Ixia Announces 2007 Fourth Quarter and Full Year Results

Ixia (Nasdaq: XXIA) today reported its financial results for the fourth quarter and year ended December 31, 2007. Total revenues for the fourth quarter of 2007 were $46.4 million, which compares to $47.4 million in the fourth quarter of 2006. Fourth quarter 2007 revenues do not include any amounts from the reversal of deferred revenue related to the cessation of implied post contract customer support ("PCS”) obligations. Fourth quarter 2006 revenues include approximately $7.1 million from the reversal of deferred revenue related to the cessation of implied PCS obligations. Net income on a GAAP basis for the fourth quarter of 2007 was $4.4 million, or $0.06 per diluted share, compared to net income of $4.5 million, or $0.07 per diluted share, for the fourth quarter of 2006. Total revenues for the full year of 2007 were $174.1 million, which compares to $180.1 million for the full year of 2006. Full year 2007 revenues do not include any amounts from the reversal of deferred revenue related to the cessation of implied post contract customer support ("PCS”) obligations. Full year 2006 revenues include approximately $25.9 million from the reversal of deferred revenue related to the cessation of implied PCS obligations. Net income on a GAAP basis for the full year of 2007 was $7.0 million, or $0.10 per diluted share, compared to net income of $13.5 million, or $0.20 per diluted share, for the full year of 2006. Ixia’s 2007 fourth quarter GAAP results include non-cash charges of $3.3 million related to stock-based compensation, $1.6 million for the amortization of acquired intangible assets and a net tax benefit of $1.6 million related to these items. Excluding the effects of these items, non-GAAP net income for the fourth quarter of 2007 was $7.7 million, or $0.11 per diluted share, compared to $8.9 million, or $0.13 per diluted share, for the comparable period in 2006. Fourth quarter 2006 non-GAAP results exclude non-cash charges of $3.8 million related to stock-based compensation, $1.7 million for the amortization of acquired intangible assets, and a net tax benefit of $1.1 million related to these items. Ixia’s full year 2007 GAAP results include non-cash charges of $13.0 million related to stock-based compensation, $7.1 million for the amortization of acquired intangible assets, a $3.3 million impairment charge and a net tax benefit of $8.2 million related to these items. Excluding the effects of these items, non-GAAP net income for the full year of 2007 was $22.2 million, or $0.32 per diluted share, compared to $31.6 million, or $0.46 per diluted share, for the comparable period in 2006. Full year 2006 non-GAAP results exclude non-cash charges of $18.0 million related to stock-based compensation, $6.5 million for the amortization of acquired intangible assets and a net tax benefit of $6.3 million related to these items. "We are very pleased with our fourth quarter results,” commented Errol Ginsberg, Chairman and Chief Executive Officer of Ixia. "Overall bookings as well as non-Cisco bookings were both at record levels, as our efforts to diversify our customer base continue to show good progress. Our business generated strong cash flows from operations and we continued to buy back shares under our previously announced stock repurchase program. We also significantly strengthened our management team with the addition of three new Vice Presidents in the areas of World Wide Sales, Operations and Marketing. Our executive team is now well positioned to lead the Company in its next phase of growth.” "Our strong momentum during the second half of 2007 demonstrates that we are making good progress in areas that are important for our future growth,” added Atul Bhatnagar, Ixia’s President and Chief Operating Officer. "In the fourth quarter, revenues from software remained strong, led by a record quarter for IxLoad, our Layer 4 to 7 testing application, which is used to test advanced services like IPTV and VoIP. 10 Gigabit Ethernet traffic generation cards also achieved