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Profit Slips at Internet Security Systems

The results meet analysts' earnings estimates.
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Updated from 4:38 p.m. EDT

Internet Security Systems

(ISSX)

posted second-quarter earnings in line with the Street but missed on the top line.

For its second quarter, the security software and appliance company earned $6.2 million, or 14 cents a share, falling from $8.3 million, or 18 cents a share in the same period last year.

Excluding certain items, ISS earned $9.7 million, or 22 cents a share, compared with $9.7 million, or 21 cents a share in the year-ago quarter. On that basis, ISS hit analysts' projections on target.

ISS reported revenue $82.7 million, while analysts had anticipated $85.3 million. A year ago, ISS recorded $79.1 million in sales.

"I am very pleased with the strong demand patterns for our new Proventia solutions, which delivered solid growth this quarter. Additionally, I am proud to note that our Proventia Intrusion Prevention solutions grew 23% annually, while our Proventia Unified Threat Management solutions revenue grew 55% annually," Tom Noonan, president and CEO, of ISS said in a statement.

In a call with financial analysts after the bell, Noonan said that revenue fell short of expectations because of a transition to a new logistics system. The company was unable to fulfill about $2 million of committed orders in full because of the hiccups.

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In order to address the problems, the company said its contract manufacturer will expand its shipping lanes and ISS will open a new West Coast shipping location.

Despite the botched orders, demand was considerably stronger than the sales figures suggest, Noonan said.

Intrusion prevention is a proven technology and has gained mainstream acceptance, Noonan said. "As the market-share leader, I think that puts us in a very good position to continue to grow rates faster than the market," he said.

Noonan also noted that the company simplified the user experience in its unified threat management appliances and have seen sales flourish.

"We are very encouraged by our growth prospects for the balance of 2006 and beyond," Noonan said.

The company said it would make 16 cents to 18 cents a share for the September quarter. Excluding items, net income would range from 23 cents to 25 cents, falling within the range of Thomson First Call analysts' expectations of 24 cents a share.

Sales should tally $90 million to $92 million for the third quarter; the analysts' average estimate is $90.7 million.

For the full year, ISS said it would report EPS of 67 cents to 72 cents; non-GAAP EPS is expected to be 95 cents to $1. Analysts forecast earnings of 98 cents a share.

The top line for the full year will be in the range of $355 million to $360 million, in line with what analysts anticipate at $357.5 million.

Shares of the company rose in after-hours trading, recently tacking on 10 cents, or 0.4 %, to $22.59. During the regular session, ISS dropped 3.1 %, or 73 cents to $22.49.