NetScreen Technologies Reports Record Fiscal Fourth Quarter and 2002 Financial Results

Reports 13 Percent Revenue Growth Over Prior Quarter
Achieves 62 Percent Revenue Growth Over Prior Year

Guildford, U.K. (October 29, 2002): NetScreen Technologies, Inc. (Nasdaq: NSCN), today announced financial results for its fiscal fourth quarter and full fiscal year ended September 30, 2002.

Revenue in the quarter ended September 30, 2002 was a record $41.1 million, an increase of 56 percent over revenue of $26.3 million recorded in the same quarter last year and an increase of 13 percent over revenue of $36.4 million recorded in the quarter ended June 30, 2002. Revenue for fiscal 2002 was $138.5 million, an increase of 62 percent over revenue of $85.6 million recorded in fiscal 2001.

Pro forma net income for the quarter ended September 30, 2002 was $5.2 million, or $0.07 per basic and diluted share, compared to a pro forma net loss of $1.3 million, or ($0.07) per basic and diluted share, in the same quarter last year. Pro forma net income for the quarter ended June 30, 2002 was $3.7 million, or $0.05 per basic share and diluted share. Pro forma net income for fiscal 2002 was $11.9 million, or $0.20 per basic share and $0.16 per diluted share. Pro forma net loss for fiscal 2001 was $12.3 million, or ($0.73) per basic and diluted share. Pro forma net income, net loss and per share information excludes non-cash stock-based compensation associated with stock options, amortization of intangible assets and deemed dividends associated with preferred stock issued by the company.

Net loss applicable to common stockholders calculated on a GAAP (generally accepted accounting principles) basis for the quarter ended September 30, 2002 was $925,000, or ($0.01) per basic and diluted share, compared to a net loss of $7.2 million, or ($0.38) per basic and diluted share, in the same period last year. The GAAP net income before taxes was $1.2 million, compared to a pre-tax net loss of $6.3 million in the same period last year. The GAAP net loss in the quarter ended September 30, 2002 includes a non-cash charge of $6.1 million for stock-based compensation associated with stock options. The GAAP net loss in the same period last year includes a non-cash charge of approximately $731,000 for a deemed dividend related to Series E convertible preferred stock, and a non-cash charge of $5.1 million for stock-based compensation associated with stock options. The GAAP net loss for fiscal 2002 was $41.1 million, or ($0.68) per basic and diluted share, compared to a net loss of $34.2 million, or ($2.05) per basic and diluted share, in fiscal 2001.

“Fiscal 2002 was truly a watershed year for NetScreen as our network security systems and appliances continued to gain market share in every market segment in which we compete,” said Robert Thomas, NetScreen’s president and chief executive officer. “NetScreen capped off a brilliant fiscal 2002 with a strong financial performance in our fiscal fourth quarter and has done quite well posting double digit sequential revenue increases in each quarter over the past two years, in spite of what is generally considered one of the worst economic environments in recent history.”

Remo Canessa, NetScreen’s chief financial officer, stated, “We achieved exceptional financial performance across the board in our fiscal fourth quarter. Pro forma gross margins improved in each quarter of fiscal 2002 beginning at 72.9 percent and rising to a record 77.0 percent in our fiscal fourth quarter as demand for our newer, higher margin products remained strong. We also maintained a strong balance sheet as deferred revenue rose 18 percent from the prior quarter to $26.2 million and we generated $10.0 million in operating cash flow, bringing our cash balance to $249.9 million at the end of our fiscal fourth quarter.”

Recent Company Highlights

Acquired OneSecure, a developer of intrusion prevention and detection solutions.
Announced several large enterprise and service provider customer wins including Barclays Global Investors, The Beer Store, FamilyMart, Inc., Telecom Italia and ionex telecommunications.
Signed a comprehensive reseller agreement with SBC Communications whereby SBC will resell NetScreen’s leading appliances and systems to enterprise customers.
Launched a new high-density secure port module for the NetScreen-5000 Series allowing customers to easily deploy segmented security within their networks using 10/100 Ethernet ports and gigabit Ethernet interfaces.
Released NetScreen version 2.0 of the IDP operating software with new enhancements including multi-level attack investigation functionality, unique management features for quick response to attacks, high-availability and clustering capabilities, and a wizard-driven user interface to ease deployment.
Expanded IDP product line with NetScreen-IDP 500, which includes a new Gigabit Ethernet-enabled version for seamless deployment into mission-critical, high performance networks.
Gained market share in every product category in which NetScreen participates according to Infonetics Research’s VPN and Firewall second quarter 2002 report.
Opened new sales offices in Paris, France, Nuremberg, Germany, Antwerp, Belgium, Prague, Czech Republic, Tel Aviv, Israel and Dubai, United Arab Emirates.
Expanded our Global Alliance Program to include RouteScience, a leading provider of route control solutions, and Stratum8, Inc., a leading developer of Web application security solutions.

“NetScreen had tremendous momentum in fiscal 2002,” continued Thomas. “In order to meet the growing demand for our solutions, we have recently expanded our presence around the globe with several new sales offices. In addition, we believe that our recent acquisition of intrusion prevention and detection technology will further NetScreen’s position as a leader in network security. NetScreen provides the critical security applications that our customers need to help protect their networks while providing them with a compelling total cost of ownership and return on investment they demand.”

Guidance

The following statements are made in good faith and are based on market information the company has available today, and will be the only numbers that the company will comment on going forward or until updated in the future. NetScreen also assumes no duty to update these numbers at any time during the quarter. These statements are forward-looking, and actual results may differ materially.

For the quarter ending December 31, 2002, NetScreen currently expects to achieve revenue growth of between 10 and 12 percent over the September 2002 quarter. Gross margins are expected to return to historical levels of between 74 percent and 75 percent. In addition, the company expects operating expenses for the December 2002 quarter to increase by 10 percent to 12 percent over the September 2002 quarter. Operating expense and gross margin expectations are pro forma and exclude stock-based compensation.

For the fiscal year ending September 30, 2003, NetScreen is projecting total revenue to range between $194 million and $208 million, representing year over year revenue growth of approximately 40 percent to 50 percent.

Conference Call

A taped replay of NetScreen’s conference call will be available for 72 hours after 29th October 2002. The international dial-in number for the replay is +1 973-709-2089 . The call’s ID number is: 263329.

About NetScreen Technologies

NetScreen Technologies, Inc., is a leading developer of integrated network security solutions that offer the security, performance and total cost of ownership required by enterprises and carriers. NetScreen’s innovative solutions provide key security technologies, such as virtual private network, denial of service protection, firewall and intrusion prevention, in a line of easy-to-manage security appliances and systems. NetScreen is located at 350 Oakmead Parkway, Sunnyvale, CA, 94085, U.S.A., and in Europe at Victoria House, London Square, Cross Lanes, Guildford, Surrey GU1 1UJ, U.K.. More information on NetScreen’s products can be found at http://www.netscreen.com or by calling +44 0 8700 75 00 00.




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