Ixia (XXIA) Misses Q4 EPS by 4c

Ixia (NASDAQ: XXIA) reported Q4 EPS of $0.15, $0.04 worse than the analyst estimate of $0.19. Revenue for the quarter came in at $120.6 million versus the consensus estimate of $120.37 million.

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.”

For earnings history and earnings-related data on Ixia (XXIA) click here.

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