Second Quarter Financial Highlights
Second Quarter Customer Highlights
During the second quarter, Actuate received significant new and repeat business from, among others, The Benham Companies, British Sky Broadcasting Group, Chase Paymentech, Citigroup, Computer Associates, Deltek Systems, Derbyshire Police, International Automotive Components, Leeds Primary Care Trust, Quest Diagnostics, Societe Generale, State Street, Steel Warehouse, TIAA-CREF, UBS, U.S. Army and U.S. Department of Homeland Security.
First Half Financial Highlights
Conference Call Information
Actuate will be holding a conference call at 2:00 p.m. Pacific Time, today, July 30, 2007 to further discuss these results. The dial-in number for the call is (877) 502-9274 (+1 913-981-5584 for international participants) and the passcode is 2452409. A listen-only live webcast of the second quarter 2007 earnings conference call, with an accompanying slide presentation, will also be available at the investor relations section of the Actuate website at http://phx.corporate-ir.net/phoenix.zhtml?c=64401&p=irol-irhome, and will be available in the same location on an archived basis 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, merger and acquisition charges, restructuring charges, equity plan-related compensation expenses and 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. Merger and acquisition charges represent in-process research and development charges related to products in development that had not reached technological feasibility at the time of acquisition. Restructuring charges consist of severance and benefits, excess facilities and asset-related charges, and also include strategic reallocations or reductions of personnel resources. Equity plan-related compensation expenses represent the fair value of all share-based payments to individuals, including grants of employee stock options, as required under SFAS No. 123 (revised 2004), "Share-Based Payment" (SFAS 123R). Management does not consider these unusual expenses associated with a financial transaction to be part of core operating performance. 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. More specifically, management adjusts for the excluded items for the following reasons:
a) amortization charges for purchased technology and other intangible assets related to the Company's acquisition transactions; b) stock-based compensation expense; c) restructuring charges; d) in-process research and development charges related to the Company's acquisition transactions; and e) an adjustment to the income tax provision.
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 which 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) In-process research and development charges 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.
e) 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.
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 also available in the investor relations section of the Company's web site at www.actuate.com. 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 Business Intelligence, Performance Management and Reporting 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's 2006 Annual Report on Form 10-K filed on March 20, 2007 and Quarterly Report on Form 10-Q filed on May 10, 2007.
ACTUATE CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands) (unaudited) June 30, December 31, 2007 2006 ---------------------- ASSETS Current assets: Cash, cash equivalents and short-term investments $ 70,584 $ 60,079 Accounts receivable, net 19,808 31,233 Other current assets 5,683 5,233 ---------------------- Total current assets 96,075 96,545 Property and equipment, net 4,061 4,379 Goodwill and other intangibles, net 39,696 40,703 Other assets 5,799 5,962 ---------------------- $145,631 $147,589 ====================== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 1,625 $ 1,590 Current portion of restructuring liabilities 2,980 2,897 Accrued compensation 4,186 6,033 Other accrued liabilities 9,100 9,499 Income taxes payable - 703 Deferred revenue 37,015 38,525 ---------------------- Total current liabilities 54,906 59,247 ---------------------- Long term liabilities: Deferred rent - 23 Deferred revenue 1,629 2,328 Tax liabilities 417 420 Restructuring liabilities 6,634 7,761 ---------------------- Total long term liabilities 8,680 10,532 ---------------------- Stockholders' equity 82,045 77,810 ---------------------- $145,631 $147,589 ======================
ACTUATE CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share data) (unaudited) Three Months Six Months Ended Ended June 30, June 30, --------------- --------------- 2007 2006 2007 2006 ------- ------- ------- ------- Revenues: License fees $14,096 $11,184 $26,086 $21,171 Services 20,604 20,488 40,589 40,345 ------- ------- ------- ------- Total revenues 34,700 31,672 66,675 61,516 ------- ------- ------- ------- Costs and expenses: Cost of license fees 476 472 936 966 Cost of services 6,103 6,925 12,393 14,599 Sales and marketing 13,896 12,150 27,002 23,707 Research and development 5,605 5,327 11,073 10,610 General and administrative 4,265 4,208 8,802 8,263 Amortization of other intangibles 237 237 474 474 In-process R&D - - - 900 Restructuring charges - - 297 - ------- ------- ------- ------- Total costs and expenses 30,582 29,319 60,977 59,519 ------- ------- ------- ------- Income from operations 4,118 2,353 5,698 1,997 Interest and other income, net 793 343 1,545 678 ------- ------- ------- ------- Income before income taxes 4,911 2,696 7,243 2,675 Provision for income taxes 1,528 1,109 2,464 1,558 ------- ------- ------- ------- Net income $ 3,383 $ 1,587 $ 4,779 $ 1,117 ======= ======= ======= ======= Basic net income per share $ 0.06 $ 0.03 $ 0.08 $ 0.02 ======= ======= ======= ======= Shares used in basic per share calculation. 60,523 60,339 60,660 60,261 ======= ======= ======= ======= Diluted net income per share $ 0.05 $ 0.02 $ 0.07 $ 0.02 ======= ======= ======= ======= Shares used in diluted per share calculation 68,480 66,858 68,460 66,214 ======= ======= ======= =======
