Filed by NetIQ Corporation
Pursuant to Rule 425 Under the Securities Act of 1933
And Deemed Filed Pursuant to Rule 14a-12
Under the Exchange Act of 1934
Subject Company: WebTrends Corporation
Commission File No. 000-25215
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Q2 Fiscal Year 2001 Earnings
Analysts and Investors Conference Call Script
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Jim
o Good afternoon, this is Jim Barth, Chief Financial Officer at NetIQ. Thank
you for joining us - and for those of you who joined us yesterday for our
announcement of our intention to acquire WebTrends Corporation, thank you
for spending so much time with us.
o Earlier today, NetIQ announced record second quarter and six months
revenue and earnings. For those of you who have not yet seen the release,
a copy is available on our corporate website, www.netiq.com.
o Joining me today is Ching-Fa Hwang, President and Chief Executive Officer.
Tom Kemp, our Vice President of Products, will also be joining us during
the question and answer session.
o Before I turn the call over to Ching, we need to caution all listeners
that comments and answers to questions today, other than statements of
historical fact are "forward-looking" statements within the meaning of the
private securities litigation reform act of 1995. Although we believe that
the expectations reflected in such forward-looking statements are
reasonable, we can give no assurance that the expectations will prove to
be correct.
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o The company's future results could differ materially from the results
discussed today.
o For a more complete discussion of risks and uncertainties see the section
entitled "Factors That May Affect Future Results" in the Company's annual
report on Form 10-K, as filed with the Securities and Exchange Commission.
o Total revenue for the quarter ended December 31, 2000 increased to
$39,653,000, compared to $9,122,000 in the same quarter of the prior
fiscal year.
o Excluding amortization of goodwill and other intangibles and stock-based
compensation, net income for the second quarter was $8,553,000, or $0.20
per diluted share, compared to net income of $1,608,000 or $0.09 per
diluted share in the same quarter of the prior fiscal year.
o Revenue for the six months ended December 31, 2000 increased to
$70,182,000, compared to $16,708,000 in the same six-month period in the
prior fiscal year.
o Excluding amortization of goodwill and other intangibles and stock-based
compensation, net income for the six months was $15,063,000, or $0.36 per
diluted share, compared to net income of $2,258,000 or $0.13 per diluted
share in the same six-month period of the prior fiscal year.
o These prior year numbers do not include Mission Critical Software,
acquired by merger in May 2000. Including the results of Mission Critical
and its acquired company, Ganymede Software, total revenues in the quarter
and the six months ended December 31, 1999, were $22,377,000 and
$41,692,000, respectively on a pro-forma combined basis. Also on a
pro-forma combined basis, and excluding stock-based compensation, net
income for the quarter and six months ended December 31, 1999 was
$2,455,000 and $3,323,000, respectively.
o Now, I would like to turn it over to Ching.
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Ching
o Thanks Jim. We would like to spend the next few minutes providing
additional context to our second quarter announcements and then take your
questions.
o We are very pleased with our results for the second fiscal quarter ended
December. We have accomplished a lot.
o We achieved our planned operating results and order rates have improved
substantially over Q1. We continue to see increased cross selling of
products among the Mission Critical, Ganymede and NetIQ customer base. A
couple of examples of larger cross-selling transactions include: The US
Air Force purchased AppManager, DMA, and Pegasus, and Enron submitted a
large Military order for AppManager Operations Manager - These orders are
demonstrating our growing success in providing one-stop shopping for
Windows NT and 2000 management solutions.
o Our customers are very happy with our strong product offerings and
customer support, and our products continue to win industry awards.
o We see increased numbers of implementations of Windows 2000 in the field
and expect to see increased sales of migration tools starting in the
second half of this calendar year. Since our products work equally well
for both Windows NT and Windows 2000, it's difficult to identify specific
trends in the adoption rate for Windows 2000 and also Exchange 2000 and
SQL 2000, however, our sense is that these major business applications are
driving the adoption of Windows 2000 and our revenue based on Windows
2000.
o Our landmark deal with Microsoft for technology licensing and marketing,
signed last September, has made a significant impact on our business and
the industry. We believe we're now the undisputed leader in Windows-based
eBusiness infrastructure management. It is accelerating our plan to manage
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other operating system platforms and non-Microsoft applications and enable
us to focus more on providing high-valued management solutions.
o Our relationship with Microsoft remains very good. They have accepted our
final release of Operations Manager on schedule. We now have a team of 10
engineers actively working for Microsoft on the transfer of the
technology, on a contractor basis, and we are collaborating with
Microsoft's team in connection with their upcoming product release.
o During the September quarter last year we reported we had completed the
integration of Mission Critical, Ganymede and NetIQ. Although we had some
turnover of people, most of it was planned. During the end of the quarter
we brought on board several new recruiters in our continuing effort to
grow our employee base, particularly in engineering and sales. The company
now has 639 people worldwide.
o At this time, I believe we are poised for more rapid growth in sales
personnel, however we have the people on board now who are necessary to
deliver planned revenue for the second half of this fiscal year.
o As most of you heard yesterday we announced the merger with WebTrends.
