Ixia Announces Financial Results for 2015 Second Quarter

Achieves Record Revenue of $131.6 Million

CALABASAS, Calif.--()--Ixia (Nasdaq: XXIA) today reported its financial results for the second quarter ended June 30, 2015.

Total revenue for the 2015 second quarter grew to a record $131.6 million, compared with $109.5 million reported for the 2014 second quarter and $121.0 million reported for the 2015 first quarter.

“We exceeded both our top and bottom line expectations for the quarter, growing revenue 20% year-over-year and generating $19.3 million in cash from operations. Our strategy to bring differentiated products with compelling customer value to market while striving for operational excellence and financial discipline contributed to our strong performance. We believe our results this quarter are a proof point that execution of our strategy and investments in our product portfolio are delivering results,” said Bethany Mayer, Ixia's president and chief executive officer.

On a GAAP basis, the company recorded net income for the 2015 second quarter of $5.8 million, or $0.07 per diluted share, compared with a net loss of $15.1 million, or $0.19 per diluted share, for the 2014 second quarter. Non-GAAP net income for the 2015 second quarter was $16.0 million, or $0.19 per diluted share, compared with non-GAAP net income of $0.9 million, or $0.01 per diluted share, for the 2014 second quarter.

Additional non-GAAP information and a reconciliation of our non-GAAP financial measures to the most directly comparable GAAP financial measures for the 2015 and 2014 second quarters and year-to-date periods may be found in the attached financial tables.

Ixia ended the 2015 second quarter with approximately $219 million in cash, cash equivalents and investments, compared with $196 million at March 31, 2015.

Conference Call and Webcast Information

Ixia will host a conference call today at 4:30 p.m. Eastern time for analysts and investors to discuss its 2015 second quarter results and its business outlook and its guidance for the 2015 third quarter. The call will be open to the public, and interested parties may listen to the call by dialing (804) 681-3728. A live audio webcast of the conference call, along with supplemental financial information will be posted promptly following the issuance of this press release and will be accessible from the “Investors” section of the company’s web site (www.ixiacom.com/investors). Following the live webcast, an archived version will be available in the “Investors” section on the Ixia web site for at least 90 days.

Non-GAAP Financial Measures

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 net income and non-GAAP diluted earnings per share) that exclude certain non-cash and/or non-recurring income and expense items such as expenses relating to internal investigations and any related remediation efforts, the restatement of our financial statements for the first and second quarters of 2013 and for the six months ended June 30, 2013, the pending securities class action and shareholder derivative action against the company and certain of its current and former officers and directors as well as an ongoing SEC investigation, 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 certain other non-cash income tax impacts such as changes in 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 and/or reflective of the underlying performance of our business operations. 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, evaluating our ongoing business operations, identifying and assessing financial and business trends, and comparing our results of operations on a consistent basis from period to period. These non-GAAP financial measures are provided to enhance the user's overall understanding of our financial performance. These non-GAAP financial measures are also used by management to plan and forecast future periods and to assist management in making operating and strategic decisions. The presentation of this additional information is not prepared in accordance with GAAP. The information may not necessarily be comparable to that of other companies that may calculate their non-GAAP financial measures differently and should be considered as a supplement to, and 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.

Safe Harbor under the Private Securities Litigation Reform Act of 1995

Certain statements made in this press release may be deemed to be forward-looking statements including, without limitation, statements regarding the company’s strategy and investments in its product portfolio. In some cases, such forward-looking statements can be identified by words such as "may," "will," "should," "could," "would," "expect," "plan," "anticipate," "believe," "estimate," "project," "predict," "potential" or the like. These statements reflect our current views with respect to future events and are based on assumptions and are subject to risks and uncertainties. These risks and uncertainties, as well as other factors, may cause our future results, performance or achievements to be materially different from those expressed or implied by such forward-looking statements. Factors that could cause the actual results to differ materially from those expressed or implied in such forward-looking statements include, among others: changes in the global economy and in market conditions; competition; consistency of orders from significant customers; our success in leveraging our intellectual property portfolio, expertise and market opportunities; our expectations regarding the transition into Software Defined Networks (SDN), Network Functions Virtualization (NFV) and virtualized networks; our success in developing, producing and introducing new products and to keep pace with the rapid technological changes that characterize our market; our success in developing new sales channels and customers; market acceptance of our products; recent changes in management; and war, terrorism, political unrest, natural disasters, cybersecurity attacks 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. The factors that may cause future results to differ materially from our current expectations also include, without limitation, the risks identified in our Annual Report on Form 10-K for the quarter ended December 31, 2014 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.

About Ixia

Ixia (Nasdaq: XXIA) provides application performance and security resilience solutions to validate, secure and optimize businesses’ physical and virtual networks. Enterprises, service providers, network equipment manufacturers and governments worldwide rely on Ixia’s solutions to deploy new technologies and achieve efficient, secure, ongoing operation of their networks. Ixia's powerful and versatile solutions, expert global support and professional services equip organizations to exceed customer expectations and achieve better business outcomes. Learn more at www.ixiacom.com.

Ixia and the Ixia logo are trademarks or registered trademarks of Ixia in the U.S. and other countries.

