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Actuate Reports Third Quarter 2008 Financial Results

Maintenance Revenues up 18.5% Year-over-year; Cash Flow From Operations up 36% Year-over-year; BIRT-related Business Exceeds $4 million in Q3.

San Mateo, Calif., October 27, 2008 - Actuate Corporation (NASDAQ: ACTU), the leader in delivering Rich Internet Applications Without Limits™, today announced its financial results for the third quarter of 2008.

Third Quarter 2008 Financial and Operational Highlights:


“In light of current turmoil in the financial markets, Actuate delivered respectable performance this quarter,” said Pete Cittadini, president and CEO of Actuate. “The growing momentum of our BIRT related business in the third quarter is evidence that we can continue to execute on our enterprise open source business model, even in these less than ideal macroeconomic conditions. Our ongoing commitment to open source, with its potential to expand our market reach and accelerate our revenue at lower cost, continues to make Actuate a compelling enterprise software firm for shareholders, customers and employees.”

Revenues for the third quarter of 2008 were $33.7 million, compared with $34.7 million in the third quarter of 2007. License revenues for the third quarter of 2008 were $10.0 million, compared with $13.4 million in the year-ago quarter. Services and maintenance revenues for the third quarter of 2008 totaled $23.7 million, compared with $21.3 million in the third quarter of 2007. Within this line item, maintenance revenues were $20.4 million for the third quarter, up 18.5% compared with $17.2 million in the same period last year. In addition, service margins for the third quarter came in at a record 78.0%.
Net income for the third quarter of 2008, as reported in accordance with U.S. generally accepted accounting principles (GAAP), was $3.1 million, or $0.05 per diluted share, compared with net income of $4.6 million or $0.07 per diluted share in the third quarter of 2007.

Cash flow from operations was $7.6 million for the third quarter of 2008. Cash flow from operations for the nine months ended September 30, 2008 totaled $24.4 million versus $17.9 million during the same period last year. Cash, cash equivalents and investments totaled $81.3 million at September 30, 2008 compared with $74.9 million as of June 30, 2008.

Non-GAAP net income for the third quarter of 2008 was $5.3 million, or $0.08 per diluted share, compared with non-GAAP net income of $6.0 million, or $0.09 per diluted share in the third quarter of 2007. Non-GAAP operating margin for the third quarter of 2008 was 20.6%, an increase of 150 basis points from the second quarter of 2008.

2008 Outlook

The Company is updating its outlook for the full year 2008. Specifically, the Company expects to post total revenue of approximately $131 million - $135 million, with license revenues of approximately $38 million - $43 million, non-GAAP operating margins in the range of 17% - 20% and fully diluted non-GAAP EPS of approximately $0.26- $0.28.

Third Quarter 2008 Business Highlights


Third Quarter Customer Highlights

During the third quarter, Actuate received significant new and repeat business from, among others: Singapore Ministry of Education, Vereinsbank Victoria Bauspar A.G., ACS State and Local Solutions, Lincoln Financial Advisors Corporation, National Account Service Co. LLC, The Bank of New York Mellon Corporation, PayPal, Caremark Inc., Lehman Brothers Inc., Federal Aviation Administration, Emptoris, Inc., Computer Associates, Primavera Software, Inc., Siebel Systems Inc (Oracle), American Bureau of Shipping, City of Chicago, Home Office (United Kingdom), Barking and Dagenham Primary Care Trust, Citizens Bank, City Of Dallas and St. Louis Children’s Hospital.

Conference Call Information

Actuate will be holding a conference call at 5:00 p.m. Eastern Time, today, October 27th, 2008 to further discuss these results. The dial-in number for the call is 866-713-8562 (617- 597-5310 for international participants) and the conference identification number 44979691. The conference call will be broadcast live on the Investor Relations section of Actuate’s web site at http://www.actuate.com/investor and will be available as an archived replay thereafter.

