Ixia Announces Third Quarter 2012 Results

Ixia Announces Third Quarter 2012 Results

Achieves Record Revenue of $109.6 Million; Announces Stock Repurchase Program

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.

IXIA

Condensed Consolidated Balance Sheets

(in thousands)


(unaudited)

September 30,

December 31,

2012

2011

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

IXIA

Condensed Consolidated Statements of Operations

(in thousands, except per share data)


(unaudited)

Three months ended

Nine months ended

September 30,

September 30,

2012

2011

2012

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

IXIA

Non-GAAP Information and Reconciliation to Most Directly Comparable GAAP Financial Measures

(in thousands, except per share data)


(unaudited)

Three months ended

September 30,

Nine months ended

September 30,

2012

2011

2012

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