 
IXIA
Consolidated Balance Sheets
(in thousands)

(unaudited)

 
  June 30,   December 31,
2015 2014
Assets
Current assets:
Cash and cash equivalents $ 77,375 $ 46,394
Restricted cash 10,000
Marketable securities 26,150 79,760
Marketable securities, restricted 105,000

Accounts receivable, net of allowances of $690 and $1,011, as of June 30, 2015 and December 31, 2014, respectively

97,541 99,528
Inventories 37,328 44,826
Prepaid expenses and other current assets 43,768   47,077  
Total current assets 397,162 317,585
Property and equipment, net 37,482 37,648
Intangible assets, net 123,677 145,108
Goodwill 338,873 338,873
Other assets 28,795   30,697  
Total assets $ 925,989   $ 869,911  
 
Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable $ 13,045 $ 16,902
Accrued expenses and other 48,749 45,271
Deferred revenues 103,086 100,170
Convertible senior notes 200,000 200,000
Term loan 2,500    
Total current liabilities 367,380 362,343
Deferred revenues 19,822 18,046
Other liabilities 8,677 8,431
Term loan 37,000    
Total liabilities 432,879   388,820  
 
Shareholders’ equity:

Common stock, without par value; 200,000 shares authorized at June 30, 2015 and December 31, 2014; 79,723 and 78,575 shares issued and outstanding as of June 30, 2015 and December 31, 2014, respectively

193,819 187,397
Additional paid-in capital 216,272 206,913
Retained earnings 83,766 87,574
Accumulated other comprehensive loss (747 ) (793 )
Total shareholders’ equity 493,110   481,091  
Total liabilities and shareholders’ equity $ 925,989   $ 869,911  
 
IXIA
Condensed Consolidated Statements of Operations
(in thousands, except per share data)

(unaudited)

 
  Three months ended   Six months ended
June 30, June 30,

 

2015   2014 2015   2014
Revenues:
Products $ 92,806 $ 76,393 $ 178,710 $ 157,558
Services 38,804   33,129   73,862   65,697  
Total revenues 131,610   109,522   252,572   223,255  

Costs and operating expenses: (1)

Cost of revenues – products (2) 24,185 23,591 48,236 49,002
Cost of revenues – services 4,364 4,172 8,880 8,120
Research and development 27,759 30,032 55,385 60,067
Sales and marketing 38,439 39,874 75,960 78,713
General and administrative 17,417 16,690 35,788 34,572
Amortization of intangible assets 10,889 12,447 21,812 25,082
Acquisition and other related costs 101 866 683 2,798
Restructuring (351 ) 481   (561 ) 4,045  
Total costs and operating expenses 122,803   128,153   246,183   262,399  
Income (loss) from operations 8,807 (18,631 ) 6,389 (39,144 )
Interest income and other, net 202 292 (279 ) 629
Interest expense (2,435 ) (1,943 ) (4,582 ) (3,886 )
Income (loss) before income taxes 6,574 (20,282 ) 1,528 (42,401 )
Income tax expense (benefit) 771   (5,205 ) 5,336   (7,852 )
Net income (loss) $ 5,803   $ (15,077 ) $ (3,808 ) $ (34,549 )
Earnings (loss) per share:
Basic $ 0.07 $ (0.19 ) $ (0.05 ) $ (0.45 )
Diluted $ 0.07 $ (0.19 ) $ (0.05 ) $ (0.45 )
Weighted average number of common and common equivalent shares outstanding:
Basic 79,396 77,479 79,053 77,511
Diluted 81,030 77,479 79,053 77,511
 
(1) Stock-based compensation included in:
Cost of revenues – products $ 76 $ 88 $ 171 $ 136
Cost of revenues – services 29 33 65 51
Research and development 1,578 1,424 3,671 3,303
Sales and marketing 1,202 1,493 2,251 3,421
General and administrative 1,858 48 3,732 993
(2)  

Cost of revenues – products excludes amortization of intangible assets related to purchased technologies of $6.4 million and $12.9 million for the three and six months ended June 30, 2015, respectively, and $7.9 million and $16.1 million for the three and six months ended June 30, 2014 , respectively, which are included in Amortization of intangible assets.

 
IXIA
Non-GAAP Information and Reconciliation to Most Directly Comparable GAAP Financial Measures
(in thousands, except per share data)

(unaudited)

 
  Three months ended
June 30,
2015   2014
GAAP net income (loss) $ 5,803 $ (15,077 )
Adjustments:
Stock-based compensation (a) 4,743 3,086
Amortization of intangible assets (b) 10,889 12,447
Acquisition and other related costs (c) 101 866
Restructuring (d) (351 ) 481
Investigations, shareholder litigation and related matters (e) 1,594 4,930
Income tax effect (f) (6,777 ) (5,878 )
Non-GAAP net income $ 16,002   $ 855  
 
