Internet Security Systems Reports 23rd Consecutive Quarter of Growth

Apr 18, 2001, 01:00 ET from Internet Security Systems, Inc.

    ATLANTA, April 18 /PRNewswire/ --
 Internet Security Systems, Inc. (Nasdaq:   ISSX) (ISS), a leading global
 provider of security management solutions for the Internet, today announced
 financial results for the first quarter ended March 31, 2001.  Additionally,
 the Company is providing its business outlook for the second quarter and
 fiscal year ending December 31, 2001.
 
     First Quarter Operating Results:
     Revenues for the first quarter of 2001 were $61,155,000, a 56% increase
 over $39,291,000 for the corresponding period in 2000.  Net income was
 $6,541,000, or $0.15 per share on a diluted basis, compared to $0.07 per share
 for the quarter ended March 31, 2000.
     Quarterly results contained two nonrecurring items.  Other income
 consisted of a $1,638,000 gain from the sale of shares of the Company's
 Asia/Pacific Rim based subsidiary.  The Company plans an IPO in Japan of a
 minority interest in this subsidiary in order to provide more visibility of
 this operation in its marketplace as well as to generate funds for the
 expansion of the business in this market.  As part of the planning process,
 approximately 2% of the outstanding shares were sold to key employees and
 partners using a valuation established by an independent appraisal firm.
     ISS also reported a $1,072,000 write-off of existing lease obligations in
 connection with relocating employees to the new leased headquarters facility.
 This charge, which is included as a separate line item in the income
 statement, is largely non-cash because most of the write-off will be
 contractually reimbursed by the developer of the new leased facility; however,
 such reimbursement is required to be recognized as a reduction of future rent
 expense.
     In measuring operating and overall results, the Company has excluded such
 nonrecurring items as well as the amortization of goodwill and other
 acquisition related intangibles.  On such basis, operating income in the
 quarter was $8,313,000, an increase of 149% over the comparable period in
 2000, and the operating margin was 14%.  Also, earnings per share were $.14
 per diluted share, excluding such items.
     "ISS' financial performance continues to show strength as our solid
 execution and focus on expense control enabled us to meet our profit guidance
 provided at the beginning of the quarter, despite the impact of an economic
 slowdown and unfavorable foreign exchange rate movement on revenues," said Tom
 Noonan, president and chief executive officer of Internet Security Systems.
 "ISS is in a growing market sector and we look forward to furthering our track
 record of success as information security continues to be a vital investment
 companies need to make to ensure the protection of their IT infrastructure."
 
     ISS Q1 Business Highlights
 
     Enterprise Solutions
     *  During the first quarter, ISS continued to deliver to market expanded
        Enterprise Solutions including a new version of its leading database
        security assessment software, Database Scanner(TM), a new version of
        its enterprise security decision support solution, SAFEsuite(R)
        Decisions, and its RealSecure(TM) intrusion detection solution for a
        new platform, Microsoft Windows 2000.
 
     *  Throughout the quarter ISS released over 230 new security risk
        definitions for its software through regular X-Press Updates(TM)
        ensuring customers are up to date and protected from the latest
        security risks.
 
     Managed Security Services (MSS)
     *  Internet Security Systems continued to aggressively deliver on its
        managed security services strategy further cultivating its 20 strategic
        partnerships with service providers who have committed to include ISS
        managed security services as part of their offering set.  Partnerships
        include the addition of Marconi as a new strategic MSS partner during
        the first quarter.
 
     *  The company officially opened a new Security Operations Center in
        Helsingborg, Sweden, enabling the company to deliver managed security
        services locally to European organizations.
 
     Industry Leadership Recognition
     *  In March, International Data Corporation (IDC) recognized ISS as a
        worldwide  leader in Intrusion Detection and Vulnerability Assessment
        (IDnA) according to their report, Gaining control over the
 infrastructure:  Intrusion Detection and Vulnerability Assessment.  ISS'
 security software solutions gained significant momentum in the areas of host-
 based and network-based vulnerability assessment and intrusion detection, with
 a 30 percent worldwide IDnA revenue share, the number one ranking for 1999.
 
