WEBM Webmediabrands (MM)

Sequential License Revenue Growth Contributes to Record Profitability FAIRFAX, Va., Jan. 23 /PRNewswire-FirstCall/ -- webMethods, Inc. (NASDAQ:WEBM), a leading provider of business integration and optimization software, today announced financial results for its fiscal third quarter ended December 31, 2005. Total revenue for the quarter ended December 31, 2005 was $52.5 million, compared to $49.2 million in the prior quarter and $55.0 million in the prior year period. License revenue for the quarter was $22.0 million, compared to $19.4 million in the prior quarter and $26.0 million in the prior year period. Under U.S. generally accepted accounting principles (GAAP), the company's net income for the December 2005 quarter was $5.5 million, or earnings of $0.10 per diluted share, compared to net income of $48,000, or $0.00 per diluted share, in the prior year period. Adjusting the financial results as described below in "Non-GAAP Financial Measures," the company reported non-GAAP net income of $4.4 million or $0.08 per diluted share in the quarter ended December 31, 2005. Important information regarding these results is provided below under "Non-GAAP Financial Measures" and should be read to better understand the adjustments excluded and why this information is presented. For the nine months ended December 31, 2005, total revenue was $149.4 million, compared to $147.7 million in the prior year period. License revenue for the nine months ended December 31, 2005 was $59.8 million, compared to $64.6 million in the prior year period. GAAP net income for the nine months ended December 31, 2005 was $7.6 million, or $0.14 per diluted share, versus a net loss of $14.9 million, or loss of $0.28 per share, recorded in the prior year period. "Our execution against our strategic plan to invest for growth while expanding margins allowed us to produce record profits for the quarter," said David Mitchell, president and CEO, webMethods, Inc. "We were also able to meet our objective of double-digit non-GAAP operating margins a quarter ahead of schedule. During the quarter, we saw broad success with new and existing clients taking advantage of the differentiated aspects of our flagship software suite webMethods Fabric(TM)." December 2005 Quarterly Financial Highlights: * Operating margin was 8% and non-GAAP operating margin was 10%. * International revenue accounted for approximately 40% of total revenue in the December 2005 quarter, as compared to 37% in the September 2005 quarter. * Cash and marketable securities at December 31, 2005 increased by approximately $900,000 to approximately $148.9 million from $148.0 million at September 30, 2005. * Total deferred revenue at December 31, 2005 increased by $1.2 million to $45.8 million from $44.6 million at September 30, 2005. Financial Outlook: Based on currently available information, webMethods anticipates total revenue in the quarter ending March 31, 2006 will be in the range of $52 million to $55 million, which includes license revenue in the range of $21 million to $23 million. GAAP net income per diluted share for the March 2006 quarter is anticipated to be in the range of $0.05 to $0.10. GAAP net income for the March 2006 quarter is expected to include amortization expense of the deferred warrant charge of approximately $496,000 and amortization expense of acquired intangible assets of approximately $599,000. Quarterly Business Highlights: During the December 2005 quarter, webMethods held its annual Integration World user conference in Atlanta, Georgia. The conference was highlighted by a number of webMethods customers, such as ABN Amro, Avnet, Johnson & Johnson and Motorola, discussing the business benefits that they are enjoying from employing webMethods technology. The conference also enjoyed record support from our industry partners, including Accenture, BearingPoint, GXS and Tata Consulting Services (TCS). webMethods introduced a new series of solutions for the demand-driven enterprise that capitalize on the company's significant strength around business activity monitoring (BAM) and service-oriented architecture (SOA) during the event. Other initiatives unveiled at Integration World included a partnership with TCS for the outsourced management of webMethods environments, and an agreement with Fair Isaac to embed the company's business rules engine within future versions of webMethods Fabric. The company also announced Common Criteria certification for webMethods Fabric during the December 2005 quarter. This is a globally accepted standard for IT security that serves as a prerequisite for selection within a variety of high-profile implementations. webMethods was recognized during the quarter by Forrester Research as a Leader