $ 0.20 Adjustments: Stock-based compensation(a) 0.05 0.04 0.14 0.14 Amortization of intangible assets(b) 0.12 0.06 0.23 0.16 Acquisition and other related(c) 0.05 0.01 0.10 0.01 Restructuring(d) 0.02 — 0.03 — Legal, contract settlements and other(e) — — 0.02 0.01 Inventory adjustments(f) — — — — Income tax effect related to non-GAAP adjustments and changes in valuation allowance(g) (0.19 ) (0.03 ) (0.54 ) (0.10 ) Convertible senior notes(h)   —     (0.01 )   —     (0.01 ) Non-GAAP diluted earnings per share$0.20   $0.16   $0.53   $0.41       Shares used in computing GAAP diluted earnings per common share 85,070 70,892 84,061 71,595 Effect of reconciling item(h)(i)   (100 )   10,224     (217 )   10,078   Shares used in computing non-GAAP diluted earnings per common share   84,970     81,116     83,844     81,673     (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, VeriWave, Inc., Anue Systems, Inc. and our recent acquisition of BreakingPoint 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, amortization of deferred consideration payable to certain pre-acquisition employees of BreakingPoint Systems, Inc., certain employee, facility and infrastructure 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 costs associated with our restructuring/reorganization plans in light of our recent acquisition of BreakingPoint Systems, Inc. These costs primarily relate to one-time employee termination benefits consisting of severance and other related costs. We believe that by excluding restructuring costs, we provide 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 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 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.   (f) This reconciling item represents the amortization of the purchase price accounting adjustment related to the fair value of inventory as a result of the acquisition of BreakingPoint Systems, Inc. recorded in the third quarter of 2012. While we may have additional amortization charges in the future resulting from purchase price accounting adjustments, management excludes these expenses when evaluating current performance, forecasting future results, measuring core operating results, and making operating and strategic decisions. We believe that by excluding these charges, we provide investors with supplemental information that is useful in comparing our operating results from period to period and in evaluating our core operations and performance.   (g) This adjustment represents the income tax effects of the reconciling items noted in footnotes (a), (b), (c), (d), (e) and (f) as well as changes in the valuation allowance relating to the company's deferred tax assets, which included a $22.6 million and $12.7 million partial release of our valuation allowance in the second and third quarters of 2012, respectively.   (h) This reconciling item for the non-GAAP diluted earnings per share calculation for the three and nine months ended September 30, 2011 includes the impact of the convertible senior notes as these were anti-dilutive for the equivalent GAAP earnings per share calculations.   (i) This adjustment represents the effects of stock-based compensation on diluted common equivalent shares outstanding as well as any adjustments required due to a change from a net loss to a net income position. The Blueshirt GroupInvestor RelationsMaria Riley, 415-217-7722orIxiaTom Miller, 818-444-2325Chief Financial Officertmiller@ixiacom.com