Discussion of Non-GAAP Financial Measures

This press release contains financial measures that are not calculated in accordance with U.S. generally accepted accounting principles (GAAP). Actuate management evaluates and makes operating decisions using various performance measures. In addition to our GAAP results, we also consider adjusted net income, which we refer to as non-GAAP net income. We further consider various components of non-GAAP net income such as non-GAAP gross margin and non-GAAP operating expense. Non-GAAP net income is generally based on the revenues of our product, maintenance and services business operations and the costs of those operations, such as cost of revenue, research and development, sales and marketing and general and administrative expenses, that management considers in evaluating our ongoing core operating performance. Non-GAAP net income consists of net income excluding amortization of intangible assets, restructuring charges, equity plan-related compensation expenses and other charges and gains which management does not consider reflective of our core operating business. Intangible assets consist primarily of purchased technology, trade names, customer relationships, employment agreements and other intangible assets issued in connection with acquisitions. Restructuring charges consist of severance and benefits, excess facilities and asset-related charges and include strategic reallocations or reductions of personnel resources. Equity plan-related compensation expenses represent the fair value of all share-based payments to employees, including grants of employee stock options, as required under SFAS No. 123 (revised 2004), "Share-Based Payment" (SFAS 123R). For purposes of comparability across other periods and against other companies in our industry, non-GAAP net income is adjusted by the amount of additional taxes or tax benefit that the Company would accrue using a normalized effective tax rate applied to the non-GAAP results.

Non-GAAP net income is a supplemental measure of our performance that is not required by, nor presented in accordance with, GAAP. Moreover, it should not be considered as an alternative to net income, operating income, or any other performance measure derived in accordance with GAAP, or as an alternative to cash flow from operating activities or as a measure of our liquidity. We present non-GAAP net income because we consider it an important supplemental measure of our performance.

Management excludes from non-GAAP net income certain recurring items to facilitate its review of the comparability of the Company's core operating performance on a period-to-period basis because such items are not related to the Company's ongoing core operating performance as viewed by management. Management uses this view of its operating performance for purposes of comparison with its business plan and individual operating budgets and allocations of resources. Additionally, when evaluating potential acquisitions, management excludes the items described above from its consideration of target performance and valuation.

The Company believes that, in general, these items possess one or more of the following characteristics: their magnitude and timing is largely outside of the Company's control; they are unrelated to the ongoing operation of the business in the ordinary course; they are unusual and the Company does not expect them to occur in the ordinary course of business; or they are non-operational, or non-cash expenses involving stock option grants.

The Company believes that the presentation of these non-GAAP financial measures is warranted for several reasons:
1) Such non-GAAP financial measures provide an additional analytical tool for understanding the Company's financial performance by excluding the impact of items that may obscure trends in the core operating performance of the business;

2) Since the Company has historically reported non-GAAP results to the investment community, the Company believes the inclusion of non-GAAP numbers provides consistency and enhances investors' ability to compare the Company's performance across financial reporting periods;

3) These non-GAAP financial measures are employed by the Company's management in its own evaluation of performance and are utilized in financial and operational decision making processes, such as budget planning and forecasting;

4) These non-GAAP financial measures facilitate comparisons to the operating results of other companies in our industry, which use similar financial measures to supplement their GAAP results, thus enhancing the perspective of investors who wish to utilize such comparisons in their analysis of the Company's performance.

Set forth below are additional reasons why specific items are excluded from the Company's non-GAAP financial measures:

a) Amortization charges for purchased technology and other intangible assets are excluded because they are inconsistent in amount and frequency and are significantly impacted by the timing and magnitude of the Company's acquisition transactions. We analyze and measure our operating results without these charges when evaluating our core performance. Generally, the impact of these charges to the Company's net income tends to diminish over time following an acquisition.

b) While stock-based compensation calculated in accordance with SFAS 123R constitutes an ongoing and recurring expense of the Company, it is not an expense that typically requires or will require cash settlement by the Company. We therefore exclude these charges for purposes of evaluating our core performance as well as with respect to evaluating any potential acquisition.

c) Restructuring charges are primarily related to severance costs and/or the disposition of excess facilities driven by modifications of business strategy. These costs are excluded because they are inherently variable in size, and are not specifically included in the Company's annual operating plan and related budget due to the rapidly changing facts and circumstances typically associated with such modifications of business strategy;

d) Operating expenses related to idle facilities are excluded because the charges relate to a facility that was abandoned in late 2007 and therefore the charges are unrelated to the ongoing operation of the business in the ordinary course. Because these costs are unrelated to the Company’s core operations, they are not included in the Company’s annual operating plan;

e) During the quarter the Company incurred professional services fees related to considerations regarding strategic alternatives. These costs are excluded because the charges are unrelated to the ongoing operation of the business in the ordinary course. Because these costs are unrelated to the Company’s core operations, they are not included in the Company’s annual operating plan. We analyze and measure our operating results without these charges when evaluating our core performance;

f) The facilities rent adjustment is excluded because we have recognized rent expense on both of our old and new corporate headquarters. Accounting rules require that we recognize rent expense on our new headquarters even though our landlord provided us with a rent holiday for the period during the transition period to the new lease. We therefore excluded the duplicate rent expense for purposes of evaluating our core performance;

g) Income tax expense is adjusted by the amount of additional expense or benefit that we would accrue if we used non-GAAP results instead of GAAP results in the calculation of our tax liability, taking into consideration the Company's long-term tax structure. Starting in the quarter ended September 30, 2005, the Company began to use a normalized effective tax rate of 30%. This item is excluded because the rate remains subject to change based on several factors, including variations over time in the geographic business mix and statutory tax rates.

