EX-99.1 2 a4680460ex991.txt PRESS RELEASE Exhibit 99.1 Concord Reports Second Quarter Results; Revenue Grows 12% q/q and Profitability Reestablished MARLBORO, Mass.--(BUSINESS WIRE)--July 15, 2004--Concord Communications, Inc. (NASDAQ: CCRD), a global provider of Business Service Management (BSM) software solutions, today announced its financial results for the second quarter ended June 30, 2004. Revenue was $26.7 million, up from $23.8 million in the first quarter of 2004, and up from $25.6 million in the second quarter of 2003. GAAP earnings per share were $0.02, compared to a loss of $0.03 in the prior quarter and earnings of $0.07 in the second quarter of 2003. Pro forma earnings per share were $0.03, up from a pro forma loss per share of $0.02 in the prior quarter and pro forma earnings of $0.06 in the same quarter of 2003. (See the table below for reconciliation from GAAP to pro forma). "In Q2, we made progress, while working hard to improve our marketing and sales execution," explained Jack Blaeser, Concord's CEO and president. "In Q2 we executed well in our core network management market, particularly in virtual private network (IP-VPN) management. While the environment remains difficult, we are committed to our large market opportunities in Business Service Management, Voice over IP (VoIP) and wireless." Second Quarter Results Total Revenue Grows 12% and License Revenue Grows 22% Sequentially -- Total revenue was $26.7 million, representing a 12% increase from $23.8 million in the prior quarter. License revenue was $12.6 million, a 22% increase over the $10.4 million reported in the prior quarter. Number of Large Deals and ASP Remain High -- Number of deals over $100,000 was 32. -- Average deal size for new customer accounts was $384,000. This was substantially higher than previous quarters because of several large new customer account wins. New Business and Managed Services Segments Grow -- In Q2, Concord delivered a major new product - the Business Service Console (BSC) as part of its ongoing strategy to gain traction in the BSM market. Companies such as Booz Allen Hamilton have deployed the BSC to deliver an executive level view into the status of their entire IT infrastructure. -- Revenue from new customer accounts grew to 18% from 12% in the prior quarter. New customers included Daktronics and Rheem Manufacturing. Revenue from existing customers was 82%. -- Managed service provider customers accounted for 23% of revenue. These customers include Vertis and Telefonica Data. Telco infrastructure customers like Comcast accounted for 37% of revenue. -- Enterprise customers accounted for 40% of revenue, from customers like CalTech and Aristocrat Technologies. -- International customers accounted for $8.4 million or 31% of revenue. Customers include the Ministry of Public Service in Kosovo and Krung Thai Bank. Balance Sheet -- Total cash, composed of cash, cash equivalents and marketable securities, was $158.4 million in Q2. Cash and marketable securities decreased $5.9 million in large part due to the mark-to-market effect of rising interest rates on our marketable securities. -- Deferred revenue was $27.9 million, down from $29.5 million in the previous quarter. This decrease is due to the timing of both renewals and an unusually high increase in deferred revenue last quarter of $3.0 million. -- DSO was 75 days, up 1 day from the prior quarter. Future Expectations Third quarter 2004 revenue is expected to be approximately the same as second quarter revenue and EPS is expected to be approximately breakeven on a pro forma and GAAP basis. Conference Call Concord will hold a conference call today, July 15th, 2004, to discuss results, product direction and future expectations at 8:30 a.m. ET. The number for the call is 800-821-1449 (domestic) and 973-409-9261 (international). The call will be available for approximately two weeks. The number for the replay is 877-519-4471 for U.S./Canada and 973-341-3080 for international callers. The access code is 4960382. The information in this press release, call replay, and reconciliation of non-GAAP financials is posted at www.concord.com. About Concord Communications Concord Communications, Inc. (Nasdaq: CCRD) provides an integrated solution that enables companies to map their IT services to business needs, measure their actual end-user experience, and