in the Enterprise Service Bus market [The Forrester WAVE(TM): Enterprise Service Bus, Q4 2005, Evolution of Top Enterprise Service Bus Vendors Across 100 Criteria (Nov. 15, 2005)]. In addition, as announced earlier today, webMethods was an overwhelming winner in the SOA Web Services Journal's Readers' Choice Awards for SOA. Specifically, webMethods was named the overall winner in seven of 21 categories, including: * Best SOA * Best Web Services Integration Tool * Best Integrated Services Environment * Best SOA Business Process Management (BPM) Engine * Best SOA Legacy Adapter or Utility * Best SOA Automation Tool, and * Best SOA Management Platform. Global Customer Wins: webMethods won new and additional business in the December 2005 quarter with strategic customers worldwide. The following companies represent important new and follow-on business that closed during the December 2005 quarter: Adobe Systems, Inc., Johnson & Johnson, Johns Manville, U.S. Department of the Navy, Genzyme, Encover, Og Vodafone, U.S. Department of Transportation, PT Telekomunikasi Indonesia, Scotia Gas Networks, Tine BA, Alinta, Aurora, Smorgon Steel and Integrated Device Technology, among others. Record Number of Customer Projects Move Into Production: In the December 2005 quarter, webMethods documented over 170 global customer projects that moved into production, including: Lafarge North America, Inc., Corporate Express, ING Canada, General Casualty Company of Wisconsin, Sasktel, Ingersoll-Rand Company, Applera, Fairfax County Public Schools, Icelandair and Underwriters Laboratories, among others. Conference Call Information: webMethods will host a conference call at 4:30 p.m. Eastern Time today to discuss the company's fiscal third quarter financial results and its future guidance. The conference call will be available via telephone by dialing 1 (877) 468-1591 in North America or 1 (706) 679-0585 outside North America, or via webcast at http://www.webmethods.com/investors. A replay of this call will be available through January 28, 2006. Please dial 1-(800) 642-1687 in North America and 1-(706) 645-9291 outside North America, confirmation number 3896137. Non-GAAP Financial Measures In accordance with the Rules and Regulations of the Securities and Exchange Commission, webMethods prepares financial statements in accordance with GAAP. In addition to evaluating webMethods' GAAP-based financial information, management of webMethods evaluates the performance of the company, makes decisions regarding operations, and historically has provided guidance using non-GAAP financial measures that exclude the effects of certain non-cash amortization charges and unusual or infrequent items that are required to be included in accordance with GAAP. This press release contains the following non-GAAP financial measures for the quarter ended December 31, 2005: non-GAAP net income, non-GAAP net income per share, non-GAAP operating income and non-GAAP operating margin percentage. webMethods believes that these non-GAAP financial measures provide management and investors with useful, additional information to evaluate the ongoing operations of the company and trends in the company's business. In addition, webMethods believes that these non-GAAP financial measures may be useful to investors because the company has historically provided similar information, and some investors use these measures in analyzing the company's performance and in comparing the performance of other companies. The non-GAAP financial measures should not be considered in isolation from, or as a substitute for, measures of financial performance prepared in accordance with GAAP. Investors also are cautioned that there are material limitations associated with the use of the non-GAAP financial measures contained in this press release. Specific limitations include: * The non-GAAP financial measures do not present the comprehensive information regarding the company's performance that is presented by the most nearly comparable GAAP financial information because each of these non-GAAP measures excludes items required by GAAP; * Although the company considers the charges and credits reflected in the non-GAAP adjustments to be unusual or infrequent, the company in the future may take actions that result in similar charges or credits; * Because the adjustments made in the non-GAAP financial measures are not in accordance with GAAP, the company's non-GAAP financial measures may differ from non-GAAP information used by other companies and may not permit meaningful comparisons to similar measures of other companies. Management compensates for these limitations by providing specific information regarding the GAAP amounts excluded from the non-GAAP financial measures. In