record revenues, as development and deployments of 10 Gigabit Ethernet solutions continue to increase. From a customer perspective, our carrier business was a record for the second quarter in a row, generating 22% of total revenues in the fourth quarter. Internationally, we saw strong demand in EMEA and Canada. These positive business trends make us optimistic as we look forward to 2008.” Under the $50 million share repurchase program announced in mid-August, during the fourth quarter, Ixia repurchased approximately 784,000 shares of its common stock at an average purchase price of $10.13 per share, or a total of approximately $7.9 million. Since the inception of the share repurchase program Ixia has repurchased approximately 919,000 shares of its common stock at an average purchase price of $10.00 per share, or a total of approximately $9.2 million. As of December 31, 2007, Ixia had cash, cash equivalents and investments of $248.5 million and no debt. Ixia will host a conference call today for analysts and investors to discuss its 2007 fourth quarter and full year results at 5:00 p.m. Eastern Time. Open to the public, a live Web cast 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 Web cast, 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 income, non-GAAP income tax expense, non-GAAP net income, and non-GAAP diluted earnings per share) that exclude certain non-cash expenses such as the amortization or impairment of acquisition-related intangible assets and stock-based compensation, as well as the related income tax effects of such items. The amortization or impairment of acquisition-related intangible assets and stock-based compensation represent non-cash charges that may be difficult to estimate from period to period and that 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 certain non-cash charges, as well as the related income tax effects, 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 this press release. About Ixia We are a leading provider of performance test systems for IP-based infrastructure and services. Our test systems are used by network and telephony equipment manufacturers, semiconductor manufacturers, service providers, governments and enterprises to validate the performance and reliability of complex IP networks, devices and applications. Our triple-play test systems address the growing need to test voice, video, and data services and network capability under real-world conditions. For more information, contact Ixia at 26601 W. Agoura Road, Calabasas, CA 91302; (818) 871-1800, Fax: (818) 871-1805; Email: info@ixiacom.com or visit our Web Site at http://www.ixiacom.com. Ixia, the Ixia four petal logo and IxLoad are trademarks and/or registered trademarks of Ixia. Other trademarks are the property of their respective owners. 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 possible future revenues, growth and profitability and future business and market share. In some cases, such forward-looking statements can be identified by terms such as "may,” "will,” "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 those identified in our Annual Report on Form 10-K for the year ended December 31, 2006 and in our other filings with the 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)     December 31,   December 31, 2007 2006 (unaudited) Assets Current assets: Cash and cash equivalents $ 188,892 $ 64,644 Short-term investments in marketable securities 19,344 152,703 Accounts receivable, net 32,405 36,221 Inventories 12,731 11,604 Deferred income taxes 7,424 6,382 Prepaid expenses and other current assets   3,385     4,182 Total current assets 264,181 275,736   Investments in marketable securities 40,264 4,354 Property and equipment, net 21,433 22,044 Deferred income taxes 11,732 9,486 Intangible assets, net 14,147 20,224 Goodwill 16,728 16,728 Other assets   955     487 Total assets $ 369,440   $ 349,059     Liabilities and Shareholders’ Equity Current liabilities: Accounts payable $ 2,474 $ 2,195 Accrued expenses 19,440 15,873 Deferred revenues 18,748 17,346 Income taxes