...Also Provides 2003 Guidance...
ATLANTA, Ga. - January 23, 2003 - Internet Security Systems, Inc. (Nasdaq:
ISSX), a leading global provider of dynamic threat protection solutions,
today announced financial results for the fourth quarter and fiscal year
ended December 31, 2002.
Revenues were $63,109,000 for the fourth quarter of 2002, a 2% sequential
increase compared with third quarter 2002 revenues of $61,768,000 and a 9%
increase compared with $57,960,000 for the fourth quarter of 2001.
Revenues for the year ended December 31, 2002 were $243,285,000, a 9%
increase over $223,559,000 for the year ended December 31, 2001.
Pro Forma Earnings
Pro forma earnings for the fourth quarter of 2002 were $7,444,000, or $.15
per diluted share, compared to $5,855,000, or $.12 per diluted share, in
the third quarter of 2002 and $4,809,000, or $.10 per diluted share, in
the fourth quarter of 2001. Pro forma earnings were $23,364,000, or $.48
per diluted share, for the year ended December 31, 2002 compared with
$11,574,000, or $.25 per diluted share, in 2001.
Reported net loss under generally accepted accounting principles in the
United States for the fourth quarter of 2002 was $12,056,000, or $.25 per
share, compared to net earnings of $6,341,000, or $.13 per diluted share,
in the third quarter of 2002 and a net loss of $10,301,000, or $.22 per
share, in the fourth quarter of 2001. Adjustments from reported net loss
to pro forma earnings for the fourth quarter of 2002 were the impact of an
in-process research and development charge of $18,537,000 incurred in the
acquisition of vCIS, Inc. in October 2002 and non-cash acquisition charges
of $1,388,000 consisting of amortization of intangibles and compensation
charges for unvested stock options. Adjustments from reported to pro forma
in the third quarter of 2002 were non-cash acquisition charges of
$1,326,000 and a $2,560,000 gain related to the issuance of subsidiary
shares in an acquisition. Adjustments from reported to pro forma in the
fourth quarter of 2001 include non-cash acquisition charges and the
amortization of goodwill of $12,684,000.
The reported net income for the year ended December 31, 2002 was
$1,779,000, or $.04 per diluted share, in 2002 compared to a loss of
$15,458,000, or $.34 per share, for 2001. Adjustments from reported to pro
forma earnings in 2002 consist of $5,674,000 of non-cash acquisition
charges, in-process research and development charge of $18,537,000 and the
after tax gain of $2,560,000 related to the issuance of subsidiary shares
in a third quarter 2002 acquisition. In 2001 the adjustments from
reported net loss to pro forma earnings consisted of $31,732,000 of
non-cash acquisition charges, in-process research and development charge
of $2,910,000 and a subsidiary IPO gain of $13,620,000 in 2001 associated
with the initial public offering for our Asia/Pacific Rim subsidiary.
"We were pleased with our revenue growth and the leverage that we
achieved in the quarter, especially in light of the decrease in business
levels in our Asia/Pacific theatre," said Tom Noonan, chairman, president
and chief executive officer of Internet Security Systems. "Revenue growth
in the Americas and Europe theatres combined with cost controls
highlighted the quarter in which we also experienced strong cash flow. In
the quarter, we were pleased to be recognized by IDC for the third year in
a row as the market share leader and we continued that leadership with
especially strong demand for our broader solution portfolio by delivering
double digit sequential growth in our enterprise managed protection
In October 2002, ISS completed the acquisition of privately-held vCIS,
Inc., developer of patent-pending, next-generation pre-emptive behavioral
inspection technology that prevents malicious code from executing and
causing damage before it has an opportunity to interact with the
During the quarter, ISS was recognized by IDC as the worldwide leader in
the intrusion detection/vulnerability assessment (ID&VA) software market
for the third consecutive year, according to IDC's annual market share
report. ISS led the ID&VA market again, earning more than 27 percent of
the entire ID&VA market.
During the quarter, ISS released its Vulnerability Disclosure Guidelines
that outline the process and procedures under which vulnerabilities that
are researched and discovered by the ISS X-Force™ are disclosed to
software and hardware vendors, customers and the public. ISS announced its
new X-Force Protection Certification Program, which offers public and
private sector organizations the ability to maximize their investment in
the education of their employees by providing state of the art training,
testing and certification to indicate measurable levels of security
knowledge and expertise. ISS also announced the availability of the
X-Force Threat Analysis Service (XFTAS) to provide enterprise
organizations with a timely and reliable source of fully customized,
detailed global security intelligence information on Internet threats from
ISS' world-renowned X-Force research and development team.
In addition, ISS started 2003 with several announcements regarding product
development and alliances. New versions were announced of RealSecure®
SiteProtector™ and Fusion, the first management system that unifies and
correlates real-time threats, vulnerabilities and third party events. ISS
announced an alliance with PowerTech under which their PowerLockâ line of
iSeries security tools will pass critical security information to ISS'
RealSecure Protection Platform. ISS also announced an agreement with
Crossbeam Systems to combine ISS software protection solutions with
Crossbeam high performing appliances, starting with RealSecure Network
Sensor version 7.0 running on the Crossbeam high-performance X40S security
Business Outlook for 2003
The following statements are based on current expectations for the first
quarter and fiscal 2003 regarding ISS' revenues and earnings per share.
