- Net Increase in Deferred Revenue: $32.1 million
- Earnings Per Share: $(0.08) GAAP; $0.23 Non-GAAP
Urecht, october 24, 2003 — Mercury Interactive Corporation
(NASDAQ: MERQ), the global leader in business technology optimization (BTO), today reported results for the third quarter ended September 30, 2003.
Revenue for the third quarter of 2003 was $126.1 million, an increase of
29 percent compared to $97.9 million reported in the third quarter of 2002. Revenue for the first nine months of 2003 was $354.5 million, an increase of 26 percent compared to $282.4 million for the same period in 2002.
Deferred revenue for the third quarter of 2003 increased by $32.1 million from the second quarter of 2003 to $226.0 million. Cash generated from operations for the third quarter of 2003 was $22.2 million compared to $28.0 million in the third quarter of 2002. Net cash generated from operations in the third quarter of 2003 was reduced by $8.0 million of prepaid royalties for the previously announced license of technology from Motive Communications, Inc.
GAAP RESULTS
Net loss for the third quarter of 2003 was $6.7 million, or $0.08 per basic share, compared to a profit of $13.3 million, or $0.15 per diluted share, for the same period a year ago. GAAP results for the third quarter include acquisition related charges of $12.7 million, or $0.13 per diluted share, related to the completion of the Kintana acquisition, as well as $16.9 million, or $0.18 per diluted share, of non-cash impairment charges relating to real-estate consolidation. Net income for the first nine months of 2003 was $28.4 million, or $0.31 per diluted share, compared to $46.5 million, or $0.53 per diluted share, for the same period a year ago.
NON-GAAP RESULTS
Net income for the third quarter of 2003 was $21.3 million, or $0.23 per diluted share, compared to $14.2 million, or $0.16 per diluted share, for the same period a year ago. Non-GAAP earnings per share is calculated using fully diluted shares of 94.0 million. Net income for the first nine months of 2003 was $60.0 million, or $0.66 per diluted share, compared to $39.6 million, or $0.45 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, asset impairment charges related to real estate, gain on early retirement of debt, stock-based compensation and amortization of intangible assets, as well as related income tax provisions or benefits.
On August 15, 2003, Mercury completed its previously announced acquisition of Kintana, Inc. for approximately $225.0 million in cash and stock. GAAP financial results for the quarter include an in-process R&D write-off and acquisition related expenses totaling $12.7 million.
In connection with the acquisition of Kintana, and to optimize the work environment for employees and customers, the company intends to move to a new headquarters campus in Mountain View, CA. Accordingly, third quarter GAAP results also include a non-cash charge of $16.9 million to reflect the impairment of a portion of the existing Sunnyvale facilities.
"In the third quarter Mercury had record revenues, strong deferred revenues, and a record number of large transactions, reflecting the adoption of Business Technology Optimization by our customers." said Amnon Landan, chairman, CEO and president of Mercury Interactive Corporation.
Q3 2003 HIGHLIGHTS
- Acceleration of business model with term licenses representing a record 46 percent of new product orders
- Strong net increase in deferred revenue of $32.1 million, generated principally from term licenses
- Record of eight transactions over $1 million
- Record application management results in both new orders and revenue
- Largest technology launch in Mercury’s history: BTO Technology Blueprint and Mercury Optimization Centers
FINANCIAL OUTLOOK
The following financial outlook is provided based on information as of October 22, 2003.
Management initiates the following guidance for the quarter ending December 31, 2003:
- Term licenses are expected to be in the range of 43 percent to 47 percent of new product orders
- Revenue is expected to be in the range of $140.0 million to $148.0 million
- Net increase in deferred revenue is expected to be in the range of $35.0 million to $45.0 million
- GAAP diluted earnings per share is expected to be in the range of
$0.18 to $0.22
- Non-GAAP diluted earnings per share is expected to be in the range of
$0.23 to $0.27
- Cash flow from operations is expected to be in the range of $40.0 million to $55.0 million
Non-GAAP guidance is adjusted from GAAP guidance by excluding recurring acquisition and restructuring related charges and stock-based compensation and amortization of intangible assets of approximately $5.0 million.
MANAGEMENT CHANGE
Chief Operating Officer Ken Klein is leaving the company at the end of the year to pursue outside interests. "Ken helped to build Mercury from a startup to a leading enterprise software company," said Amnon Landan, chairman, CEO and president of Mercury Interactive Corporation. "I’d like to thank Ken for twelve years of great service and wish him success in his new endeavors."
QUARTERLY CONFERENCE CALL
Mercury Interactive will host a conference call to discuss third quarter results at 2:00 p.m. Pacific Daylight Time today. A live Webcast of the conference call, together with supplemental financial information, can be accessed through the company's Investor Relations Web site at http://www.mercuryinteractive.com/ir. In addition, an archive of the Webcast can be accessed through the same link. An audio replay of the call will be available until midnight on October 28, 2003. The audio replay can be accessed by calling 888-203-1112 or 719-457-0820, conference call code: 778907.
ABOUT MERCURY INTERACTIVE
Mercury Interactive, the global leader in business technology optimization (BTO), is committed to helping customers optimize the business value of information technology. Founded in 1989, Mercury Interactive conducts business worldwide and is one of the fastest growing enterprise software companies today. Mercury Interactive provides software and services to govern the priorities, people and practices of IT; deliver and manage applications; and integrate IT strategy and execution.
Customers worldwide rely on Mercury Interactive offerings to improve quality and performance of applications and manage IT costs, risk and compliance. Mercury Interactive BTO offerings are complemented by technologies and services from global business partners. For more information, visit www.mercuryinteractive.com.
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 mix of perpetual and term licenses and the effect of the timing of the recognition of revenue from products sold under term licenses; 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 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; 4) uncertainties related to the integration of Kintana's products and services, employees and operations; 5) the ability to attract and retain key personnel; 6) intense competition for Mercury Interactive's products and services; and
7) 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 June 30, 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 September 30, 2003, which will be filed with
the SEC in the fourth quarter of 2003. All of the information in this
press release is as of October 22, 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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Editor’s Note
Tables Attached: Condensed Consolidated Statements of Operations, Condensed Consolidated Balance Sheets, Condensed Consolidated Statements of Cash Flows, Table of Reconciliations from GAAP to Non-GAAP.
Mercury Interactive and Kintana are trademarks or registered trademarks of Mercury Interactive Corporation or its subsidiaries in the United States and/or other countries. Other product and company names are used herein for identification purposes only, and may be trademarks of their respective companies.
MERCURY INTERACTIVE
1325 Borregas Avenue, Sunnyvale, CA 94089 Tel: (408) 822-5200 Fax:
(408) 822-5300