     Federal Operations
     *  In March, ISS was officially awarded a five-year contract under the
        U.S. General Services Administration (GSA) Federal Supply Schedules
        Program, making it easier and faster for government customers to order
        and obtain ISS' industry-leading information protection software.  This
        important accomplishment propels ISS' growth in the federal market at a
        time of increasing demand as more government agencies look to safeguard
        their networks from cyber-security threats.
 
     Business Outlook Update for 2001
     The following statements are based on current expectations for the second
 quarter and fiscal 2001 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 its 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 second quarter is expected to run from June 15, 2001 until the earnings
 are released the third or fourth week of July.
     For the quarter ending June 30, 2001, ISS currently expects to achieve
 revenues in the range of $64,000,000 to $67,000,000 and earnings in the range
 of $0.15 to $0.16 per diluted share.  For the fiscal year ending December 31,
 2001, ISS is still comfortable with the low end of its previously stated
 ranges of expectations for revenues of $285,000,000 to $300,000,000 and
 earnings of $0.65 to $0.70 per diluted share.  These annual expectations
 assume that current general market conditions will improve modestly over the
 balance of the year.
 
     About Internet Security Systems
     Internet Security Systems is a leading global provider of security
 management solutions for the Internet, protecting digital assets and ensuring
 safe and uninterrupted e-business.  With its industry-leading intrusion
 detection and vulnerability assessment, remote managed security services, and
 strategic consulting and education offerings, ISS is a trusted security
 provider to more than 8,000 customers worldwide including 21 of the 25 largest
 U.S. commercial banks and the top 10 U.S. telecommunications companies.
 Founded in 1994, ISS is headquartered in Atlanta, GA, with additional offices
 throughout North America and international operations in Asia, Australia,
 Europe, Latin America and the Middle East.  For more information, visit the
 Internet Security Systems web site at www.iss.net or call 888-901-7477.
 
     Forward-Looking Statements
     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.  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; the volume and timing of orders; product and
 price competition; ISS' ability to expand its domestic and international sales
 and marketing organizations; ISS' ability to develop new and enhanced
 products; ISS' ability to assimilate recent and 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; customer budgets;
 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' Annual Report on Form 10K filed on March 30, 2001.
 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".
     Internet Security Systems, RealSecure, Database Scanner and X-Press
 Updates are trademarks and SAFEsuite is a registered trademark of Internet
 Security Systems, Inc.  All other companies and products mentioned are
 trademarks and property of their respective owners.
 
 
                        INTERNET SECURITY SYSTEMS, INC.
                     CONSOLIDATED STATEMENTS OF OPERATIONS
 
                (Amounts in thousands, except per share amounts)
                                  (Unaudited)
 
                                               Three months ended
                                     March 31,     December 31,     March 31,
                                        2001            2000          2000
     Revenues:
       Product licenses and sales    $36,176         $36,824       $24,778
       Subscriptions                  15,136          13,142         8,089
       Professional services           9,843           9,714         6,424
                                      61,155          59,680        39,291
 
     Costs and expenses:
       Cost of revenues:
         Product                       6,544           6,431         5,255
         Subscriptions and services   11,838          11,557         6,733
       Total cost of revenues         18,382          17,988        11,988
 
       Research and development        8,315           8,499         6,802
       Sales and marketing            21,634          20,684        14,284
       General and administrative      4,511           4,677         2,884
       Write-off of lease obligation   1,072             ---           ---
       Amortization                      366             368           248
                                      54,280          52,216        36,206
 
 
     Operating income                  6,875           7,464         3,085
 
     Interest income, net              1,958           2,224         1,868
     Other income                      1,638             ---           ---
     Exchange gain (loss)               (251)            163          (126)
     Income before income taxes       10,220           9,851         4,827
     Provision for income taxes        3,679           3,542         1,757
     Net income                       $6,541          $6,309        $3,070
 
 
 
 
     Basic net income per share
       of Common Stock                 $0.15           $0.15         $0.07
     Diluted net income per share
       of Common Stock                 $0.15           $0.14         $0.07
 
     Weighted average number of shares:
       Basic                          42,683          42,301        41,398
       Diluted                        44,556          45,219        44,843
 
 
 
 
                        INTERNET SECURITY SYSTEMS, INC.
                    SELECTED CONSOLIDATED BALANCE SHEET DATA
                             (Amounts in thousands)
                                  (Unaudited)
 