addition, as noted above, managament evaluates the non-GAAP financial measures together with the most nearly comparable GAAP financial information. Each of the non-GAAP financial measures included in this press release reflects adjustments to the comparable GAAP financial measure for the quarter ended December 31, 2005 to: (1) exclude amortization expense of the deferred warrant charge, (2) exclude amortization expense of acquired intangible assets, (3) exclude a revision to an accrual for excess facilities cost and (4) include a provision for income taxes assuming a 35% effective tax rate. * The amortization expense of the deferred warrant charge relates to a single warrant granted by the company in March 2001 in connection with an original equipment manufacturer (OEM) Agreement entered into by the company at that time. The company believes the issuance of that warrant was unusual in its sales and marketing practices and that there is no direct correlation between the non-cash amortization expense of the deferred warrant charge and the financial results achieved under the OEM Agreement. Amortization expense of the deferred warrant charge is expected to end in April 2006. As a result, management does not include this charge in its internal review of the company's current period operations. * The amortization expense of acquired intangible assets is a non-cash amortization expense relating to three acquisitions completed by the company in fiscal year ended March 31, 2004. This amortization expense is a fixed, non-cash charge that relates to prior-year acquisitions rather than current-period operations. As a result, management does not include this charge in its internal review of the company's current period operations. * The revision in the accrual for excess facilities cost relates to the company's reassessment of the liability recorded in the fiscal year ended March 31, 2002 for the closure of one of the company's office facilities. The company reduced this liability to reflect future payments expected to be received under a sublease agreement entered into during the quarter ended December 31, 2005. This adjustment is a non-cash credit that relates to a prior year accrual of excess facilities costs rather than current period operations. As a result, management does not include this charge in its internal review of the company's current period operations. * The adjustment to income taxes is to increase the tax provision to an assumed 35% tax rate. This adjustment excludes the benefit of offsetting taxable income by the utilization of net operating loss carryforwards generated in prior years. Management uses this assumed tax rate to facilitate comparison of the operating performance of the company with the performance of other companies. The financial information attached to this press release contains a reconciliation of each of the non-GAAP financial measures presented to the most directly comparable GAAP financial measure. Investors are encouraged to review that reconciliation. About webMethods, Inc. webMethods (NASDAQ:WEBM) provides business integration software to integrate, assemble and optimize available IT assets to drive business process productivity. webMethods delivers an innovative, enterprise-class business integration platform that incorporates proven integration technology with next generation capabilities into one interoperable set of tools that delivers a unique combination of efficiency, agility and control. webMethods combines industry leadership with a zealous commitment to customers to deliver tangible business value to more than 1,330 global customers. webMethods is headquartered in Fairfax, Va., with offices throughout the U.S., Europe, Asia Pacific and Japan. More information about the company can be found at http://www.webmethods.com/. The webMethods name and logo are registered trademarks of webMethods, Inc. in the United States and certain other countries. All other marks mentioned are trademarks or service marks of their respective companies. This press release and the conference call announced in it may contain various remarks about the future expectations, plans and prospects of webMethods that constitute forward-looking statements for purposes of the safe harbor provisions of U.S. securities laws. Specific forward-looking statements relate to future market opportunities for webMethods' solutions, webMethods' products and services and their performance, the size and strength of our markets, the size and quality of our pipeline, expected future financial performance (including total revenue, license revenue, level of cash and marketable securities, non-cash or non-recurring charges, expenses, net earnings or loss, earnings or loss per share, and non-GAAP