This is a strategically important step for us to fulfill our goal to
provide the most comprehensive infrastructure management and intelligence
solutions.
o The reaction we have received from customers, industry analysts and our
internal employees has been very enthusiastic. For example, a number of
our sales reps have already told us that they could sell WebTrend's
security analyzer and firewall products to our existing Security Manager
customers today, as well as WebTrends' Web Traffic analysis products to
our customers who have bought our modules to monitor web servers.
Likewise, our colleagues at WebTrends have told us that the immediate
reaction from their personnel was that they felt strongly the could
cross-sell AppAnalyzer for Exchange today, our Security Manager product,
as well as our back-end
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monitoring tools and our user response time measuring product, Pegasus to
their install base.
o Industry analyst groups have also been very positive. One industry analyst
group said quote that the "planned acquisition of WebTrends will position
NetIQ to challenge the leading network and systems management companies "
end quote and quote "Rather than competing with the network and systems
management market leaders in the usual game that emphasizes infrastructure
instrumentation, NetIQ seeks to change the rules by tying
already-plentiful IT data information with Web visitor in order to improve
the manageability of e-business systems."
o The same industry analyst group also said that quote "Overall, the vendors
complement each other well and have no product overlap." End quote and
that the WebTrends security products will make us a more credible
challenger in the rapidly expanding security market.
o We feel the vision of the combined company is very compelling. We believe
that no other vendor will be able to tell an eBusiness what the impact of
a poorly performing web server is having on visitor traffic to their
website and what the corresponding loss of e-commerce revenue is because
of that. In addition, no other vendor will be able to not only measure
what the end user is doing on a website but to also capture what that end
user's experience was from a performance perspective.
o We feel that the synergies exist not only at the product and technology
level, but also from a customer profile and sales distribution model as
well. The typical WebTrends customer is an IT person responsible for an
eBusiness infrastructure. They use WebTrends products to analyze their
infrastructure's security and report on website usage. In the case when a
business or marketing-oriented person purchases a WebTrends product, it is
at the technical recommendation of an IT person. That same IT person is
typically the same person that NetIQ sells its infrastructure management
products to, as
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the person responsible for security and reporting on website usage is
usually the same person or part of the organization who must keep those
servers and applications up and running.
o From a sales distribution perspective, WebTrends has effectively moved to
selling enterprise software solutions to large organizations, as evidenced
by the sales of their high-end Enterprise Reporting Server and
CommerceTrends products making up nearly half their revenue. We feel that
the combination of the two direct sales teams plus the strong telesales
from WebTrends and the inside sales team from NetIQ will give us even
greater coverage and distribution, and WebTrends' ability to sell products
effectively on their website give us opportunities to offer some of our
products to smaller sized organization as well.
o While we're not taking lightly the major undertaking in integrating the
two companies together we're highly confident that we will make it a
smooth and efficient process based on our success in the merger of equals
that we completed with Mission Critical early last year. We have already
identified an integration team and a key executive manager responsible for
each functional area. In particular we'll focus on leveraging the two
complementary product families and the tremendous cross-selling
opportunities among the 52,000 customers that the combined company will
have. The opportunity is so huge to our team and also to our customers!
o I'd now like to turn the call over to Jim to discuss our financial
performance and guidance - Jim
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Jim Barth
o Thanks Ching.
o Revenue growth in the second quarter was 77% year over year and 30%
sequentially, compared to pro-forma combined revenue, including Mission
Critical Software.
o Growth in license revenue was 69% year over year and 32% sequentially,
including the license fee of $5 million from Microsoft. Excluding
Microsoft, license revenue grew 41% year over year and 11% sequentially.
o Order rates improved significantly in the second quarter from the first
quarter.
o Orders in the range of $100,000 to $250,000 again increased to 45 from 39
in the prior quarter, and orders in the range of $250,000 to $1 million
also increased to 14. There were three orders in excess of $1 million.
o Gross profit margins remain strong at 94%, but dipped .8% sequentially,
primarily due to increased one-time costs associated with new packaging
and fulfillment costs as we completed the development of consistent
packaging of our products across all product lines. We also had slightly
increased costs for services as we absorbed costs of engineering time
against billable engineering services for the Microsoft contract.
o Operating costs increased 17% sequentially as we continued to spend
heavily on hiring.
o Operating margins improved to 23%, surpassing our objective. The growth in
operating margins was accelerated by slower growth in headcount than we
would have liked, closing the quarter at 639 people. This includes 240
people in the sales organization, of which about 130 carry revenue quota.