ACTUATE CORPORATION RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES (in thousands, except per share data) (unaudited) Three Months Six Months Ended Ended June 30, (a) June 30, (a) --------------- ----- --------------- ----- 2007 2006 Notes 2007 2006 Notes ------- ------- ----- ------- ------- ----- GAAP income before income taxes 4,911 2,696 7,243 2,675 Non-GAAP adjustments: Amortization of purchased technology 142 164 (b) 285 329 (b) Amortization of other intangibles 237 237 (c) 474 474 (c) Stock compensation expense under FAS123R 2,353 1,555 (d) 4,250 3,108 (d) In-process R&D - - (e) - 900 (e) Restructuring charges - - (f) 297 - (f) ------- ------- ------- ------- Non-GAAP income before income taxes 7,643 4,652 12,549 7,486 Non-GAAP tax provision 2,293 1,396 (g) 3,765 2,246 (g) ------- ------- ------- ------- Non-GAAP net income 5,350 3,256 8,784 5,240 ======= ======= ======= ======= Basic non-GAAP net income per share $ 0.09 $ 0.05 $ 0.14 $ 0.09 ======= ======= ======= ======= Shares used in basic per share calculation 60,523 60,339 (h) 60,660 60,261 (h) ======= ======= ======= ======= Diluted non-GAAP net income per share $ 0.08 $ 0.05 $ 0.13 $ 0.08 ======= ======= ======= ======= Shares used in diluted per share calculation 69,028 67,660 (h) 69,133 67,176 (h) ======= ======= ======= ======= (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 measure; 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) Prior to January 1, 2006, Actuate accounted for stock compensation under Accounting Principles Board, Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25"). In accordance with APB 25, Actuate historically used the intrinsic value method to account for stock compensation expense. As of January 1, 2006 Actuate accounts for stock compensation expense under the fair value method. Actuate adopted the modified prospective transition method, results for prior periods have not been restated under the fair value method for GAAP purposes. Actuate is presenting a 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 June 30, 2007, stock-based expense included approximately $306, $864, $365, and $818, related to cost of services revenues, sales and markeing expense, research and development expense, and general and administrative expense, respectively. (e) We review our acquisitions to determine if there are any intangible assets relating to purchased in-process research and development. Projects that have not achieved technological feasibility and have no alternative future use are valued at fair market value using a discounted cash flow analysis and are expensed in the statement of operations on the date of acquisition. (f) These costs were directly related to the consolidation of our U.K. offices and consisted of early termination of facility leases. (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. 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. (h) Shares used in calculating basic and diluted earnings per share have been adjusted to reflect what the share amounts would have been if they were calculated using non-GAAP results.
ACTUATE CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) (unaudited) Six Months Ended June 30, 2007 2006 ------------------ Operating activities Net income $ 4,779 $ 1,117 Adjustments to reconcile net income to net cash from operating activities: Stock compensation expense 4,250 3,108 Amortization of other intangibles 977 969 Depreciation 1,148 710 Purchased in-process research & development - 900 Restructuring charges 297 - Net operating loss utilizations associated with prior acquisitions 30 445 Accretion of discount on short-term investments (143) - Changes in operating assets and liabilities: Accounts receivable 11,425 2,801 Other current assets 569 924 Accounts payable 35 (2,604) Accrued compensation (1,847) (1,648) Other accrued liabilities (399) 547 Deferred tax assets 432 - Deferred tax liabilities (384) 86 Income taxes payable (1,228) (138) Deferred rent liabilities (23) (84) Restructuring liabilities (1,341) (964) Deferred revenue (2,209) 1,145 ------------------ Net cash provided by operating activities 16,368 7,314 ------------------ Investing activities Purchases of property and equipment (830) (520) Increase in restricted cash (395) - Proceeds from maturity of short-term investments 47,857 34,670 Purchases of short-term investments (58,600) (22,917) Purchases of minority shares of Actuate Japan - (354) Acquisition of performancesoft, inc., net of cash acquired - (15,320) Net change in other assets (33) (989) ------------------ Net cash used in investing activities (12,001) (5,430) ------------------ Financing activities Tax benefit from exercise of stock options 1,454 754 Proceeds from issuance of common stock 3,276 1,449 Stock repurchases (9,547) (1,988) ------------------ Net cash provided by (used in) financing activities (4,817) 215 ------------------ Net increase (decrease) in cash and cash equivalents (450) 2,099 Effect of exchange rate on cash 79 342 Cash and cash equivalents at the beginning of the period 31,113 12,490 ------------------ Cash and cash equivalents at the end of the period$ 30,742 $ 14,931 ==================
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