Ixia Files 2013 Results
CALABASAS, Calif. -- Ixia (Nasdaq: XXIA) today reported its financial results for the fourth quarter and fiscal year ended December 31, 2013. Ixia has also made substantial progress toward becoming current with its Securities and Exchange Commission (the “SEC”) reports by filing today reports that include its Annual Report on Form 10-K for the year ended December 31, 2013, its Quarterly Report on Form 10-Q for the quarter ended September 30, 2013, and the amendments to its quarterly reports necessary to complete the company’s previously announced restatement of its financial statements for the first and second quarters of 2013.
Management Commentary by Errol Ginsberg, Chairman and Acting CEO “We are pleased to bring our 2013 audit to a close and file our 2013 financial statements with the SEC. While the past eight months have been challenging on several fronts, we have continued to focus on innovation and on executing and moving the business forward. Our total fourth quarter bookings were within our expectations and we exited the quarter with a book-to-bill greater than one. Revenue came in at $120.6 million (includes $4.8 million of post-acquisition Net Optics sales). Revenue was slightly below the low-end of guidance principally due to a mix of orders that included a larger proportion of orders for our warranty and Application Threat Intelligence (ATI) subscription offerings for which revenue is recognized ratably over the related service periods. Notably, deferred revenue grew by $15 million sequentially in the fourth quarter.
"In early December 2013, we completed the acquisition of Net Optics and quickly began integrating the teams, systems and product families. I am pleased to report that this integration is now substantially complete. A significant part of the integration included a major collaborative restructuring of the sales team, coupled with many new hires in key roles. We now have one unified Network Visibility Solutions (NVS) team with senior leaders across sales, marketing, operations and product development. Although the integration of the sales teams was completed in less than two months, this negatively impacted our first quarter NVS bookings as our leaders and field resources settled into their new territories. Today, our integrated sales force is set and cross-trained on the combined NVS portfolio with an enhanced level of support and responsiveness on a global level. From a product perspective, we are already seeing the benefits of our combined product portfolio in the competitive landscape.
"Overall, the market trends in the test market have remained essentially unchanged. In switching and routing, demand for high-speed Ethernet solutions is increasing on a port count basis, while the demand for 1G and 10G Ethernet solutions continues to gradually decline. We were first to market with 40G and 100G Ethernet test platforms, and with our recent introduction of the industry’s first 400G Ethernet test platform, we continue to lead the industry in creating cutting edge solutions that enable our customers to develop, test and validate the networking technologies of the future. The applications and security test market continues to show solid growth, and we are pleased with our recent performance and momentum in this market. In the fourth quarter, we launched our PerfectStorm solution that integrates our IxLoad and BreakingPoint software on one platform. PerfectStorm is one of the most successful new product launches in our history.
"While we are still in the early stages of closing our first quarter financials, we currently expect first quarter revenue to be in the range of $109 million to $113 million. While we exited the first quarter with a book-to-bill greater than one, first quarter revenue was negatively impacted by lighter NVS bookings due to the impact of the sales integration activities discussed above, a larger than expected mix of warranty and ATI subscription bookings as part of our total bookings, continued market trends in the test market, as well as normal seasonal patterns. We expect non-GAAP gross margin to increase sequentially and non-GAAP operating margin to be in the mid to high single digits due to the lower topline, higher seasonal expense levels and litigation costs, and the Net Optics acquisition. We expect our effective tax rate for the 2014 first quarter to increase on a sequential basis as a result of the expiration of the federal R&D tax credit.
"We are focused on completing our 10-Q for 2014 first quarter, which we expect to file in July. Lastly, on the leadership front, our goal is to name a permanent CEO and CFO by the end of the third quarter.”
Fourth Quarter Financial Summary
Total revenue was $120.6 million, compared with $113.2 million reported in the 2013 third quarter and $125.5 million reported for the 2012 fourth quarter. The 2013 fourth quarter includes $4.8 million in revenue attributable to Net Optics, which was acquired on December 5, 2013. Total 2013 fourth quarter revenue was below guidance previously announced for the fourth quarter primarily due to a higher than expected mix of warranty and ATI subscription bookings for which revenue is recognized ratably over the service periods.
Deferred revenue grew to $104 million, compared with $89 million in the 2013 third quarter and $75 million in the 2012 fourth quarter. GAAP gross margin was 75.4%, compared with 78.3% in the 2013 third quarter. Non-GAAP gross margin was 76.0%, compared with 78.4% in the 2013 third quarter. Gross margin was impacted by $2.5 million of inventory-related charges associated with end-of-life and older network test products. Gross margin in the 2013 fourth quarter was also negatively affected, to a lesser extent, by the addition of lower margin Net Optics sales.
Total operating expense was $94.5 million, compared with $84.4 million in the 2013 third quarter. Non-GAAP operating expenses were in line with expectations at $73.2 million, compared with $68.3 million in the 2013 third quarter. The increase in non-GAAP operating expenses was primarily related to the addition of Net Optics and higher year-end commission expenses.
Operating loss was $3.5 million or (2.9%) of revenue, compared with operating income of $4.2 million or 3.7% of revenue in the 2013 third quarter. Non-GAAP operating income was $18.5 million or 15.4% of revenue, compared with $20.5 million or 18.1% of revenue in the 2013 third quarter.
Net loss was $3.1 million, or ($0.04) per share, compared with net income of $4.1 million, or $0.05 per diluted share, for the 2013 third quarter and $3.7 million, or $0.05 per diluted share, for the 2012 fourth quarter.
Non-GAAP net income was $11.9 million, or $0.15 per diluted share, compared with non- GAAP net income of $13.0 million, or $0.16 per diluted share, for the 2013 third quarter and $20.1 million, or $0.25 per diluted share, for the 2012 fourth quarter.
Fiscal Year 2013 Summary
Total revenue was a record $467.3 million, an increase of 13% compared with $413.4 million reported for fiscal year 2012. Fiscal year 2013 revenue includes $4.8 million attributable to the acquisition of Net Optics completed on December 5, 2013. Total revenue for fiscal years 2013 and 2012 included $138.2 million and $54.9 million, respectively, related to our 2012 acquisitions of Anue and BreakingPoint.
Gross margin was 78.0%, compared with 80.1% in 2012. Non-GAAP gross margin was 78.2%, compared with 80.5% in 2012.
Operating income was $12.3 million or 2.6% of revenue, compared with $24.3 million or 5.9% of revenue in 2012. Non-GAAP operating income was $84.6 million or 18.1% of revenue, compared with $92.9 million or 22.5% of revenue in 2012.
Net income was $11.9 million, or $0.15 per diluted share, compared with $45.5 million, or $0.59 per diluted share, in 2012. Non-GAAP net income was $56.5 million, or $0.69 per diluted share, compared with $61.7 million, or $0.78 per diluted share, in 2012.
Ixia ended 2013 with $85.7 million in cash, cash equivalents and investments, compared with $177.5 million at December 31, 2012. The decrease was primarily attributable to the payment of approximately $192 million in net cash consideration for Net Optics. This decrease was partially offset by cash flow from operations of $87 million for the year ended 2013.
Ixia (Nasdaq: XXIA)