Borland revenues increase 7% in 2002 second quarter

Revenues Rise 7% in Second Quarter
For the 2002 second quarter, revenues increased 7% to $59.7 million from $56.0 million for the second quarter of 2001. License revenues rose 5% to $50.1 million from $47.5 million a year ago. Gross margins improved to 85% compared with 83% in the second quarter of 2001. Operating income for the second quarter was $4.4 million compared with $4.9 million for the second quarter of 2001. Excluding acquisition-related expenses, pro forma operating income for the second quarter rose 14% to $6.0 million compared with $5.2 million for the second quarter of 2001.

As anticipated, other income for the second quarter decreased to $1.7 million from $3.2 million for the second quarter of 2001. The decline of almost $1.5 million, or $0.02 per diluted share, reflects declines in interest rates compared to the year-ago period, despite relatively higher cash and investment balances.

Using Generally Accepted Accounting Principles (GAAP), second quarter 2002 net income including acquisition-related costs was $4.7 million, or $0.06 per diluted share, compared with net income of $6.4 million, or $0.09 per diluted share, for the 2001 second quarter.

For the 2002 second quarter, pro forma net income, excluding acquisition-related expenses, was $5.9 million, or $0.08 per diluted share, on 74.6 million weighted average shares outstanding. This compares with pro forma net income of $6.7 million, or $0.09 per diluted share, on 73.9 million weighted average shares outstanding for the second quarter of 2001.

"Borland’s revenues are up despite these economically challenging times. Our performance this quarter marks our ninth consecutive quarter of profitability and 10th consecutive quarter of positive cash flow from operations," said Dale L. Fuller, president and CEO of Borland. "Clearly, enterprises today are making fewer major IT purchases and working with what they have. That’s where Borland comes in. Our software technology helps enterprises of all sizes —including the Fortune 1000 — get the most from their current systems while they build for the future. In today’s precarious marketplace, customers also gravitate toward companies that have technology leadership and staying power. Borland has both."

Fuller said Borland’s consistent financial performance has led more and more customers to see the company as a safe bet for enterprise level software. "Our success is a testament to Borland’s focus on being a leader in software technology across Java™, Linux®, Wireless and Web Services. In fact, revenue in one of our key businesses, Java, is up 42% year over year," Fuller said.

"In addition, despite the current downturn in the stock market, Borland remains committed to sales growth and enhancing shareholder value as indicated by our recent acquisitions, investments in R&D, share buy-back program and tight control of costs. Borland’s growth and stability are driven by affordable best-in-class software technologies that are independent of the underlying hardware and software infrastructure. This combination, coupled with strong execution, makes Borland not just the smart choice for our customers, but a safe choice," Fuller added.

During the second quarter, Borland completed the acquisition of Highlander Engineering, launched new versions of major product offerings, and continued to extend its breadth in the application lifecycle management space.

Second quarter revenues were once again driven by its leadership position in the Java development market. Java revenues increased 42% over the second quarter of 2001 and represented 43% of total second quarter 2002 revenues. Borland’s Java business benefited from the launches of JBuilder™ 7, Borland ® Enterprise Studio for Java™ 4, JBuilder Enterprise, Sybase Edition, and JBuilder™ MobileSet 3.

The Borland Rapid Application Development (RAD) business was down 28% when compared with the second quarter of 2001, during which Delphi 6 was launched. Financial performance in the RAD business, which represented the company’s second largest revenue generator with 22% of total revenues, is closely aligned with the release of new products. No new RAD products were launched in the second quarter of 2002. Earlier this week, Borland announced the launch of Borland“ Kylix™ 3 with full support for the industry-standard C++ programming language. Kylix 3 is the first RAD solution that enables C++ developers to quickly create high-performance GUI client, database, Web, and Web Services applications for the Linux operating system. According to research firm IDC, C and C++ continue to be the leading primary languages for application development, and C++ is the development language of choice for Linux developers.
Borland’s Enterprise business remained relatively constant compared with the second quarter of 2001 and generated 19% of total second quarter 2002 revenues. Revenue from this business was driven primarily by OEM sales. Also contributing to the Enterprise revenue were sales of Borland’s small-footprint, highly scalable, robust databases, Interbase® and JDataStore™.