manage their applications, systems, and networks. More than 3,000 companies worldwide rely on Concord's eHealth(R) Suite, and its components, to optimize IT services to drive business success. Based in Marlboro, Mass., Concord maintains offices around the globe, and can be found on the web at www.concord.com. Concord is headquartered in Marlboro, Massachusetts. For more information on Concord, call 1-800-851-8725 or visit Concord on the Web at www.concord.com. Concord Communications, Inc., the Concord logo and eHealth are trademarks of Concord Communications, Inc. All other trademarks are the property of their respective owners. Safe Harbor Forward-looking statements made in this press release, including forward-looking statements regarding revenue and profit expectations, are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Readers are cautioned that all forward-looking statements involve risks and uncertainties, and actual results could differ materially from the forward-looking statements contained herein. Risks and uncertainties include, without limitation, the slower than expected economic recovery in certain of our markets; our customers' ability to obtain funding, specifically in light of the aforementioned economic climate, and the resulting potential delay or cancellation of pending customer purchases; risks of operating losses including the cost of development and sale of our products; the integration of acquired products and technologies; the ability to attract and retain key employees; issues that impact the use of our intellectual property; risks associated with our debt service obligations; market acceptance of, and demand for, our products; risks associated with competition, including competition in the business service management market and the network, system, and application fault and performance markets; risks associated with international sales, including foreign currency risks and longer payment cycles; and other risks detailed in the Company's filings with the Securities and Exchange Commission, including but not limited to, the Company's annual report on Form 10-K and quarterly reports on Form 10-Q. Any forward-looking statements should be considered in light of all these factors. The information contained in this press release is applicable only today and should thereafter be considered historical and will no longer constitute the Company's current expectations. The Company undertakes no obligation to update information contained in this press release. Pro Forma Financial Results We prepare and release quarterly unaudited financial statements prepared in accordance with generally accepted accounting principles ("GAAP"). We also disclose and discuss certain pro forma financial information, used to evaluate our performance, in this and other earnings releases and investor conference calls. We believe that current shareholders and potential investors in our company use multiples of pro forma EPS in making investment decisions about our company. We use pro forma EPS to evaluate the results of our ongoing operations and to assist in historical comparisons. This measure, and other pro forma information, should not be considered an alternative to measurements required by accounting principles generally accepted in the United States of America such as net income and net cash provided by operations and should not be considered measures of our liquidity. In addition, our non-GAAP measures may not be comparable to similar measures reported by other companies. Our key non-GAAP measure is: pro forma EPS and is calculated by dividing pro forma net income by the diluted number of shares. Pro forma net income excludes certain non-cash and special charges, consisting primarily of non-cash compensation charges, in-process-research-and-development costs and amortization of intangible assets. This pro forma calculation also substitutes current period GAAP tax provisions with a pro forma tax rate of 28%. Historically, we have had significant deferred tax assets and have not recorded a significant federal tax provision and so the GAAP tax provision related primarily to state and foreign taxes and has been minimal. From a tax return perspective, and thus cash flow perspective, we do not believe Concord will pay significant state or federal income taxes for at least 2 years. We