- Revenue: $118.1 Million
- Earnings Per Share: $0.19 GAAP; $0.22 Non-GAAP
- Net Increase in Deferred Revenue: $12.7 Million
- Cash Flow from Operations: $38.2 Million
Utrecht — JULY 17, 2003 — Mercury Interactive Corporation
(NASDAQ: MERQ), the global leader in business technology optimization (BTO), today reported results for the second quarter ended June 30, 2003.
Revenue for the second quarter of 2003 was $118.1 million, an increase of 26 percent compared to $94.0 million reported in the second quarter of 2002. Revenue for the first six months of 2003 was $228.4 million, an increase of 24 percent compared to $184.5 million for the same period in 2002.
Deferred revenue for the second quarter of 2003 increased $12.7 million from the first quarter of 2003 to $194.0 million. Cash generated from operations for the second quarter of 2003 was $38.2 million compared to
$35.5 million in the second quarter of 2002.
GAAP RESULTS
Net income for the second quarter of 2003 was $16.9 million, or $0.19 per diluted share, compared to $18.0 million, or $0.20 per diluted share, for the same period a year ago. Net income for the first six months of 2003 was $35.1 million, or $0.39 per diluted share, compared to $33.2 million, or $0.38 per diluted share, for the same period a year ago.
NON-GAAP RESULTS
Net income for the second quarter of 2003 was $19.8 million, or $0.22 per diluted share, compared to $13.3 million, or $0.15 per diluted share, for the same period a year ago. Net income for the first six months of 2003 was $38.6 million, or $0.43 per diluted share, compared to $25.4 million, or $0.29 per diluted share, for the same period a year ago. Non-GAAP results, as presented in the attached reconciliation table, exclude the following recurring items: expenses from acquisition and restructuring related charges, amortization of unearned stock-based compensation and intangible assets, gain on early retirement of debt, as well as related income tax provisions or benefits.
"During the second quarter, Mercury Interactive achieved strong financial results as well as announced two strategic acquisitions and raised $500 million in a convertible notes offering," said Amnon Landan, chairman, CEO and president of Mercury Interactive Corporation. "Our business model is working and we continue to take share in the expanding BTO market."
Q2 2003 BUSINESS HIGHLIGHTS
* Product revenue (license + subscription): $70.5 million, 23% increase over year ago period
* Application delivery (Testing) product revenue: $54.5 million, 17% increase over year ago period
* Application management (APM) product revenue: $16.0 million, 53% increase over year ago period
* Operating margins: 16% GAAP; 19% Non-GAAP (see attached reconciliation
table)
* Raised $500 million through issuance of zero coupon senior convertible notes due 2008
* Cash and investments balance: $1.2 billion
* Days sales outstanding (DSO): 64 days
* Acquired Performant to deliver and manage J2EE applications
* Signed definitive agreement to acquire Kintana and expand Optane offerings by adding IT governance product suite
FINANCIAL OUTLOOK
The following financial outlook is provided based on information as of July 16, 2003.
Management initiates the following guidance, which does not take into account the pending Kintana acquisition, for the quarter ending September 30, 2003:
* Revenue is expected to be in the range of $118 million to $125 million
* GAAP diluted earnings per share is expected to be in the range of
$0.17 to $0.23
* Non-GAAP diluted earnings per share is expected to be in the range of
$0.19 to $0.25
* Net increase in deferred revenue is expected to be in the range of $10 to $20 million
* Cash flow from operations is expected to be in the range of $35 to $45 million Non-GAAP guidance is adjusted from GAAP guidance by excluding recurring milestone payments associated with the Performant product integration program of approximately $0.9 million and amortization expenses of approximately $0.9 million associated with the Freshwater and Performant acquisitions.
Management offers the following guidance, which does not take into account the pending Kintana acquisition, for the full fiscal year ending December 31, 2003:
* Revenue is expected to be in the range of $480 million to $500 million
* GAAP diluted earnings per share is expected to be in the range of
$0.82 to $0.92
* Non-GAAP diluted earnings per share is expected to be in the range of $0.90 to $1.00
Non-GAAP guidance is adjusted from GAAP guidance by excluding recurring milestone payments associated with the Performant product integration program of approximately $2.7 million, amortization expenses of approximately $3.3 million associated with the Freshwater and Performant acquisitions, and a one-time charge of $1.3 million for the Performant in-process research and development.
