NetScreen Technologies, Inc. Reports Record Second Quarter Results

GUILDFORD, U.K. April 24, 2003 — NetScreen Technologies, Inc. (Nasdaq: NSCN), has announced financial results for its second fiscal quarter and six months ended March 31, 2003.

Revenue in the quarter ended March 31, 2003 was a record $58.3 million, an increase of 82 percent over revenue of $32.0 million in the same quarter last year and an increase of 14 percent over revenue of $51.1 million in the quarter ended December 31, 2002. Revenues for the first six months of fiscal 2003 were $109.4 million, an increase of 79 percent over revenues of $61.0 million recorded in the same period last year.

Net income applicable to common stockholders calculated on the basis of GAAP (generally accepted accounting principles) for the quarter ended March 31, 2003 was $5.9 million, or $0.08 per basic and $0.07 per diluted share, compared to a net loss applicable to common stockholders of $3.3 million, or ($0.05) per basic and diluted share, in the same period last year. GAAP net income applicable to common stockholders in the quarter ended March 31, 2003 includes the effect of a non-cash charge of $5.5 million for stock-based compensation associated with stock options granted prior to the company’s initial public offering and approximately $245,000 for amortization of intangible assets associated with the September 2002 acquisition of OneSecure Inc. and a $1.4 million negative tax impact resulting from the inclusion of stock-based compensation and the amortization of intangible assets. GAAP net loss applicable to common stockholders in the same period last year includes the effect of a non-cash charge of $6.1 million for stock-based compensation associated with stock options. GAAP net income for the first six months of fiscal 2003 was $9.1 million, or $0.12 per basic and $0.11 per diluted share, compared to a net loss of $37.7 million, or ($0.77) per basic and diluted share in the same period last year.

Pro forma net income for the quarter ended March 31, 2003 was a record $13.0 million, or $0.17 per basic and $0.15 per diluted share, representing a 371 percent increase over pro forma net income of $2.8 million, or $0.04 per basic and $0.03 per diluted share, in the same quarter last year and an increase of 19 percent over pro forma net income of $10.9 million, or $0.14 per basic and $0.13 per diluted share, in the quarter ended December 31, 2002. Pro forma net income and per share information excludes non-cash, stock-based compensation associated with stock options and amortization of intangible assets.

“We built upon our excellent reputation in the marketplace as a leader in security performance, technology and total cost of ownership to gain market share and mind share from our competitors, enabling NetScreen to show continued strong product revenue growth,” said Robert Thomas, president and chief executive officer.

Remo Canessa, NetScreen’s chief financial officer, stated, “Strength in product sales and our ability to control operating expenses have enabled NetScreen to post another quarter of solid financial performance. In addition to record revenues, we achieved a record pro forma operating profit margin of 24.4% in the March quarter. GAAP operating profit margin was 14.6%. We were also pleased to see our deferred revenue increase 26.7% over the prior fiscal quarter and to see our DSOs remain under 40 days. Cash flow from operations remained strong at $20.4 million for the quarter ended March 31, 2003, bringing our cash, cash equivalents and short-term investments balance up to $294.3 million as of March 31, 2003.”

Recent Company Highlights
· Received Network Magazine’s 2003 Product of the Year Award in the firewall category for the NetScreen-5000 Series.

· Achieved No. 1 position in unit market share of the high-end (greater than $30,000) price-banded category of VPN and firewall appliances in the December quarter, according to Infonetics Research.

· Expanded IDP product line with the new NetScreen-IDP 10 to protect remote offices and secure extranet links.

· Announced a software upgrade for IDP product line that makes it the first intrusion prevention platform to protect against exploitation of instant messaging and peer-to-peer file sharing application vulnerabilities.

· Enhanced the NetScreen-200 series appliances, enabling customers to leverage a single device to extend firewall protection and VPN capabilities to multiple network segments.

· Selected as the official network firewall provider for the InteropNet Event Network (eNet) at NetWorld+Interop 2003 in Las Vegas.

· Announced new large enterprise and service provider customer wins including Interim HealthCare Inc., Metropolitan Regional Information Systems Inc., and Inforonics.

· Expanded our Global Alliance Program to include SmartPipes, a leader in policy-based networking software for secure large-scale IP VPN and firewall networks, and Radware, a leading provider of intelligent application switching.

“Geographically we saw growth in both the Americas and Europe while revenue from the Asia Pacific region remained a strong component of our total revenues,” continued Thomas. “Large enterprise sales remain a key focus area for NetScreen and we saw continued success in a number of verticals including government, education, financial institutions and technology companies. Our government business was not just within the United States — NetScreen has sold products to over 130 government organizations in over 20 countries around the world and we believe we are well positioned to expand on this business in the future. We remain committed to our goal of becoming the No. 1 network security company in the world.”

Outlook

The following statements are based on information the company has available today, and will be the company’s only statements of this nature until updated in the future. NetScreen assumes no duty to update this information at any time. These statements are forward-looking, and actual results may differ materially.

For the quarter ending June 30, 2003, NetScreen currently expects to achieve revenue growth of between 8 and 10 percent over the March 2003 quarter. Pro forma gross margins are expected to be between 75 and 76 percent. In addition, the company expects pro forma operating expenses for the June 2003 quarter to increase by 10 to 12 percent over the March 2003 quarter. Pro forma operating expense and pro forma gross margin expectations exclude stock-based compensation and the amortization of intangible assets. On a GAAP basis, gross margins are expected to be between 74 and 75 percent and operating expenses are expected to increase by 10 to 12 percent in the June 2003 quarter.

For the fiscal year ending September 30, 2003, NetScreen is raising its revenue projection to between $237 million and $240 million, representing year over year revenue growth of approximately 71 to 73 percent. Prior projected revenue for fiscal 2003 had been between $225 million and $230 million.

Conference Call
A live webcast of the earnings conference call can be accessed at: http://ir.netscreen.com/ireye/ir_site.zhtml?ticker=nscn&script=2100. A replay of the webcast will be available at the same web address starting approximately two hours after the conclusion of the live webcast and running through May 23, 2003.

A taped replay of this call will be available for one week following the call. The international dial-in number for the replay is +1 706-645-9291. The call’s ID number is: 9597619. The replay will be available through April 30, 2003.

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 805 11th Ave, Sunnyvale, CA 94089, U.S.A, and in Europe at Victoria House, Cross Lanes, Guildford, Surrey GU1 1UJ, U.K. More information on NetScreen’s products in Europe can be found at http://www.netscreen.com or by calling +44 0 8700 75 00 00.




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