Services revenues increased 14% compared with the year-ago second quarter and represented 16% of total second quarter 2002 revenues.

Borland benefits from a global geographic presence and multiple distribution channels. Compared with the second quarter of 2001, the Asia/Pacific region grew 38%, while EMEA increased 3%, and the Americas remained flat. As a percent of total second quarter 2002 revenues, Asia/Pacific represented 20%, EMEA 35%, and Americas 45%.

Solid Balance Sheet
At June 30, 2002, Borland’s financial position remains strong, with cash, cash equivalents, and short-term investments reaching $305.9 million and no long-term debt. During the quarter, the company repurchased approximately 330,000 shares of Borland common stock at a cost of approximately $3.4 million.

Days sales outstanding (DSOs) for the second quarter were 67. This compares with DSOs of 65 in the first quarter of 2002 and 70 days for the second quarter of 2001. The slight increase is attributable to more enterprise-level deals closing late in the quarter, plus a larger percentage of European accounts receivable, which generally follow a longer payment cycle. Compared with a year ago, deferred revenue increased $5.2 million, or 24%, from $21.5 million. On a sequential basis, deferred revenues rose by $1.5 million, or 6%, to $26.8 million.

Frederick A. Ball, Borland’s executive vice president and CFO, said, "In the second quarter, we believe we made the appropriate choices between investing assets to support our growth and managing costs in this tough economic environment. The company also generated approximately $10.2 million in free cashflow from operations, further strengthening our balance sheet. With no long-term debt, a healthy cash position, and a solid product pipeline, Borland is well positioned to emerge an even stronger competitor once this economy improves.

"As stewards of corporate assets, our ongoing goal is to achieve disciplined growth while advancing our strategy to emerge as the leading independent provider of technology solutions used to develop, deploy, integrate, and manage software applications across all major platforms," concluded Mr. Ball.

Revenues Increase 8% for Six-month Period
For the first six months of 2002, revenues increased 8% to $116.8 million from $107.7 million for the same six-month period of 2001. License revenues for the 2002 six-month period rose more than 9% to $97.8 million from $89.9 million a year ago. Gross margin for the 2002 period was 85% versus 84% in the same six-month period of 2001.

Including acquisition-related costs, on a GAAP basis, net income for the 2002 six-month period was $9.3 million, or $0.12 per diluted share, compared with net income of $12.3 million, or $0.17 per diluted share, for the 2001 six-month period.

Excluding acquisition-related costs, pro forma operating income for the 2002 six-month period increased 21% to $11.5 million compared with $9.5 million for the first six months of 2001. Pro forma net income for the first six months of 2002 was $11.7 million, or $0.16 per diluted share, compared with net income of $12.9 million, or $0.18 per diluted share last year.

Guidance for 2002 Third Quarter and Full Year
Borland expects revenues to increase approximately 5–10% in the third quarter of 2002 when compared with the third quarter of 2001. Gross margins for the 2002 third quarter are expected to remain in the 83%–85% range, and pro forma operating margins are expected to range from 6%–9%. Non-operating income is expected to continue to be impacted by changes in the Federal Funds rate. Acquisition-related expenses are expected to range from $1.25 million to $1.75 million for the third quarter and balance of the year. Borland’s effective tax rate is expected to be 22% for the remainder of the year. Pro forma earnings per diluted share are expected to be in the range of $0.06 to $0.08 in the third quarter of 2002. Depending on Borland’s stock price performance, weighted average diluted shares outstanding could range from 74 million to 76 million, as determined by the Treasury method.

Borland anticipates 2002 annual revenues to increase 5%–10% over 2001 revenues and gross margins to remain in the 83%–85% range.