We expect that the Kintana acquisition will close in the third quarter of 2003. This will result in one-time charges for in-process research and development and severance of approximately $8 to $9 million, or $0.08 to $0.09 per share, in the third quarter. Further, there will be recurring quarterly amortization charges of approximately $3 to $4 million, or $0.03 to $0.04 per share, which will be pro-rated in the third quarter. We expect the effect of the acquisition will be neutral to non-GAAP diluted earnings per share in the third quarter of 2003 and accretive by $0.01 to $0.02 to non-GAAP diluted earnings per share for the full year 2003.
ABOUT MERCURY INTERACTIVE
Mercury Interactive, the global leader in business technology optimization (BTO), delivers Optane, a suite of integrated products for enterprise testing, production tuning and performance management, that enables customers to optimize business processes and maximize business results. Customers worldwide use Mercury Interactive solutions across their application and technology infrastructures to continuously measure, maximize and manage performance at every level of the business process and each stage of the application lifecycle to improve quality, reduce costs, and align IT with business goals.
Founded in 1989, Mercury Interactive is headquartered in Sunnyvale, California, with offices in more than 25 countries. Further information is available at www.mercuryinteractive.com or by phone at U.S.
+1.408.822.5200.
FORWARD LOOKING STATEMENTS
This press release contains "forward-looking statements" under the Private Securities Litigation Reform Act of 1995 that involve risks and uncertainties concerning Mercury Interactive's expected financial performance, as well Mercury Interactive’s future business prospects and product and service offerings. Mercury Interactive’s actual results may differ materially from the results predicted or from any other forward-looking statements made by, or on behalf of, Mercury Interactive and reported results should not be considered as an indication of future performance. The potential risks and uncertainties include, among other things: 1) the effect of continued weak economic factors on the overall demand for software and services which could result in decreased revenues or lower revenue growth rates and increased uncertainty as to our expected revenues in future periods; 2) Mercury Interactive has historically received a substantial portion of its orders at the end of the quarter and if an order shortfall occurs at the end of a quarter it could negatively impact the company’s operating results for that quarter; 3) the effect of the timing of the recognition of revenue from products sold under subscription and term licenses; 4) the dependence of Mercury Interactive's financial growth on the continued success and acceptance of its existing and new software products and services, and the success of its BTO strategy; 5) uncertainties related to the closing of the Kintana transaction and the integration of Kintana's products and services, employees and operations; and, pending the close of the Kintana acquisition, the effect on GAAP earnings of charges from the acquisition; 6) the impairment of the value of investments in non-consolidated companies; 7) the ability to increase sales through our indirect channels as well as international sales; 8) intense competition for Mercury Interactive's products and services; and 9) the additional risks and important factors described in Mercury Interactive's SEC reports, including the Annual Report to Stockholders on Form 10-K for the fiscal year ended December 31, 2002 and the Form 10-Q for the quarter ended March 31, 2003, which are available at the SEC’s website at www.sec.gov. Additional information will also be set forth in Mercury Interactive’s Quarterly Report on Form 10-Q for the three month period ended June 30, 2003, which will be filed with the SEC in the second quarter of 2003. All of the information in this press release is as of July 16, 2003, and Mercury Interactive undertakes no duty to update this information.
NON-GAAP FINANCIAL INFORMATION
Mercury Interactive provides non-GAAP net income and earnings per share data as additional information for its operating results. These measures are not in accordance with, or an alternative for, generally accepted accounting principles and may be different from non-GAAP measures used by other companies. Mercury Interactive's management believes these non-GAAP measures are useful to investors because this supplemental information facilitates comparisons to prior periods. Management uses these non-GAAP measures to evaluate its financial results, develop budgets and manage expenditures. Investors are encouraged to review the reconciliation of these non-GAAP financial measures to the comparable GAAP results, which is attached to this press release.
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Mercury Interactive and Optane are trademarks or registered trademarks of Mercury Interactive Corporation or its subsidiaries in the United States and select foreign countries. Kintana is a registered trademark of Kintana, Inc. Other product and company names are used herein for identification purposes only, and may be trademarks of their respective companies.