                                                     March 31,     December 31,
                                                        2001            2000
 
     ASSETS
 
     Current assets:
     Cash and cash equivalents                        $88,071        $66,210
 
     Marketable securities                             60,756         65,938
 
     Accounts receivable, less allowance for doubtful
       accounts of $1,522 and $1,188, respectively     55,633         56,358
 
     Inventory                                          1,102          2,275
 
     Prepaid expenses and other current assets          8,905          5,717
 
       Total current assets                           214,467        196,498
 
 
     Property and equipment:
       Computer equipment                              23,803         20,199
 
       Office furniture and equipment                  13,196          9,958
 
       Leasehold improvements                           8,813          6,609
 
                                                       45,812         36,766
 
       Less accumulated depreciation                   16,222         13,673
 
                                                       29,590         23,093
 
     Restricted marketable securities                  12,500         12,500
 
     Goodwill, less accumulated amortization of
       $1,073 and $875, respectively                    2,969          3,167
 
     Other intangibles, less accumulated amortization
       of $1,668 and $1,500, respectively               3,177          3,346
 
     Other assets                                       2,334          1,636
 
     Total assets                                    $265,037       $240,240
 
 
 
     LIABILITIES AND STOCKHOLDERS' EQUITY
 
     Current liabilities:
     Accounts payable                                  $8,336         $4,200
 
     Accrued expenses                                  15,520         15,490
 
     Deferred revenues                                 33,555         31,675
 
     Total current liabilities                         57,411         51,365
 
 
     Other non-current liabilities                        412            486
 
     Commitments and contingencies                        ---            ---
 
 
     Stockholders' equity:
     Common stock, $.001 par value, 120,000,000 shares
       authorized, 42,932,000 and 42,415,000 issued and
       outstanding, respectively                           43             42
     Additional paid-in capital                       186,196        172,985
 
     Deferred compensation                                (65)           (86)
 
     Cumulative adjustment for currency revaluation    (1,694)          (745)
 
     Retained Earnings (Accumulated deficit)           22,734         16,193
 
       Total stockholders' equity                     207,214        188,389
 
 
       Total liabilities and stockholders' equity    $265,037       $240,240
 
 

SOURCE Internet Security Systems, Inc.
    ATLANTA, April 18 /PRNewswire/ --
 Internet Security Systems, Inc. (Nasdaq:   ISSX) (ISS), a leading global
 provider of security management solutions for the Internet, today announced
 financial results for the first quarter ended March 31, 2001.  Additionally,
 the Company is providing its business outlook for the second quarter and
 fiscal year ending December 31, 2001.
 
     First Quarter Operating Results:
     Revenues for the first quarter of 2001 were $61,155,000, a 56% increase
 over $39,291,000 for the corresponding period in 2000.  Net income was
 $6,541,000, or $0.15 per share on a diluted basis, compared to $0.07 per share
 for the quarter ended March 31, 2000.
     Quarterly results contained two nonrecurring items.  Other income
 consisted of a $1,638,000 gain from the sale of shares of the Company's
 Asia/Pacific Rim based subsidiary.  The Company plans an IPO in Japan of a
 minority interest in this subsidiary in order to provide more visibility of
 this operation in its marketplace as well as to generate funds for the
 expansion of the business in this market.  As part of the planning process,
 approximately 2% of the outstanding shares were sold to key employees and
 partners using a valuation established by an independent appraisal firm.
     ISS also reported a $1,072,000 write-off of existing lease obligations in
 connection with relocating employees to the new leased headquarters facility.
 This charge, which is included as a separate line item in the income
 statement, is largely non-cash because most of the write-off will be
 contractually reimbursed by the developer of the new leased facility; however,
 such reimbursement is required to be recognized as a reduction of future rent
 expense.
     In measuring operating and overall results, the Company has excluded such
 nonrecurring items as well as the amortization of goodwill and other
 acquisition related intangibles.  On such basis, operating income in the
 quarter was $8,313,000, an increase of 149% over the comparable period in
 2000, and the operating margin was 14%.  Also, earnings per share were $.14
 per diluted share, excluding such items.
     "ISS' financial performance continues to show strength as our solid
 execution and focus on expense control enabled us to meet our profit guidance
 provided at the beginning of the quarter, despite the impact of an economic
 slowdown and unfavorable foreign exchange rate movement on revenues," said Tom
 Noonan, president and chief executive officer of Internet Security Systems.
 "ISS is in a growing market sector and we look forward to furthering our track
 record of success as information security continues to be a vital investment
 companies need to make to ensure the protection of their IT infrastructure."
 