will continue incurring small foreign, federal minimum and state minimum tax payments. Due to the release of our valuation allowance in the fourth quarter of 2003, our GAAP tax rate has increased to 38%. We will continue providing pro forma guidance and results at a 28% tax rate to normalize our results against historical reported results and are provided for comparative purposes only. Below are the Condensed Consolidated Statements of Operations, Condensed Consolidated Balance Sheets, Condensed Consolidated Statements of Cash Flows, Table of Reconciliation from GAAP to Pro forma and Table of Reconciliation from Q3 2004 Pro forma EPS to GAAP EPS. CONCORD COMMUNICATIONS, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (In thousands, except share data) Three Months Ended Six Months Ended ----------------------- ----------------------- June 30, June 30, June 30, June 30, 2004 2003 2004 2003 ----------- ----------- ----------- ----------- Revenues: License revenues $12,592 $13,154 $22,942 $26,063 Service revenues 14,113 12,461 27,608 23,669 ----------- ----------- ----------- ----------- Total revenues 26,705 25,615 50,550 49,732 ----------- ----------- ----------- ----------- Costs of Revenues: Cost of license revenues 848 683 1,670 1,272 Cost of service revenues 4,363 4,045 8,312 8,087 ----------- ----------- ----------- ----------- Total cost of revenues 5,211 4,728 9,982 9,359 ----------- ----------- ----------- ----------- Gross profit 21,494 20,887 40,568 40,373 ----------- ----------- ----------- ----------- Operating Expenses: Research and development 5,963 5,437 11,752 10,884 Sales and marketing 12,393 12,579 23,909 23,944 General and administrative 2,735 2,060 5,378 4,305 Acquired in-process research and development 100 -- 100 -- ----------- ----------- ----------- ----------- Total operating expenses 21,191 20,076 41,139 39,133 ----------- ----------- ----------- ----------- Operating income (loss) 303 811 (571) 1,240 ----------- ----------- ----------- ----------- Other Income: Interest income 1,073 709 2,162 1,426 Interest expense (819) -- (1,642) -- Other expense (20) (146) (189) (370) ----------- ----------- ----------- ----------- Total other income, net 234 563 331 1,056 ----------- ----------- ----------- ----------- Income (loss) before income taxes 537 1,374 (240) 2,296 Provision for (benefit from) for income taxes 204 177 (91) 262 ----------- ----------- ----------- ----------- Net income (loss) $333 $1,197 $(149) $2,034 =========== =========== =========== =========== Net income (loss) per common and potential common share: Basic $0.02 $0.07 $(0.01) $0.12 =========== =========== =========== =========== Diluted $0.02 $0.07 $(0.01) $0.11 =========== =========== =========== =========== Weighted average common and potential common shares outstanding: Basic 18,258,159 17,372,070 18,208,832 17,313,416 =========== =========== =========== =========== Diluted 18,563,673 18,022,181 18,208,832 17,767,593 =========== =========== =========== =========== CONCORD COMMUNICATIONS, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (In thousands, except share data) June 30, December 31, 2004 2003 ----------- ------------- ASSETS Current Assets: Cash and cash equivalents $32,484 $69,436 Marketable securities 125,955 92,455 Restricted cash 65 194 Accounts receivable, net of allowance of $1,334 and $1,050 at June 30, 2004 and December 31, 2003, respectively 22,114 22,194 Deferred tax assets 5,059 4,638 Prepaid expenses and other current assets 4,336 4,851 ----------- ------------- Total current assets 190,013 193,768 Equipment and improvements, net 6,423 6,697 Goodwill 6,225 6,225 Other intangible assets, net 2,597 3,004 Deferred tax assets 5,394 4,962 Unamortized debt issuance costs and other long-term assets 3,400 3,770 ----------- ------------- Total assets $214,052 $218,426 =========== ============= LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Accounts payable $2,339 $5,218 Accrued expenses 9,656 12,627 Deferred revenue 27,895 26,490 ----------- ------------- Total current liabilities 39,890 44,335 Convertible senior notes 86,250 86,250 ----------- ------------- Total liabilities 126,140 130,585 ----------- ------------- Commitments and Contingencies Stockholders' Equity: Common stock, $0.01 par value: Authorized - 50,000,000 shares Issued and outstanding - 18,299,824 and 18,121,211 