In the future, the Company expects to continue reporting non-GAAP financial measures excluding items described above and the Company expects to continue to incur expenses similar to the non-GAAP adjustments described above. Accordingly, exclusion of these and other similar items in our non-GAAP presentation should not be construed as an inference that these costs are unusual, infrequent or non-recurring.

As stated above, the Company presents non-GAAP financial measures because it considers them to be important supplemental measures of performance. However, non-GAAP financial measures have limitations as an analytical tool and should not be considered in isolation or as a substitute for the Company's GAAP results. In the future, the Company expects to incur expenses similar to the non-GAAP adjustments described above and expects to continue reporting non-GAAP financial measures excluding such items. Some of the limitations in relying on non-GAAP financial measures are:


Pursuant to the requirements of SEC Regulation G, a detailed reconciliation between the Company's GAAP and non-GAAP financial results is provided in this press release and is available in the investor relations section of the Company's web site at http://www.actuate.com/investor. Investors are advised to carefully review and consider this information strictly as a supplement to the GAAP results that are contained in this press release and in the Company's SEC filings.

Cautionary Note Regarding Forward Looking Statements: The statements contained in this press release that are not purely historical are forward looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934. These include statements regarding Actuate’s expectations, beliefs, hopes, intentions or strategies regarding the future. All such forward-looking statements are based upon information available to Actuate as of the date hereof, and Actuate disclaims any obligation to update or revise any such forward-looking statements based on changes in expectations or the circumstances or conditions on which such expectations may be based. Actual results could differ materially from Actuate’s current expectations. Factors that could cause or contribute to such differences include, but are not limited to, the general spending environment for information technology products and services in general and Rich Internet Application software in particular, quarterly fluctuations in our revenues and other operating results, our ability to expand our international operations, our ability to successfully compete against current and future competitors, the impact of future acquisitions (including the performancesoft, Inc. acquisition) on the Company’s financial and/or operating condition, the ability to increase revenues through our indirect distribution channels, general economic and geopolitical uncertainties and other risk factors that are discussed in Actuate’s Securities and Exchange Commission filings, specifically Actuate 2007 Annual Report on Form 10-K filed on March 17, 2008 and Quarterly Reports on Form 10-Q filed on May 9, 2008 and August 8, 2008.

Copyright© 2008 Actuate Corporation. All rights reserved.

Actuate and the Actuate logo are registered trademarks of Actuate Corporation and/or its affiliates in the U.S. and certain other countries. All other brands, names or trademarks mentioned may be trademarks of their respective owners.

ACTUATE CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
(unaudited)
September 30, December 31,
2008 2007
ASSETS
Current assets:
Cash, cash equivalents and short-term investments $ 66,140 $ 68,415
Accounts receivable, net 22,182 38,575
Other current assets 6,522 5,278
Total current assets 94,844 112,268
Property and equipment, net 5,201 5,269
Goodwill and other intangibles, net 38,238 39,242
Investments 15,165 -
Other assets 13,201 13,129
$ 166,649 $ 169,908
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,500 $ 2,667
Current portion of restructuring liabilities 3,281 3,201
Accrued compensation 4,157 6,326
Other accrued liabilities 4,023 5,677
Deferred revenue 38,001 40,352
Total current liabilities 50,962 58,223
Long term liabilities:
Deferred rent 1,000 1,124
Deferred revenue 3,201 3,499
Tax liabilities 472 483
Restructuring liabilities 3,711 5,606
Total long term liabilities 8,384 10,712
Stockholders' equity 107,303 100,973
$ 166,649 $ 169,908

ACTUATE CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
2008 2007 2008 2007
Revenues:
License fees $ 10,021 $ 13,438 $ 29,920 $ 39,524
Maintenance 20,406 17,214 56,791 50,107