     ISS Q1 Business Highlights
 
     Enterprise Solutions
     *  During the first quarter, ISS continued to deliver to market expanded
        Enterprise Solutions including a new version of its leading database
        security assessment software, Database Scanner(TM), a new version of
        its enterprise security decision support solution, SAFEsuite(R)
        Decisions, and its RealSecure(TM) intrusion detection solution for a
        new platform, Microsoft Windows 2000.
 
     *  Throughout the quarter ISS released over 230 new security risk
        definitions for its software through regular X-Press Updates(TM)
        ensuring customers are up to date and protected from the latest
        security risks.
 
     Managed Security Services (MSS)
     *  Internet Security Systems continued to aggressively deliver on its
        managed security services strategy further cultivating its 20 strategic
        partnerships with service providers who have committed to include ISS
        managed security services as part of their offering set.  Partnerships
        include the addition of Marconi as a new strategic MSS partner during
        the first quarter.
 
     *  The company officially opened a new Security Operations Center in
        Helsingborg, Sweden, enabling the company to deliver managed security
        services locally to European organizations.
 
     Industry Leadership Recognition
     *  In March, International Data Corporation (IDC) recognized ISS as a
        worldwide  leader in Intrusion Detection and Vulnerability Assessment
        (IDnA) according to their report, Gaining control over the
 infrastructure:  Intrusion Detection and Vulnerability Assessment.  ISS'
 security software solutions gained significant momentum in the areas of host-
 based and network-based vulnerability assessment and intrusion detection, with
 a 30 percent worldwide IDnA revenue share, the number one ranking for 1999.
 
     Federal Operations
     *  In March, ISS was officially awarded a five-year contract under the
        U.S. General Services Administration (GSA) Federal Supply Schedules
        Program, making it easier and faster for government customers to order
        and obtain ISS' industry-leading information protection software.  This
        important accomplishment propels ISS' growth in the federal market at a
        time of increasing demand as more government agencies look to safeguard
        their networks from cyber-security threats.
 
     Business Outlook Update for 2001
     The following statements are based on current expectations for the second
 quarter and fiscal 2001 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 its 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 second quarter is expected to run from June 15, 2001 until the earnings
 are released the third or fourth week of July.
     For the quarter ending June 30, 2001, ISS currently expects to achieve
 revenues in the range of $64,000,000 to $67,000,000 and earnings in the range
 of $0.15 to $0.16 per diluted share.  For the fiscal year ending December 31,
 2001, ISS is still comfortable with the low end of its previously stated
 ranges of expectations for revenues of $285,000,000 to $300,000,000 and
 earnings of $0.65 to $0.70 per diluted share.  These annual expectations
 assume that current general market conditions will improve modestly over the
 balance of the year.
 
     About Internet Security Systems
     Internet Security Systems is a leading global provider of security
 management solutions for the Internet, protecting digital assets and ensuring
 safe and uninterrupted e-business.  With its industry-leading intrusion
 detection and vulnerability assessment, remote managed security services, and
 strategic consulting and education offerings, ISS is a trusted security
 provider to more than 8,000 customers worldwide including 21 of the 25 largest
 U.S. commercial banks and the top 10 U.S. telecommunications companies.
 Founded in 1994, ISS is headquartered in Atlanta, GA, with additional offices
 throughout North America and international operations in Asia, Australia,
 Europe, Latin America and the Middle East.  For more information, visit the
 Internet Security Systems web site at www.iss.net or call 888-901-7477.
 
     Forward-Looking Statements
     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.  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; the volume and timing of orders; product and
 price competition; ISS' ability to expand its domestic and international sales
 and marketing organizations; ISS' ability to develop new and enhanced
 products; ISS' ability to assimilate recent and 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; customer budgets;
 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' Annual Report on Form 10K filed on March 30, 2001.
 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".
     Internet Security Systems, RealSecure, Database Scanner and X-Press
 Updates are trademarks and SAFEsuite is a registered trademark of Internet
 Security Systems, Inc.  All other companies and products mentioned are
 trademarks and property of their respective owners.
 