For reference, at June 30, we had 550 people, including about 100 who
carried
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revenue quota. We expect to hire at a more rapid rate in the next several
quarters.
o Our days sales outstanding grew to 60 days, compared to 55 days in the
prior quarter. We fully caught up on invoicing delays experienced in Q1
following the consolidation of the accounting department from Mission
Critical, however, we experienced significant delays in collections around
the holiday time. In addition, revenues in November mostly came late in
the month, reducing collection time.
o Revenue linearity within the quarter remained very healthy as we
recognized one-third of the quarter's revenue in each month.
o License revenue outside North America represented 21% of total license
revenue during the quarter, excluding the Microsoft license revenue. This
is up from Q1, and we are still expecting greater results from Europe and
Asia.
o License revenue coming from the channel remained in the range of 21% - 22%
of total license revenue, excluding the Microsoft revenue.
o We added approximately 400 new customers this quarter and now have 2,700
customers.
o Interest income was down during the quarter as we keep substantial cash in
overseas accounts and earned lower interest on tax-free investments.
o Our cash and short-term investment balances grew substantially to $348
million, growing $29 million from the prior quarter.
o Looking to the balance of the fiscal year we believe that revenues will
grow as previously predicted, closing the year in the range of $165
million to $168 million, including $25 million in license revenue from our
recent agreement with Microsoft.
o Our sales pipeline remains very strong, and customer reaction to these new
initiatives with Microsoft continue to be very positive.
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o Gross margins are expected to remain very strong, in the 94% to 95% range,
and operating margins are expected to be in the range of 21% to 22% in the
second half.
o Earnings per share for the fiscal year is predicted to be in the range of
$.78 to $.80.
o We anticipate closing the merger with WebTrends in late Q3 or early Q4,
and would then include the results of their operations with ours from that
date forward. We will be preparing a proxy statement to be sent to all
shareholders as soon as possible to vote on the transaction.
o WebTrends will announce their results for their fourth quarter and fiscal
year next Tuesday following the close of the market and we plan to offer
additional guidance at that time.
o Thank you. We'd now be happy to address your questions.
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Ching
o We are clearly pleased by the continued growth of our company and we look
forward to the opportunities that lie ahead for us. As we mentioned last
week, we are very excited about our strengthened partnership with
Microsoft. And, we look forward to working closely with Microsoft to
deliver the most comprehensive solutions for managing Windows and
non-Windows based platforms, applications and devices.
o Today we already have the industry's broadest set of products for managing
Windows. This partnership will enable us to continue to deliver the best
of breed management solutions, which will leverage the Microsoft
management platform. Looking ahead, we believe we've never been better
positioned to fulfill on the promise to our customers, partners,
shareholders and employees.
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NetIQ Corporation, its officers and directors may be deemed to be
participants in the solicitation of proxies from NetIQ's shareholders with
respect to the transactions contemplated by the merger agreement. Information
regarding such officers and directors is included in NetIQ's proxy statement
filed with the SEC on October 6, 2000. This document is available free of
charge at the SEC website at www.sec.gov and from the NetIQ Corporation contact
listed below.
SHAREHOLDERS OF WEBTRENDS AND NETIQ ARE URGED TO READ THE JOINT PROXY
STATEMENT-PROSPECTUS TO BE INCLUDED IN THE REGISTRATION STATEMENT ON FORM S-4
TO BE FILED BY NETIQ WITH THE SECURITIES AND EXCHANGE COMMISION BECAUSE IT WILL
CONTAIN IMPORTANT INFORMATION. UPON FILING WITH THE SEC, THIS DOCUMENT WILL BE
AVAILABLE FREE OF CHARGE ON THE SEC WEBSIDE AT WWW.SEC.GOV AND FROM WEBTRENDS
CORPORATION AND NETIQ CORPORATION THROUGH THE CONTACTS LISTED BELOW.
Contacts:
NetIQ Corporation
Susan Torrey, Press Relations
(713) 548-1863
[email protected]
