Mercury Interactive Corporation, the global leader in business technology optimisation (BTO), today reported results for the third quarter ended 30 September 2003.
Revenue for the third quarter of 2003 was $126.1 million, an increase of 29% 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% 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 million. Cash generated from operations for the third quarter of 2003 was $22.2 million compared to $28 million in the third quarter of 2002. Net cash generated from operations in the third quarter of 2003 was reduced by $8 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 million. Net income for the first nine months of 2003 was $60 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 amortisation of intangible assets, as well as related income tax provisions or benefits.
On 15 August 2003, Mercury completed its previously announced acquisition of Kintana, Inc for approximately $225 million in cash and stock. GAAP financial results for the quarter include an in-process R&D write-off and acquisition related expenses totalling $12.7 million. In connection with the acquisition of Kintana, and to optimise the work environment for employees and customers, the company intends to move to a new headquarters campus in Mountain View, California. 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 optimisation by our customers," said Amnon Landan, chairman, CEO and president of Mercury Interactive Corporation.
Q3 2003 highlights
* Acceleration of business model with term licences representing a record 46% of new product orders.
* Strong net increase in deferred revenue of $32.1 million, generated principally from term licences.
* 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 Centres.
Financial outlook
The following financial outlook is provided based on information as of 22 October 2003. Management initiates the following guidance for the quarter ending 31 December 2003:
* Term licences are expected to be in the range of 43% to 47% of new product orders.
* Revenue is expected to be in the range of $140 million to $148 million.
* Net increase in deferred revenue is expected to be in the range of $35 million to $45 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 million to $55 million.
Non-GAAP guidance is adjusted from GAAP guidance by excluding recurring acquisition and restructuring related charges and stock-based compensation and amortisation of intangible assets of approximately $5 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 start-up to a leading enterprise software company," said Amnon Landan, chairman, CEO and president of Mercury Interactive Corporation. "I`d like to thank Ken for 12 years of great service and wish him success in his new endeavours."
Quarterly conference call
Mercury Interactive will host a conference call to discuss third quarter results at 2pm 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 28 October 2003. The audio replay can be accessed by calling 888 203 1112 or 719 457 0820, conference call code: 778907.
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Mercury Interactive, the global leader in business technology optimisation (BTO), is committed to helping customers optimise 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.