 
                        INTERNET SECURITY SYSTEMS, INC.
                     CONSOLIDATED STATEMENTS OF OPERATIONS
 
                (Amounts in thousands, except per share amounts)
                                  (Unaudited)
 
                                               Three months ended
                                     March 31,     December 31,     March 31,
                                        2001            2000          2000
     Revenues:
       Product licenses and sales    $36,176         $36,824       $24,778
       Subscriptions                  15,136          13,142         8,089
       Professional services           9,843           9,714         6,424
                                      61,155          59,680        39,291
 
     Costs and expenses:
       Cost of revenues:
         Product                       6,544           6,431         5,255
         Subscriptions and services   11,838          11,557         6,733
       Total cost of revenues         18,382          17,988        11,988
 
       Research and development        8,315           8,499         6,802
       Sales and marketing            21,634          20,684        14,284
       General and administrative      4,511           4,677         2,884
       Write-off of lease obligation   1,072             ---           ---
       Amortization                      366             368           248
                                      54,280          52,216        36,206
 
 
     Operating income                  6,875           7,464         3,085
 
     Interest income, net              1,958           2,224         1,868
     Other income                      1,638             ---           ---
     Exchange gain (loss)               (251)            163          (126)
     Income before income taxes       10,220           9,851         4,827
     Provision for income taxes        3,679           3,542         1,757
     Net income                       $6,541          $6,309        $3,070
 
 
 
 
     Basic net income per share
       of Common Stock                 $0.15           $0.15         $0.07
     Diluted net income per share
       of Common Stock                 $0.15           $0.14         $0.07
 
     Weighted average number of shares:
       Basic                          42,683          42,301        41,398
       Diluted                        44,556          45,219        44,843
 
 
 
 
                        INTERNET SECURITY SYSTEMS, INC.
                    SELECTED CONSOLIDATED BALANCE SHEET DATA
                             (Amounts in thousands)
                                  (Unaudited)
 
                                                     March 31,     December 31,
                                                        2001            2000
 
     ASSETS
 
     Current assets:
     Cash and cash equivalents                        $88,071        $66,210
 
     Marketable securities                             60,756         65,938
 
     Accounts receivable, less allowance for doubtful
       accounts of $1,522 and $1,188, respectively     55,633         56,358
 
     Inventory                                          1,102          2,275
 
     Prepaid expenses and other current assets          8,905          5,717
 
       Total current assets                           214,467        196,498
 
 
     Property and equipment:
       Computer equipment                              23,803         20,199
 
       Office furniture and equipment                  13,196          9,958
 
       Leasehold improvements                           8,813          6,609
 
                                                       45,812         36,766
 
       Less accumulated depreciation                   16,222         13,673
 
                                                       29,590         23,093
 
     Restricted marketable securities                  12,500         12,500
 
     Goodwill, less accumulated amortization of
       $1,073 and $875, respectively                    2,969          3,167
 
     Other intangibles, less accumulated amortization
       of $1,668 and $1,500, respectively               3,177          3,346
 
     Other assets                                       2,334          1,636
 
     Total assets                                    $265,037       $240,240
 
 
 
     LIABILITIES AND STOCKHOLDERS' EQUITY
 
     Current liabilities:
     Accounts payable                                  $8,336         $4,200
 
     Accrued expenses                                  15,520         15,490
 
     Deferred revenues                                 33,555         31,675
 
     Total current liabilities                         57,411         51,365
 
 
     Other non-current liabilities                        412            486
 
     Commitments and contingencies                        ---            ---
 
 
     Stockholders' equity:
     Common stock, $.001 par value, 120,000,000 shares
       authorized, 42,932,000 and 42,415,000 issued and
       outstanding, respectively                           43             42
     Additional paid-in capital                       186,196        172,985
 
     Deferred compensation                                (65)           (86)
 
     Cumulative adjustment for currency revaluation    (1,694)          (745)
 
     Retained Earnings (Accumulated deficit)           22,734         16,193
 
       Total stockholders' equity                     207,214        188,389
 
 
       Total liabilities and stockholders' equity    $265,037       $240,240
 
 SOURCE  Internet Security Systems, Inc.