EX-99.1 3 jul1603_ex9901.txt EXHIBIT 99.1 MERCURY INTERACTIVE 1325 Borregas Avenue, Sunnyvale,CA 94089 Investor Relations Contact Anne Marie McCauley, 408-822-5359 Public Relations Contact Dave Peterson, 408-822-5231 MERCURY INTERACTIVE REPORTS SECOND QUARTER RESULTS o Revenue: $118.1 Million o Earnings Per Share: $0.19 GAAP; $0.22 Non-GAAP o Net Increase in Deferred Revenue: $12.7 Million o Cash Flow from Operations: $38.2 Million SUNNYVALE, CALIF. -- JULY 16, 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 Mercury Interactive Reports Second Quarter Results Page 2 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 o Product revenue (license + subscription): $70.5 million, 23% increase over year ago period o Application delivery (Testing) product revenue: $54.5 million, 17% increase over year ago period o Application management (APM) product revenue: $16.0 million, 53% increase over year ago period o Operating margins: 16% GAAP; 19% Non-GAAP (see attached reconciliation table) o Raised $500 million through issuance of zero coupon senior convertible notes due 2008 o Cash and investments balance: $1.2 billion o Days sales outstanding (DSO): 64 days o Acquired Performant to deliver and manage J2EE applications o 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: o Revenue is expected to be in the range of $118 million to $125 million o GAAP diluted earnings per share is expected to be in the range of $0.17 to $0.23 o Non-GAAP diluted earnings per share is expected to be in the range of $0.19 to $0.25 o Net increase in deferred revenue is expected to be in the range of $10 to $20 million o 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 Mercury Interactive Reports Second Quarter Results Page 3 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: o Revenue is expected to be in the range of $480 million to $500 million o GAAP diluted earnings per share is expected to be in the range of $0.82 to $0.92 o 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. QUARTERLY CONFERENCE CALL Mercury Interactive will host a conference call to discuss second quarter results at 8:30 a.m. Eastern 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://mercuryinteractive.com/company/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 July 22, 2003. The audio replay can be accessed by calling 888-203-1112 or 719-457-0820, conference call code: 545329. Mercury Interactive Reports Second Quarter Results Page 4 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 Mercury Interactive Reports Second Quarter Results Page 5 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. # # # 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 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. MERCURY INTERACTIVE 1325 Borregas Avenue, Sunnyvale, CA 94089 Tel: (408) 822-5200 Fax: (408) 822-5300 Mercury Interactive Reports Second Quarter Results Page 6 MERCURY INTERACTIVE CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share data) (unaudited) Three months ended Six months ended June 30, June 30, --------------------- --------------------- 2003 2002 2003 2002 -------- --------- -------- --------- Revenues: License fees $ 48,004 $ 44,863 $ 92,790 $ 89,584 Subscription fees 22,487 12,337 41,761 23,616 -------- --------- -------- --------- Total product revenues 70,491 57,200 134,551 113,200 Maintenance fees 38,745 29,280 74,330 56,930 Professional service fees 8,820 7,520 19,560 14,370 -------- --------- -------- --------- Total revenues 118,056 94,000 228,441 184,500 -------- --------- -------- --------- Costs and expenses: Cost of license and subscription 6,757 6,551 13,307 12,896 Cost of maintenance 2,829 2,884 5,508 5,720 Cost of professional services 7,460 5,527 14,080 9,825 Marketing and selling 55,806 46,548 108,491 91,965 Research and development 13,120 10,296 24,709 20,920 General and administrative 9,722 7,949 18,822 15,392 Amortization of unearned stock-based compensation 195 303 384 667 Acquisition and restructuring related charges 2,197 -- 2,197 (537) Amortization of goodwill and intangible assets 699 639 1,157 1,278 -------- --------- -------- --------- Total costs and expenses 98,785 80,697 188,655 158,126 -------- --------- -------- --------- Income from operations 19,271 13,303 39,786 26,374 Other income, net 2,441 9,457 4,768 15,587 -------- --------- -------- --------- Income before provision for income taxes 21,712 22,760 44,554 41,961 Provision for income taxes 4,777 4,740 9,475 8,781 -------- --------- -------- --------- Net income $ 16,935 $ 18,020 $ 35,079 $ 33,180 Net income per share (basic) $ 0.20 $ 0.21 $ 0.41 $ 0.40 ======== ========= ======== ========= Net income per share (diluted) $ 0.19 $ 0.20 $ 0.39 $ 0.38 ======== ========= ======== ========= Weighted average common shares (basic) 85,610 83,817 85,322 83,502 ======== ========= ======== ========= Weighted average common shares and equivalents (diluted) 90,506 88,164 89,945 88,227 ======== ========= ======== =========
Mercury Interactive Reports Second Quarter Results Page 7 MERCURY INTERACTIVE CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands) (unaudited) June 30, December 31, 2003 2002 ------------- ------------ ASSETS Current assets: Cash and cash equivalents $ 820,042 $ 349,123 Short-term investments 147,369 178,123 Trade accounts receivable, net 83,516 93,095 Prepaid expenses and other assets 54,232 46,548 ------------- ------------ Total current assets 1,105,159 666,889 Long-term investments 274,290 137,954 Property and equipment, net 89,454 88,516 Investments in non-consolidated companies 15,363 15,952 Debt offering costs, net 16,680 6,037 Goodwill 130,378 113,327 Intangible assets, net 4,761 2,548 Restricted cash 6,000 6,000 Interest rate swap 20,216 17,378 Other assets, net 18,141 21,133 ------------- ------------ Total assets $ 1,680,442 $ 1,075,734 ============= ============ TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 12,623 $ 12,292 Accrued liabilities 74,747 71,414 Income taxes payable 73,781 70,502 Short-term deferred revenue 153,052 135,338 ------------- ------------ Total current liabilities 314,203 289,546 Convertible notes 819,718 316,972 Long-term deferred revenue 40,914 24,048 ------------- ------------ Total liabilities 1,174,835 630,566 ------------- ------------ Stockholders' equity: Common stock 172 169 Additional paid-in capital 277,576 254,218 Treasury stock (16,082) (16,082) Notes receivable from issuance of stock (8,609) (11,055) Unearned stock-based compensation (740) (1,296) Accumulated other comprehensive loss (2,728) (1,725) Retained earnings 256,018 220,939 ------------- ------------ Total stockholders' equity 505,607 445,168 ------------- ------------ Total liabilities and stockholders' equity $ 1,680,442 $ 1,075,734 ============= ============
Mercury Interactive Reports Second Quarter Results Page 8 MERCURY INTERACTIVE CORPORATION Condensed Consolidated Statements of Cash Flows (in thousands) (unaudited) Three Months Ended Six Months Ended June 30, June 30, ------------------ ---------------- 2003 2002 2003 2002 ---- ---- ---- ---- Cash flows from operating activities: Net income $ 16,935 $ 18,020 $ 35,079 $ 33,180 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 4,264 3,861 8,143 7,676 Sales reserves (830) (744) (1,236) 294 Unrealized gain on interest rate swap (58) -- (92) -- Amortization of goodwill and other intangible assets 699 639 1,157 1,278 Amortization of unearned stock-based compensation 195 303 384 667 Gain on early retirement of debt -- (7,037) -- (11,610) Loss on investment in non-consolidated companies 767 -- 1,339 411 Write-off of in-process research and development 1,280 -- 1,280 -- Deferred income taxes, net (1,346) -- 1,076 -- Changes in assets and liabilities: Trade accounts receivable (1,831) (3,872) 13,157 7,497 Prepaid expenses and other assets, net (6,351) (5,951) (2,558) (7,705) Accounts payable 2,456 1,809 (308) 454 Income taxes payable 1,311 3,822 2,061 7,633 Deferred revenue 9,386 14,402 30,883 18,989 -------- ------- -------- -------- Net cash provided by operating activities 38,214 35,473 91,413 62,988 -------- -------- -------- -------- Cash flows from investing activities: Maturity of investments 881,196 60,380 