shares at June 30, 2004 and December 31, 2003, respectively 183 181 Additional paid-in capital 113,275 111,651 Accumulated other comprehensive income (590) 816 Accumulated deficit (24,956) (24,807) ----------- ------------- Total stockholders' equity 87,912 87,841 ----------- ------------- Total liability and stockholders' equity $214,052 $218,426 =========== ============= CONCORD COMMUNICATIONS, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (In thousands) Three Months Ended Six Months Ended ----------------- ------------------ June 30, June 30, June 30, June 30, 2004 2003 2004 2003 -------- -------- -------- --------- Cash Flows from Operating Activities: Net income (loss) $333 $1,197 $(149) $2,034 Adjustments to reconcile net income (loss) to net cash (used for) provided by operating activities: Depreciation and amortization 1,124 1,209 2,237 2,618 Stock-based compensation -- 14 -- 34 Amortization of debt issuance costs 176 -- 352 -- Deferred income taxes 335 -- 50 -- Changes in assets and liabilities: Accounts receivable (2,494) 281 80 (1,159) Prepaid expenses and other current assets 305 360 515 741 Accounts payable (201) 1,276 (2,879) (1,308) Accrued expenses (971) (2,170) (2,971) 715 Deferred revenue (1,556) 2,028 1,405 4,402 Other assets 31 (12) 18 (105) -------- -------- -------- --------- Net cash (used for) provided by operating activities (2,918) 4,183 (1,342) 7,972 -------- -------- -------- --------- Cash Flows from Investing Activities: Purchases of equipment and improvements (780) (1,237) (1,556) (1,830) Purchases of marketable securities (3,544) (11,513) (60,713) (15,988) Proceeds from maturities and sale of marketable securities 7,700 3,111 24,904 10,688 (Deposit) release of restricted cash (65) 150 129 300 -------- -------- -------- --------- Net cash provided by (used in) investing activities 3,311 (9,489) (37,236) (6,830) -------- -------- -------- --------- Cash Flows from Financing Activities: Proceeds from issuance of common stock 1,029 1,231 1,626 1,270 -------- -------- -------- --------- Net cash provided by financing activities 1,029 1,231 1,626 1,270 -------- -------- -------- --------- Net increase (decrease) in cash and cash equivalents 1,422 (4,075) (36,952) 2,412 Cash and cash equivalents, beginning of period 31,062 16,849 69,436 10,362 -------- -------- -------- --------- Cash and cash equivalents, end of period $32,484 $12,774 $32,484 $12,774 ======== ======== ======== ========= Supplemental Disclosure of Cash Flow Information: Cash paid for income taxes $103 $145 $309 $247 Supplemental Disclosure of Noncash Investing Transactions: Unrealized loss on available-for- sale securities $(3,141) $(68) $(2,309) $(181) CONCORD COMMUNICATIONS, INC. TABLE OF RECONCILIATION FROM GAAP TO PRO FORMA (Unaudited) (In thousands, except share data) Three Months Ended Six Months Ended ----------------------- ----------------------- June 30, June 30, June 30, June 30, 2004 2003 2004 2003 ----------- ----------- ----------- ----------- Reconciliation of GAAP & Pro Forma Net Income: Net income (loss) $333 $1,197 $(149) $2,034 Add: Provision for (benefit from) income taxes 204 177 (91) 262 From Cost of revenues netViz technology amortization 133 - 266 - From Operating expenses Amortization expenses, relating to the netViz acquisition and equity-based compensation charges 70 14 140 34 Acquired in- process research and development 100 100 ----------- ----------- ----------- ----------- Pro forma income before income taxes 840 1,388 266 2,330 ----------- ----------- ----------- ----------- Pro forma income taxes (Pro forma rate: 28%) 235 389 74 652 ----------- ----------- ----------- ----------- Pro forma net income $605 $999 $192 $1,678 =========== =========== =========== =========== Pro forma net income per diluted share: $0.03 $0.06 $0.01 $0.09 Diluted weighted average common and potential common shares outstanding 18,563,673 18,022,181 18,704,787 17,767,593 CONCORD COMMUNICATIONS, INC. TABLE OF RECONCILIATION FROM Q3 2004 PRO FORMA EPS TO GAAP EPS (Unaudited) Quarter ending September 30, 2004 ------------------- Pro forma EPS guidance $0.00 Estimated: Income taxes 0.00 Estimated amortization of intangible assets (0.01) ----------------- Estimated GAAP EPS $(0.01) ================= CONTACT: Concord Communications Raymond Ruddy, 508-303-4350 investorrelations@concord.com