Mercury Interactive, the global leader in business technology optimisation (BTO), today reported results for the third quarter ended 30 September 2004.
Revenue for the third quarter of 2004 was $165.4 million, an increase of 31% compared to $126.1 million reported in the third quarter of 2003.
Deferred revenue for the third quarter of 2004 increased by $19.3 million from the second quarter of 2004 to $346.6 million. Cash generated from operations for the third quarter of 2004 was $43.3 million compared to $22.2 million in the third quarter of 2003.
GAAP results
Net income for the third quarter of 2004 was $19 million, or $0.21 per diluted share, compared to a net loss of $6.7 million, or $0.08 per diluted share, for the same period a year ago.
GAAP results for the third quarter include stock-based compensation and amortisation of intangible assets of $4.2 million, integration and other related charges of $1 million, a one-time non-cash charge for in-process research and development of $0.9 million, and a loss on investments of $0.5 million.
Non-GAAP results
Net income for the third quarter of 2004 was $24.4 million, or $0.27 per diluted share, compared to $21.3 million, or $0.23 per diluted share, for the same period a year ago. Non-GAAP results, as presented in the attached reconciliation table, exclude the following recurring and non-recurring items: stock-based compensation and amortization of intangible assets, integration and other related charges, in-process research and development, a net loss on investments, and a non-cash excess facilities charge.
On 1 July 2004, Mercury completed its previously announced acquisition of Appilog for $51.5 million in cash as well as assuming all of Appilog`s outstanding options. This acquisition resulted in a one-time charge for in-process research and development of $0.9 million and amortisation of intangible assets of $0.5 million, both of which are included in the previously mentioned GAAP results.
"We are very pleased with our strong results this quarter," said Amnon Landan, chairman and CEO at Mercury. "Mercury is in a large and growing market, customers are increasing their investments in our BTO offerings, and we continue to execute."
Stock buyback
On 28 July 2004, Mercury announced that its board of directors had approved a new programme to repurchase up to $400 million of the company`s common stock over the next two years. The specific timing and amount of repurchases will vary based on market conditions, securities law limitations and other factors. As of 30 September 2004, 9 675 000 shares had been repurchased for $332.2 million, with an average all-in cost per share of $34.33.
Financial outlook
The following financial outlook is provided based on information as of 20 October 2004, and management assumes no duty to update this guidance. Management provides the following guidance for the fourth quarter and full year ending 31 December 2004:
* Revenue for the fourth quarter is expected to be in the range of $185 million to $195 million.
* Net increase in deferred revenue for the fourth quarter is expected to be in the range of $40 million to $50 million.
* Non-GAAP operating margin is reiterated for the full year to be in the range of 17% to 20%.
* GAAP diluted earnings per share for the fourth quarter is expected to be in the range of $0.28 to $0.34.
* Non-GAAP diluted earnings per share for the fourth quarter is expected to be in the range of $0.32 to $0.38. This excludes approximately $300 000 of integration and other related charges and $4 million of stock-based compensation and amortisation of intangibles.
* Fully diluted shares are expected to be in the range of 87.5 to 89.5 million for the fourth quarter and 93 to 95 million for the full year.
* Cash flows from operations for the fourth quarter is expected to be in the range of $60 million to $70 million.
Non-GAAP guidance is adjusted from GAAP guidance by excluding the following recurring and non-recurring items: stock-based compensation and amortisation of intangible assets, integration and other related charges, in-process research and development, a net loss on investments and a non-cash excess facilities charge.
Based on the recent issuance of EITF 04-08, "The Effect of Contingently Convertible Debt on Diluted Earnings per Share", beginning in the fourth quarter of 2004 we will include 9 673 050 shares in our fourth quarter and full year weighted average share calculation. Our fourth quarter 2004 earnings per share guidance will be affected by this increase in shares on a GAAP and non-GAAP basis of $0.03 to $0.04. Our full year 2004 earnings per share guidance will be affected by this increase in shares on a GAAP basis of $0.07 to $0.08 and on a non-GAAP basis of $0.10 to $0.11.
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Mercury Interactive Corporation, the global leader in business technology optimisation (BTO), is committed to helping customers optimise the business value of information technology. Founded in 1989, Mercury conducts business worldwide and is one of the fastest growing enterprise software companies today. Mercury provides software and services to govern the priorities, people, and processes of IT; deliver and manage applications; and integrate IT strategy and execution. Customers worldwide rely on Mercury offerings to improve quality and performance of applications and manage IT costs, risks and compliance.
Mercury BTO offerings are complemented by technologies and services from global business partners. For more information, please visit www.mercury.com.
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