payable   1,304     5,154 Total current liabilities 41,966 40,568   Deferred revenues 7,167 7,202 Other liabilities   3,807     500 Total liabilities   52,940     48,270     Shareholders’ equity: Common stock, without par value; 200,000 shares authorized at December 31, 2007 and December 31, 2006; 68,171 and 67,351 shares issued and outstanding as of December 31, 2007 and December 31, 2006, respectively 132,092 132,413 Additional paid-in capital 98,157 86,305 Retained earnings 89,077 82,071 Accumulated other comprehensive loss   (2,826 )   — Total shareholders’ equity   316,500     300,789   Total liabilities and shareholders’ equity $ 369,440   $ 349,059 IXIA Condensed Consolidated Statements of Income (in thousands, except per share data) (unaudited)     Three months ended   Year ended December 31, December 31, 2007   2006 2007   2006 Revenues: Products $ 39,400 $ 41,049 $ 148,226 $ 155,388 Services   6,985   6,318   25,895     24,744 Total revenues   46,385   47,367   174,121     180,132   Costs and operating expenses:(1) Cost of revenues - products 7,967 7,654 32,724 29,437 Cost of revenues - amortization of purchased technology 1,220 1,256 5,196 4,705 Cost of revenues - services 945 958 3,870 2,681 Research and development 12,030 10,730 47,407 43,450 Sales and marketing 15,167 13,857 57,420 59,020 General and administrative 6,487 7,173 24,927 23,800 Amortization of intangible assets 337 458 1,912 1,745 Impairment of purchased technology and intangible assets   —   —   3,263     — Total costs and operating expenses   44,153   42,086   176,719     164,838   Income (loss) from operations 2,232 5,281 (2,598 ) 15,294 Interest and other income, net   3,294   2,668   11,723     9,409 Income before income taxes 5,526 7,949 9,125 24,703 Income tax expense   1,087   3,448   2,119     11,222 Net income $ 4,439 $ 4,501 $ 7,006   $ 13,481   Earnings per share: Basic $ 0.07 $ 0.07 $ 0.10 $ 0.20 Diluted $ 0.06 $ 0.07 $ 0.10 $ 0.20   Weighted average number of common and common equivalent shares outstanding: Basic 68,291 67,297 67,936 67,005 Diluted 69,620 68,832 69,386 68,792       (1) Stock-based compensation included in: Cost of revenues - products $ 136 $ 138 $ 519 $ 590 Cost of revenues - services 51 52 197 224 Research and development 1,393 1,351 5,243 6,481 Sales and marketing 920 1,684 4,416 7,838 General and administrative 838 544 2,659 2,890 IXIA Non-GAAP Information and Reconciliation to Comparable GAAP Financial Measures (in thousands, except percentages and per share data) (unaudited)     Three months ended December 31, 2007   2006 Amount ($)   % Total Revenues Amount ($)   % Total Revenues Total cost of revenues – GAAP $ 10,132 21.8% $ 9,868 20.9% Amortization of purchased technology(a) (1,220 ) -2.6% (1,256 ) -2.7% Stock-based compensation(b)   (187 ) -0.4%   (190 ) -0.4% Total cost of revenues – Non-GAAP $ 8,725   18.8% $ 8,422   17.8%   Operating expenses – GAAP $ 34,021 73.3% $ 32,218 68.0% Amortization of intangible assets(a) (337 ) -0.7% (458 ) -1.0% Stock-based compensation(b)   (3,151 ) -6.8%   (3,579 ) -7.5% Operating expenses – Non-GAAP $ 30,533   65.8% $ 28,181   59.5%   Income from operations – GAAP $ 2,232 4.8% $ 5,281 11.1% Effect of reconciling items(c)   4,895   10.6%   5,483   11.6% Income from operations – Non-GAAP $ 7,127   15.4% $ 10,764   22.7%   Income tax expense – GAAP $ 1,087 2.3% $ 3,448 7.2% Effect of reconciling items(d)   1,643   3.6%   1,072   2.3% Income tax expense – Non-GAAP $ 2,730   5.9% $ 4,520   9.5%   Net income – GAAP $ 4,439 9.6% $ 4,501 9.5% Effect of reconciling items(e)   3,252   7.0%   4,411   9.3% Net income – Non-GAAP $ 7,691   16.6% $ 8,912   18.8%   Diluted earnings per share – GAAP $ 0.06 $ 0.07 Effect of reconciling items(f)   0.05     0.06   Diluted earnings per share – Non-GAAP $ 0.11   $ 0.13     (a) This reconciling item represents the amortization of intangible assets related to the acquisitions of various businesses and technologies such as the acquisition of the ANVLTM product line from Empirix, Inc., the acquisition of certain rights associated with the Chariot® product line from NetIQ Corporation and the acquisition of G3 Nova Technologies, 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, investors are provided 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.   (b) This reconciling item represents stock-based compensation expense recognized under Statement of Financial Accounting Standards No. 123 (revised 2004), "Share-Based Payment” ("FAS 123R”). 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.   (c) This adjustment represents the effects of the reconciling items noted in footnotes (a) and (b).   (d) This adjustment represents the income tax effects of the reconciling items noted in footnotes (a) and (b).   (e) This adjustment represents the effects of the reconciling items noted in footnotes (a) and (b), net of tax.   (f) This adjustment represents the effects of the reconciling items noted in footnotes (a) and (b), net of tax, on a diluted per share basis. IXIA Non-GAAP Information and Reconciliation to Comparable GAAP Financial Measures (in thousands, except percentages and per share data) (unaudited)     Year ended December 31, 2007   2006 Amount ($)   % Total Revenues Amount ($)   % Total Revenues Total cost of revenues – GAAP $ 43,293 24.9% $ 36,823 20.4% Amortization of purchased technology(a) (5,196 ) -3.0% (4,705 ) -2.6% Impairment of purchased technology(b) (1,503 ) -0.9% — — Stock-based compensation(c)   (716 ) -0.4%   (814 ) -0.5% Total cost of revenues – Non-GAAP $ 35,878   20.6% $ 31,304   17.3%   Operating expenses – GAAP $ 133,426 76.6% $ 128,015 71.1% Amortization of intangible assets(a) (1,912 ) -1.1% (1,745 ) -1.0% Impairment of intangible assets(b) (1,760 ) -1.0% — — Stock-based compensation(c)   (12,318 ) -7.1%   (17,209 ) -9.5% Operating expenses – Non-GAAP $ 117,436   67.4% $ 109,061   60.6%   (Loss) income from operations – GAAP $ (2,598 ) -1.5% $ 15,294 8.5% Effect of reconciling items(d)   23,405   13.4%   24,473   13.6% Income from operations – Non-GAAP $ 20,807   11.9% $ 39,767   22.1%   Income tax expense – GAAP $ 2,119 1.2% $ 11,222 6.2% Effect of reconciling items(e)   8,206   4.7%   6,345   3.5% Income tax expense – Non-GAAP $ 10,325   5.9% $ 17,567   9.7%   Net income – GAAP $ 7,006 4.0% $ 13,481 7.5% Effect of reconciling items(f)   15,199   8.8%   18,128   10.1% Net income – Non-GAAP $ 22,205   12.8% $ 31,609   17.6%   Diluted earnings per share – GAAP $ 0.10 $ 0.20 Effect of reconciling items(g)   0.22     0.26   Diluted earnings per share – Non-GAAP $ 0.32   $ 0.46     (a) This reconciling item represents the amortization of intangible assets related to the acquisitions of various businesses and technologies such as the acquisition of the ANVLTM product line from Empirix, Inc., the acquisition of certain rights associated with the Chariot® product line from NetIQ Corporation and the acquisition of G3 Nova Technologies, 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, investors are provided 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.   (b) This reconciling item represents the impairment of purchased technology of $1.5 million and the impairment of certain intangible assets of $1.8 million related to the acquisition of Communication Machinery Corporation in July 2005 and to the acquisition of the mobile video test product line from Dilithium Networks in January 2006.   (c) This reconciling item represents stock-based compensation expense recognized under Statement of Financial Accounting Standards No. 123 (revised 2004), "Share-Based Payment” ("FAS 123R”). 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.   (d) This adjustment represents the effects of the reconciling items noted in footnotes (a), (b) and (c).   (e) This adjustment represents the income tax effects of the reconciling items noted in footnotes (a), (b) and (c).   (f) This adjustment represents the effects of the reconciling items noted in footnotes (a), (b) and (c), net of tax.   (g) This adjustment represents the effects of the reconciling items noted in footnotes (a), (b) and (c), net of tax, on a diluted per share basis.