Professional services

3,254 4,087 11,091 11,783
Total revenues 33,681 34,739 97,802 101,414
Costs and expenses:
Cost of license fees 350 423 1,066 1,359
Cost of services 5,299 6,080 17,861 18,473
Sales and marketing 13,168 13,587 39,982 40,589
Research and development 5,459 5,351 16,860 16,424
General and administrative 5,053 4,315 14,457 13,117
Amortization of other intangibles 237 237 711 711
Restructuring charges 672 926 1,075 1,223
Total costs and expenses 30,238 30,919 92,012 91,896
Income from operations 3,443 3,820 5,790 9,518
Interest and other income, net 683 761 761 2,306
Income before income taxes 4,126 4,581 6,551 11,824
Provision (benefit) for income taxes 1,021 (26 ) (2,356 ) 2,438
Net income $ 3,105 $ 4,607 $ 8,907 $ 9,386
Basic net income per share $ 0.05 $ 0.08 $ 0.15 $ 0.15
Shares used in basic per share calculation. 60,387 60,767 60,505 60,696
Diluted net income per share $ 0.05 $ 0.07 $ 0.13 $ 0.14
Shares used in diluted per share calculation 65,397 68,710 66,075 68,559

ACTUATE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
Nine Months Ended
September 30,
Operating activities 2008 2007
Net income $ 8,907 $ 9,386
Adjustments to reconcile net income to
net cash from operating activities:
Stock compensation expense 7,091 6,769
Amortization of other intangibles 1,146 1,463
Depreciation and amortization of property and equipment 1,740 1,703
Net operating loss utilizations (adjustments) related to prior acquisitions (228 ) 42
Restructuring charges 1,075 1,223
Accretion of discount (amortization of premium) on short-term debt securities 218 (138 )
Deferred tax asset utilization 85 -
Changes in operating assets and liabilities:
Accounts receivable 16,393 1,963
Other current assets 829 (574 )
Accounts payable (1,167 ) (14 )
Accrued compensation (2,170 ) (997 )
Other accrued liabilities (1,654 ) 952
Deferred tax assets 51 682
Deferred tax liabilities - (404 )
Income taxes payable (2,206 ) (336 )
Deferred rent liabilities (124 ) (23 )
Restructuring liabilities (2,892 ) (2,085 )
Deferred revenue (2,649 ) (1,673 )
Net cash provided by operating activities 24,445 17,939
Investing activities
Purchases of property and equipment (1,672 ) (2,347 )
Increase in restricted cash - (395 )
Proceeds from maturity of short-term investments 53,418 73,312
Purchases of short-term investments (43,385 ) (82,144 )
Proceeds from security deposit - 209
Net change in other assets - (112 )
Net cash provided by (used in) investing activities 8,361 (11,477 )
Financing activities
Tax benefit from exercise of stock options - 1,337
Proceeds from issuance of common stock 4,932 6,290
Stock repurchases (12,675 ) (14,179 )
Net cash used in financing activities (7,743 ) (6,552 )
Net increase (decrease) in cash and cash equivalents 25,063 (90 )
Effect of exchange rate on cash (497 ) 379
Cash and cash equivalents at the beginning of the period 21,468 31,113
Cash and cash equivalents at the end of the period $ 46,034 $ 31,402

ACTUATE CORPORATION
RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES
(in thousands, except per share data)
(unaudited)
Three Months Ended Nine Months Ended
September 30, (a) September 30, (a)
2008 2007 Notes 2008 2007 Notes
GAAP income before income taxes $ 4,126 $ 4,581 $ 6,551 $ 11,824
Non-GAAP adjustments:
Amortization of purchased technology 37 139 (b) 110 424 (b)
Amortization of other intangibles 237 237 (c) 711 711 (c)
Stock compensation expense under FAS123R 2,080 2,519 (d) 7,091 6,769 (d)
Restructuring charges 672 926 (e) 1,075 1,223 (e)
One-time professional services fees 455 - (f) 483 - (f)
Operating expenses related to idle facilities - - 306 - (g)
Facilities rent adjustment - 217 (h) - 217 (h)
Non-GAAP income before income taxes 7,607 8,619 16,327 21,168
Non-GAAP tax provision 2,282 2,586 (i) 4,898 6,350 (i)
Non-GAAP net income 5,325 6,033 11,429 14,818
Basic non-GAAP net income per share $ 0.09 $ 0.10 $ 0.19 $ 0.24
Shares used in basic per share calculation 60,387 60,767 60,505 60,696
Diluted non-GAAP net income per share $ 0.08 $ 0.09 $ 0.17 $ 0.21
Shares used in diluted per share calculation 65,523 69,093 (j) 66,275 69,145 (j)
(a) This table contains financial measures that are not calculated in accordance with U.S. generally accepted accounting principles (GAAP). Such measures are intended to serve as a supplement to the GAAP results presented elsewhere in this press release, and should not be considered in isolation or as a substitute for such GAAP results. See the section entitled Discussion of Non-GAAP Financial Measures in this press release for additional information regarding: the manner in which management uses these non-GAAP financial measures; the economic substance behind management's decision to use such measures; the material limitations associated with use of these non-GAAP financial measures as compared to the use of the most directly comparable GAAP financial measures; the manner in which management compensates for these limitations when using these non-GAAP financial measures; and the substantive reasons why management believes these non-GAAP financial measures provide useful information to investors.
(b) Amortization of purchased technology acquired in the Performancesoft and Nimble acquisition transactions in January of fiscal year 2006, and July of fiscal year 2003, respectively. Purchased technology is amortized over the estimated life of the underlying asset.
(c) Amortization of other intangibles includes identifiable intangible assets including trade names, employment agreements and customer relationships acquired through various acquisition transactions. Other identified intangibles are amortized over the estimated remaining life of the underlying intangibles.
(d) As of January 1, 2006 Actuate accounts for stock compensation expense under the fair value method. Actuate adopted the modified prospective transition method as defined under FASB 123R, Share-Based Payment (SFAS 123(R). Actuate is presenting this non-GAAP adjusted net income per diluted share financial measure which excludes stock based compensation expense for all periods presented. For the three months ended September 30, 2008, stock-based expense included approximately (in thousands): $80, $760, $402, and $838, related to cost of services revenues, sales and marketing expense, research and development expense, and general and administrative expense, respectively.

