UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
Form 10-Q
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended December 31, 2004
OR
¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 000-26757
NetIQ CORPORATION
(Exact name of Registrant as specified in its charter)
| Delaware | 77-0405505 | |
| (State or other jurisdiction of incorporation or organization) |
(I.R.S. employer identification no.) | |
| 3553 North First Street, San Jose, CA | 95134 | |
| (Address of principal executive offices) | (Zip Code) | |
(408) 856-3000
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes x No ¨
As of January 31, 2005, the Registrant had outstanding 54,767,268 shares of Common Stock.
INDEX TO QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED December 31, 2004
| Page | ||||
| PART I FINANCIAL INFORMATION | ||||
| ITEM 1. | 3 | |||
| 3 | ||||
| CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) |
4 | |||
| 5 | ||||
| 6 | ||||
| ITEM 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
12 | ||
| ITEM 3. | 32 | |||
| ITEM 4. | 32 | |||
| PART II OTHER INFORMATION | ||||
| ITEM 1. | 33 | |||
| ITEM 6. | 33 | |||
| 34 | ||||
2
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
| December 31, 2004 |
June 30, 2004 (1) |
|||||||
| (Unaudited) | ||||||||
| ASSETS |
||||||||
| Current assets: |
||||||||
| Cash and cash equivalents |
$ | 68,932 | $ | 57,841 | ||||
| Short-term investments |
225,457 | 229,781 | ||||||
| Accounts receivable, net |
35,501 | 31,081 | ||||||
| Prepaid expenses and other |
5,797 | 5,269 | ||||||
| Total current assets |
335,687 | 323,972 | ||||||
| Property and equipment, net |
48,118 | 49,706 | ||||||
| Other intangible assets, net |
28,806 | 39,040 | ||||||
| Other assets |
1,970 | 2,489 | ||||||
| Long-term investments |
3,714 | 4,614 | ||||||
| Goodwill |
124,614 | 124,081 | ||||||
| Total assets |
$ | 542,909 | $ | 543,902 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY |
||||||||
| Current liabilities: |
||||||||
| Accounts payable |
$ | 7,512 | $ | 8,278 | ||||
| Accrued compensation and related benefits |
14,918 | 14,374 | ||||||
| Other liabilities |
12,323 | 11,812 | ||||||
| Deferred revenue, current portion |
65,126 | 61,174 | ||||||
| Restructuring liability, current portion |
297 | 929 | ||||||
| Total current liabilities |
100,176 | 96,567 | ||||||
| Deferred revenue, net of current portion |
2,638 | 5,442 | ||||||
| Restructuring liability, net of current portion |
261 | 393 | ||||||
| Total liabilities |
103,075 | 102,402 | ||||||
| Stockholders’ equity: |
||||||||
| Common stock-$0.001 par value; 250,000,000 shares authorized, 55,061,459 issued and outstanding at December 31, 2004; 55,216,057 issued and outstanding at June 30, 2004 |
2,903,295 | 2,905,610 | ||||||
| Deferred employee stock-based compensation |
(678 | ) | (313 | ) | ||||
| Accumulated deficit |
(2,461,697 | ) | (2,462,825 | ) | ||||
| Accumulated other comprehensive loss |
(1,086 | ) | (972 | ) | ||||
| Total stockholders’ equity |
439,834 | 441,500 | ||||||
| Total liabilities and stockholders’ equity |
$ | 542,909 | $ | 543,902 | ||||
| (1) | Derived from audited consolidated financial statements. |
See notes to condensed consolidated financial statements.