These statements are forward-looking, and actual results may differ
materially. These statements do not reflect the potential impact of any
mergers, acquisitions or other business combinations that may
be completed after the date of this release. ISS will keep its earnings
release and published expectations publicly available on its web site
(www.iss.net). Prior to the start of ISS' quiet period, the public can
continue to rely on the expectations published in this earnings release
and web site as being its current expectations on matters covered, unless
ISS publishes a notice stating otherwise. Towards the end of each fiscal
quarter, ISS will have a "quiet period" when ISS and its representatives
will not comment concerning previously published financial expectations,
and we disclaim any obligation to update during the quiet period. The
public should not rely on previously published expectations during the
quiet period. ISS' quiet period at the end of the first quarter is
expected to run from March 15, 2003 until the earnings are released in
In providing this guidance, ISS has taken into account the current
spending environment and market conditions. The current global environment
indicates continued emphasis on security, but spending intent indicates
that the overall IT spending environment will remain tight. Accordingly,
ISS intends to continue its focus on cost efficiencies until such time as
there are indications that spending intentions are strengthening. Our
guidance reflects this emphasis as earnings per share is expected to grow
faster than revenues in 2003.
For the year ending December 31, 2003, ISS currently expects to achieve
revenues in the range of $267,000,000 to $285,000,000 and pro forma
earnings of $.65 to $.75 per diluted share. For the quarter ending March
31, 2003, ISS currently expects to achieve revenues in the range of
$61,000,000 to $65,000,000 and pro forma earnings in the range of $.13 to
$.16 per diluted share. Adjustments from reported to pro forma are
anticipated to be non-cash acquisition related charges, consisting of
amortization of intangibles and compensation charges for unvested stock
options and the tax effect of these adjustments.
About Internet Security Systems, Inc.
Internet Security Systems, Inc. (ISS) (Nasdaq: ISSX) is a world leader in
software and services that protect critical information assets from an
ever-changing spectrum of threats and misuse. Software from Internet
Security Systems dynamically detects, prevents and responds to
sophisticated threats to networks, servers and desktops. Services include
24/7 system monitoring, emergency response and access to the X-Force,
Internet Security Systems' renowned research and development team.
Internet Security Systems is the trusted security provider for more than
10,000 corporate customers, including all of the Fortune 50, the top 10
largest U.S. securities firms, 10 of the world's largest
telecommunications companies and major agencies and departments within
U.S. local, state and federal governments. Headquartered in Atlanta, Ga.,
Internet Security Systems has additional operations throughout the
Americas, Asia, Australia, Europe and the Middle East.
For more information, visit http://www.iss.net/uk
or call 0800 085 2976.
For more information on Internet Security Systems, please contact:
UK/Ireland Sales and Marketing Director
Internet Security Systems Ltd.
Tel: +44 (0)20 7653 9191
UK/Ireland press contacts for Internet Security Systems are:
Technology: Jane Lee, Dexterity
Tel: +44 (0)1273 470199
Business: Andrew Smith, Object Marketing Ltd.
Tel: +44 (0)20 8762 9292
Forward-Looking Statements and Pro Forma Results
This release, other than historical information, includes forward-looking
statements made pursuant to the "safe harbor" provisions of the Private
Securities Litigation Reform Act of 1995. Some of these forward-looking
statements include our Business Outlook and statements regarding
transactions not yet completed, new products, products under development
and related plans. The risks and uncertainties which could cause actual
results to differ materially from those in the forward-looking statements
include, but are not limited to, the following: the level of demand for
ISS' products; customer budgets; the volume and timing of orders; product
and price competition; ISS' ability to develop new and enhanced products;
ISS' ability to assimilate potential future acquisitions or investments;
ISS' ability to attract and retain key personnel; reliance on distribution
channels through which ISS' products are sold; the growth in the
acceptance and use of the Internet and of private Internet-based networks
or "intranets"; the extent to which unauthorized access to and use of
online information is perceived as a threat to network security; the
assertion of infringement claims with respect to ISS' intellectual
property; foreign currency exchange rates; risks concerning the rapid
change of technology; and general economic factors. These risks and
others are discussed in ISS' periodic filings with the Securities and
Exchange Commission, including ISS' 2001 Annual Report on Form 10-K and
Quarterly Reports on Form 10-Q. These filings can be obtained either by
contacting ISS Investor Relations or through the Securities and Exchange
Commission's Web site at http://www.sec.gov
ISS believes that Pro Forma Earnings, excluding the after-tax effect of
non-cash acquisition charges and gains related to the issuance of
subsidiary shares, is an additional meaningful measure of operating
performance. However, this pro forma information will necessarily be
different from comparable information provided by other companies and
should not be used as an alternative to our operating and other financial
information as determined under accounting principles generally accepted
in the United States of America.
Internet Security Systems, X-Force and SiteProtector are trademarks, and
RealSecure is a registered trademark of Internet Security Systems, Inc.
All other companies and products mentioned are trademarks and property of
their respective owners.
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