ISS Reports 4Q Loss, Guides Outlook Up

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Security software and services company Internet Security Systems Inc. on Wednesday reported a loss versus a net profit and issued guidance for the first quarter and full year above Wall Street's current outlook.

The Atlanta-based company, which sells software that blocks intruders from computer networks, reported a loss of $10.3 million, or 22 cents a share, which included $12.7 million in charges for amortization of intangibles and compensation for unvested stock options associated with the June 2001 acquisition of Network ICE.

The company reported a profit of $6.3 million, or 14 cents a share, a year ago, when it had no acquisition-related charges.

Revenues for the quarter dipped 3 percent to $58 million from $59.7 million a year ago, the company said.

Excluding charges, the company reported a pro forma net profit of $4.8 million, or 10 cents per share, above the 7 cents a share analysts, on the average, had expected, according to Thomson Financial/First Call. On average, analysts expected the company to post revenues of $56.04 million.

Following the release of its financial results investors, who had driven the stock up 13 percent since last week, sent the stock down 81 cents, or 2 percent, to $32.56.

"The stock was fairly rich to begin with and there could have been some investors believing they would blow numbers away similar to what Symantec did," Avondale Partners analyst Sean Jackson said. "They're a great company. They did well. I think the stock just got a little ahead of itself."

But Symantec's performance was boosted by demand for its Norton consumer virus protection software, an area in which Internet Security does not play, Jackson said.

For the year, the company reported a loss of $15.5 million, or 34 cents a share, which included acquisition related charges and a gain of $13.6 million for on an initial public offering of its Japanese subsidiary. Revenues were $223.56 million.

Looking ahead, the company said it expects to post first-quarter earnings of 10 cents to 11 cents a share, excluding the non-cash charges related to the Network ICE acquisition. It expects to post revenues of $58 million to $60 million.

Analysts, on average, had expected the company to earn 8 cents a share on average revenue of $44 million, according to First Call.

For the 2002 year, the company said it expects to report earnings, excluding charges, of between 55 cents and 60 cents a share on revenues in the range of $260 million to $270 million, compared with the consensus outlook of an average of 44 cents a share on average revenues of $268.33.

But investors were hoping for even more, UBS Warburg analyst Jordan Klein said.

"They're the dominant leader and the buzz in the industry is that intrusion detection is probably one of the hottest areas in network security," Klein said. "People maybe wanted to see more of that baked into their guidance. While they did guide up, people had expected that to begin with. That was something that kept the stock so strong in the preceding quarter."

After rallying a bit last May, the stock dropped to a new low of $8.35 on Sept. 27 and has risen 251 percent since then. A year ago it traded as high as $75.81.

The stock has underperformed the S&P 500 Index over the past year by about 46 percent, falling about 55 percent while the S&P declined about 17 percent.

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