3
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME (LOSS)
(In thousands, except per share amounts)
(Unaudited)
| Three Months Ended December 31, |
Six Months Ended December 31, |
|||||||||||||||
| 2004 |
2003 |
2004 |
2003 |
|||||||||||||
| Software license revenue |
$ | 36,849 | $ | 34,012 | $ | 69,849 | $ | 69,037 | ||||||||
| Service revenue |
33,658 | 29,949 | 65,400 | 57,780 | ||||||||||||
| Total revenue |
70,507 | 63,961 | 135,249 | 126,817 | ||||||||||||
| Cost of software license revenue |
1,167 | 2,564 | 2,515 | 5,353 | ||||||||||||
| Cost of service revenue |
8,787 | 7,671 | 17,329 | 15,467 | ||||||||||||
| Amortization of purchased technology |
3,095 | 5,801 | 6,190 | 11,602 | ||||||||||||
| Total cost of revenue |
13,049 | 16,036 | 26,034 | 32,422 | ||||||||||||
| Gross profit |
57,458 | 47,925 | 109,215 | 94,395 | ||||||||||||
| Operating expenses: |
||||||||||||||||
| Sales and marketing |
31,300 | 30,869 | 62,076 | 58,893 | ||||||||||||
| Research and development |
16,020 | 16,465 | 32,161 | 32,989 | ||||||||||||
| General and administration |
8,121 | 6,391 | 14,558 | 13,486 | ||||||||||||
| Amortization of other intangible assets |
2,179 | 4,263 | 4,344 | 8,526 | ||||||||||||
| Employee stock-based compensation |
325 | 85 | 500 | 186 | ||||||||||||
| Restructuring credit |
(27 | ) | (138 | ) | (8 | ) | (504 | ) | ||||||||
| Impairment of goodwill |
— | — | — | 150,842 | ||||||||||||
| Total operating expenses |
57,918 | 57,935 | 113,631 | 264,418 | ||||||||||||
| Loss from operations |
(460 | ) | (10,010 | ) | (4,416 | ) | (170,023 | ) | ||||||||
| Other income (expenses): |
||||||||||||||||
| Interest income |
1,352 | 1,395 | 2,546 | 2,767 | ||||||||||||
| Gain on sale of long-term investment |
4,100 | — | 4,100 | — | ||||||||||||
| Impairment of long-term investment |
— | — | — | (4,100 | ) | |||||||||||
| Other income (expenses), net |
810 | (542 | ) | 556 | (605 | ) | ||||||||||
| Total other income (expenses) |
6,262 | 853 | 7,202 | (1,938 | ) | |||||||||||
| Income (loss) before income taxes |
5,802 | (9,157 | ) | 2,786 | (171,961 | ) | ||||||||||
| Income tax expense |
795 | 1,090 | 1,658 | 1,900 | ||||||||||||
| Net income (loss) |
$ | 5,007 | $ | (10,247 | ) | $ | 1,128 | $ | (173,861 | ) | ||||||
| Other comprehensive income (loss), net of income taxes: |
||||||||||||||||
| Foreign currency translation adjustment |
(97 | ) | 192 | (18 | ) | 530 | ||||||||||
| Unrealized loss on short-term investments |
(243 | ) | (295 | ) | (96 | ) | (320 | ) | ||||||||
| Comprehensive income (loss) |
$ | 4,667 | $ | (10,350 | ) | $ | 1,014 | $ | (173,651 | ) | ||||||
| Basic earnings per share: |
||||||||||||||||
| Net earnings (loss) per share |
$ | 0.09 | $ | (0.18 | ) | $ | 0.02 | $ | (3.07 | ) | ||||||
| Diluted earnings per share: |
||||||||||||||||
| Net earnings (loss) per share |
$ | 0.09 | $ | (0.18 | ) | $ | 0.02 | $ | (3.07 | ) | ||||||
| Shares used to compute basic earnings (loss) per share |
54,958 | 56,870 | 55,051 | 56,588 | ||||||||||||
| Shares used to compute diluted earnings (loss) per share |
55,859 | 56,870 | 55,675 | 56,588 | ||||||||||||
See notes to condensed consolidated financial statements.
4
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
| Six Months Ended December 31, |
||||||||
| 2004 |
2003 |
|||||||
| Cash flows from operating activities: |
||||||||
| Net income (loss) |
$ | 1,128 | $ | (173,861 | ) | |||
| Adjustments to reconcile net income (loss) to net cash provided by operating activities: |
||||||||
| Depreciation and amortization |
17,525 | 28,219 | ||||||
| Amortization of employee stock-based compensation |
500 | 186 | ||||||
| Loss on sale of investments and property and equipment |
36 | 153 | ||||||
| Impairment of goodwill |
— | 150,842 | ||||||
| Gain on sale of long-term investment |
(4,100 | ) | — | |||||
| Impairment of long-term investment |
— | 4,100 | ||||||
| Changes in: |
||||||||