(e) The restructuring expenses for the third quarter of 2008 consist primarily of severance payments, payroll taxes and extended medical benefits related to a reduction-in-force that was implemented in August 2008. Included for the year are charges primarily related to the closure of various office facilities in North America and costs related to the termination of European employees in connection with the previous closure of one of our European operations.

(f) During the quarter, the Company incurred professional fees related to considerations regarding strategic alternatives. These costs are excluded because the charges are unrelated to the ongoing operation of the business in the ordinary course. Because these costs are unrelated to the Company's core operations, they are not included in the Company's annual operating plan. We analyze and measure our operating results without these charges when evaluating our core performance.
(g) This relates to a one-time operating expense charge related to our former headquarters facility in South San Francisco, California. The facility was abandoned in September of 2007, when the Company moved to its new headquarters in San Mateo, California.
(h) The facilities rent adjustment is excluded because we have recognized rent expense on both of our old and new corporate headquarters. Accounting rules require that we recognize rent expense on our new headquarters even though our landlord provided us with a rent holiday for the period during the transition period to the new lease. We therefore excluded the duplicate rent expense for purposes of evaluating our core performance.
(i) Income tax expense is adjusted by the amount of additional expense or benefit that we would accrue if we used non-GAAP results instead of GAAP results in the calculation of our tax liability, taking into consideration the company's long-term tax structure. The Company uses a normalized effective tax rate of 30%. This item is excluded because the rate remains subject to change based on several factors, including variations over time in the geographic business mix and statutory tax rates.
(j) Shares used in calculating diluted earnings per share have been adjusted to reflect what the share amounts would have been if they were calculated using non-GAAP results.

About Actuate (NASDAQ:BIRT) – The BIRT Company ™

Actuate provides software to more than three million BIRT developers and OEMs who build scalable, secure solutions that save time and improve brand experience by delivering personalized analytics and insights to over 200 million of their customers, partners and employees. Actuate founded and supports BIRT – the open source IDE – and develops BIRT iHub™ – the world-class deployment platform – to significantly improve productivity of developers working on customer facing applications. Actuate's BIRT Analytics™delivers self-service predictive analytics to enhance customer engagement using Big Data. The Actuate Customer Communications Suite™ empowers organizations to easily transform, process, personalize, archive and deliver high volume content and individualized correspondence. Actuate is headquartered in Silicon Valley with more than 5,000 enterprise customers in financial services, technology and government. Visit actuate.com and developer.actuate.com.

Copyright © 2014 Actuate Corporation. All rights reserved. Actuate, legodo, BIRT iHub, BIRT Analytics, Actuate Customer Communications Suite, The Actuate Document Accessibility Appliance, BIRT onDemand, BIRT Viewer Toolkit, and the Actuate logo are trademarks or registered trademarks of Actuate Corporation and/or its affiliates in the U.S. and certain other countries. The use of the word "partner" or "partnership" does not imply a legal partnership relationship between Actuate and any other company. All other brands, names or trademarks mentioned may be trademarks of their respective owners.

Contacts:

Kate Lynch, Corporate Communications, Actuate
klynch@actuate.com +1.650.678.8658 (mobile)
Jacob Moelter, Market Street Partners
ir@actuate.com +1.415.571.4956 (mobile)