GAAP diluted income (loss) per share $ 0.07 $ (0.19 )
Adjustments:
Stock-based compensation (a) 0.06 0.04
Amortization of intangible assets (b) 0.13 0.16
Acquisition and other related costs (c) 0.01
Restructuring (d) 0.01
Investigations, shareholder litigation and related matters (e) 0.02 0.06
Income tax effect (f) (0.08 ) (0.08 )
Convertible senior notes (g) (0.01 )  
Non-GAAP diluted earnings per share $ 0.19   $ 0.01  
 
Shares used in computing GAAP diluted earnings per common share 81,030 77,479
Effect of reconciling item (g)(h) 10,299   1,104  
Shares used in computing non-GAAP diluted earnings per common share 91,329   78,583  
 
(a) This reconciling item represents stock-based compensation. 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 investors 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 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. As 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: professional fees for legal, accounting, tax, due diligence, valuation and other related services; amortization of deferred compensation; consulting fees; required regulatory costs; 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 plans. During the first quarter of 2014, we initiated a plan to restructure certain of our operations following our December 5, 2013 acquisition of Net Optics, Inc. During the third quarter of 2014, we implemented a company-wide restructuring initiative to restructure our operations to better align our operating costs with our business opportunities. The restructuring costs associated with our restructuring plans primarily relate to employee termination benefits, lease exit costs 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 costs incurred related to (i) internal investigations and any related remediation efforts, (ii) the June 2014 restatement of our financial statements for the first quarter of 2013 and for the three and six months ended June 30, 2013, (iii) the securities class action against the company and certain of its current and former officers and directors as well as a shareholder derivative action and (iv) an SEC investigation. These costs consist primarily of legal and accounting fees, recruiting and consulting expenses, severance and retention costs, and other related expenses. We believe that by excluding these non-recurring costs, we are providing 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 adjustment represents the income tax effects of the reconciling items noted in footnotes (a), (b), (c), (d) and (e), as well as certain other non-cash income tax impacts such as changes in the valuation allowance relating to certain deferred tax assets.
(g) This reconciling item for the non-GAAP diluted earnings per share calculation for the three months ended June 30, 2015 includes the impact of our convertible senior notes as this was anti-dilutive for the equivalent GAAP earnings per share calculations.
(h) 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.
 
IXIA
Non-GAAP Information and Reconciliation to Most Directly Comparable GAAP Financial Measures
(in thousands, except per share data)

(unaudited)

 
  Six months ended
June 30,
2015   2014
GAAP net loss $ (3,808 ) $ (34,549 )
Adjustments:
Stock-based compensation (a) 9,890 7,904
Amortization of intangible assets (b) 21,812 25,082
Acquisition and other related costs (c) 683 2,798
Restructuring (d) (561 ) 4,045
Investigations, shareholder litigation and related matters (e) 4,282 10,087
Inventory adjustments (f) 1,393
Income tax effect (g) (6,586 ) (11,156 )
Non-GAAP net income $ 25,712   $ 5,604  
 
GAAP diluted loss per share $ (0.05 ) $ (0.45 )
Adjustments:
Stock-based compensation (a) 0.13 0.10
Amortization of intangible assets (b) 0.28 0.32
Acquisition and other related costs (c) 0.04
Restructuring (d) (0.01 ) 0.05
Investigations, shareholder litigation and related matters (e) 0.05 0.13
Inventory adjustments (f) 0.02
Income tax effect (g) (0.08 ) (0.14 )
Convertible senior notes (h) (0.01 )  
Non-GAAP diluted earnings per share $ 0.31   $ 0.07  
 
Shares used in computing GAAP diluted earnings per common share 79,053 77,511
Effect of reconciling item (h)(i) 11,857   1,108  
Shares used in computing non-GAAP diluted earnings per common share 90,910   78,619  
 
(a) This reconciling item represents stock-based compensation. 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 investors 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 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. As 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: professional fees for legal, accounting, tax, due diligence, valuation and other related services; amortization of deferred compensation; consulting fees; required regulatory costs; 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 plans. During the first quarter of 2014, we initiated a plan to restructure certain of our operations following our December 5, 2013 acquisition of Net Optics, Inc. During the third quarter of 2014, we implemented a company-wide restructuring initiative to restructure our operations to better align our operating costs with our business opportunities. The restructuring costs associated with our restructuring plans primarily relate to employee termination benefits, lease exit costs 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 costs incurred related to (i) internal investigations and any related remediation efforts, (ii) the June 2014 restatement of our financial statements for the first quarter of 2013 and for the three and six months ended June 30, 2013, (iii) the securities class action against the company and certain of its current and former officers and directors as well as a shareholder derivative action and (iv) an SEC investigation. These costs consist primarily of legal and accounting fees, recruiting and consulting expenses, severance and retention costs, and other related expenses. We believe that by excluding these non-recurring costs, we are providing 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 our acquisition of Net Optics, Inc. 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 certain other non-cash income tax impacts such as changes in the valuation allowance relating to certain deferred tax assets.
(h) This reconciling item for the non-GAAP diluted earnings per share calculation for the six months ended June 30, 2015 includes the impact of our 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.

Contacts

Financial Contact:
The Blueshirt Group
Maria Riley, 415-217-7722
Investor Relations

Contacts

Financial Contact:
The Blueshirt Group
Maria Riley, 415-217-7722
Investor Relations