1,180,168 116,529 Purchases of investments (962,685) (142,914) (1,285,356) (214,014) (Increase) decrease in restricted cash -- 7,659 -- (6,000) Purchases of investments in non-consolidated companies (750) (750) (750) (1,500) Cash paid in conjunction with the acquisition of Performant, net (21,925) -- (21,925) -- Acquisition of property and equipment, net (5,947) (2,019) (7,633) (3,779) -------- -------- -------- -------- Net cash used in investing activities (110,111) (77,644) (135,496) (108,764) -------- -------- -------- -------- Cash flows from financing activities: Proceeds from issuance of convertible notes 488,198 -- 488,198 -- Issuance of common stock, net 12,846 4,510 23,533 14,247 Collection of notes receivable from issuance of stock 32 364 2,446 873 Repayment of convertible notes -- (39,917) -- (64,640) -------- -------- -------- -------- Net cash provided by (used in) financing activities 501,076 (35,043) 514,177 (49,520) -------- -------- -------- -------- Effect of exchange rate changes on cash 634 (197) 825 443 -------- -------- -------- -------- Net increase (decrease) in cash and cash equivalents 429,813 (77,411) 470,919 (94,853) Cash and cash equivalents at beginning of period 390,229 230,855 349,123 248,297 -------- -------- -------- -------- Cash and cash equivalents at end of period $820,042 $153,444 $820,042 $153,444 ======== ======== ======== ========
Mercury Interactive Reports Second Quarter Results Page 9 MERCURY INTERACTIVE CORPORATION Table of Reconciliations from GAAP to Non-GAAP (in thousands) (unaudited) Three months ended Six months ended June 30, June 30, --------------------------- ------------------------- 2003 2002 2003 2002 ---------- ----------- ----------- --------- GAAP Net Income to Non-GAAP Net Income: GAAP net income $ 16,935 $ 18,020 $ 35,079 $ 33,180 In-process research and development (Performant) 1,280 -- 1,280 -- Bonus program (Performant) 917 -- 917 -- Gain on reversal of restructuring charge -- -- -- (537) Amortization of stock-based compensation and other intangible assets (Freshwater) 635 942 1,282 1,945 Amortization of stock-based compensation and other intangible assets (Performant) 259 -- 259 -- ---------- ----------- ----------- --------- Total costs and expenses 20,026 18,962 38,817 34,588 Gain on early retirement of debt -- (7,037) -- (11,610) ---------- ----------- ----------- --------- Income before (provision) benefit for income taxes 20,026 11,925 38,817 22,978 (Provision) benefit for income taxes (183) 1,407 (183) 2,429 ---------- ----------- ----------- --------- Non-GAAP net income $ 19,843 $ 13,332 $ 38,634 $ 25,407 ========== =========== =========== ========= GAAP Dilutive EPS to Non-GAAP Dilutive EPS: GAAP net income per share (diluted) $ 0.19 $ 0.20 $ 0.39 $ 0.38 In-process research and development (Performant) 0.01 -- 0.02 -- Bonus program (Performant) 0.01 -- 0.01 -- Gain on reversal of restructuring charge -- -- -- (0.01) Amortization of stock-based compensation and other intangible assets (Freshwater) 0.01 0.01 0.02 0.02 Amortization of stock-based compensation and other intangible assets (Performant) -- (1) -- -- (1) -- Gain on early retirement of debt -- (0.08) -- (0.13) (Provision) benefit for income taxes -- (1) 0.02 -- (1) 0.03 ---------- ----------- ----------- --------- Non-GAAP net income per share (diluted) $ 0.22 $ 0.15 $ 0.43 (2) $ 0.29 ========== =========== =========== ========= (1) Amount is less than $0.005 (2) Amounts do not foot to rounding GAAP Operating Margin to Non-GAAP Operating Margin: GAAP operating margin 16.3% 14.2% 17.4% 14.3% In-process research and development (Performant) 1.0% 0.0% 0.6% 0.0% Bonus program (Performant) 0.8% 0.0% 0.4% 0.0% Gain on reversal of restructuring charge 0.0% 0.0% 0.0% (0.3)% Amortization of stock-based compensation and other intangible assets (Freshwater) 0.5% 1.0% 0.6% 1.1% Amortization of stock-based compensation and other intangible assets (Performant) 0.2% 0.0% 0.1% 0.0% ---------- ----------- ----------- --------- Non-GAAP operating margin 18.9% 15.2% 19.1% 15.1% ========== =========== =========== =========