operating results per share), expected financial metrics, webMethods' future cost savings and expense levels, the anticipated result of marketing and selling models and approaches, the anticipated contributions to webMethods' future financial performance of certain products or geographic regions of its business, demand for some or all of its products and the contribution to webMethods' revenue of business partners or webMethods' products or services. Actual results of webMethods may differ materially from those indicated by these forward-looking statements as a result of various risks and uncertainties, including the impact of economic conditions, geopolitical factors, seasonal factors, competitive and pricing pressures, terrorism and related uncertainties in the U.S. and abroad on the company's customers and prospects and their IT spending budgets and priorities; impact upon operations of legal compliance matters or internal controls review, improvement and remediation; difficulties in achieving or maintaining anticipated expense levels and controlling major expenses; variations in the size and timing of customer orders and demand for software offered by webMethods; impact of compliance programs and claims for alleged violations of requirements and duties; impact of changes in management or staff levels; variations in revenue influenced by software vendor or systems integrator partners; impact of rapid technological change; and these and other risks and uncertainties discussed more fully in webMethods' SEC filings, including those discussed under the heading "Factors That May Affect Future Operating Results" in the Business section of webMethods' Form 10-K for the year ended March 31, 2005 and webMethods' Form 10-Q for the period ended September 30, 2005, which are on file with the U.S. Securities and Exchange Commission and may be accessed at http://www.sec.gov/ or webMethods' investor relations web page at http://www.webmethods.com/investors/. webMethods disclaims any obligation to update or correct any forward-looking statements made herein due to the occurrence of events after the issuance of this press release. webMethods, Inc. Condensed Consolidated Statements of Operations (in thousands, except shares and per share data) (Unaudited) Three Months Ended Nine Months Ended December 31, December 31, 2005 2004 2005 2004 Revenue License $ 21,964 $ 25,953 $ 59,821 $ 64,610 Professional services 11,627 11,854 34,636 36,455 Maintenance 18,908 17,156 54,945 46,601 Total revenue 52,499 54,963 149,402 147,666 Cost of revenue Amortization of intangibles 599 599 1,797 1,797 License 218 252 703 1,117 Professional services and maintenance 13,232 13,764 40,267 42,317 Total cost of revenue 14,049 14,615 42,767 45,231 Gross profit 38,450 40,348 106,635 102,435 Operating expenses Sales and marketing 19,549 22,764 53,875 65,126 Research and development 8,980 10,877 30,224 32,747 General and administrative 5,927 7,093 17,542 17,034 Restructuring and other related charges (117) - 602 2,756 Total operating expenses 34,339 40,734 102,243 117,663 Operating income (loss) 4,111 (386) 4,392 (15,228) Interest income and other, net 1,469 560 3,617 1,585 Impairment of equity investment in private company - - - (1,057) Net income (loss) before taxes $ 5,580 $ 174 $ 8,009 $ (14,700) Provision for income taxes 70 126 455 195 Net income (loss) $ 5,510 $ 48 $ 7,554 $ (14,895) Basic and fully diluted net income (loss) per share $ 0.10 $ 0.00 $ 0.14 $ (0.28) Shares used in computing per share amount Basic 53,772,555 53,155,607 53,586,645 53,024,466 Fully Diluted 54,429,491 53,651,756 54,075,287 53,024,466 webMethods, Inc. Condensed Consolidated Balance Sheets (in thousands) (Unaudited) December 31, March 31, 2005 2005 ASSETS Current assets: Cash and cash equivalents $69,047 $57,209 Marketable securities available for sale 79,825 78,332 Accounts receivable, net 48,243 47,326 Prepaid expenses and other current assets 5,762 6,401 Total current assets 202,877 189,268 Marketable securities available for sale - 14,513 Property and equipment, net 10,323 10,342 Goodwill 46,704 46,704 Intangibles assets, net 6,593 8,390 Other assets 4,074 6,127 Total assets $270,571 $275,344 LIABILITIES & STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $6,821 $8,673 Accrued expenses 11,050 16,506 Accrued salaries and commissions 9,362 12,219 Deferred revenue 41,298 43,055 Current portion of capital lease 338 475 Total current liabilities 68,869 80,928 Capital lease obligations, net of current portion 51 139 Other long term liabilities 3,346 3,374 Long term deferred revenue 4,492 6,371 Total liabilities 76,758 90,812 Total stockholders' equity 193,813 184,532 Total liabilities and stockholders' equity $270,571 $275,344 webMethods, Inc. Condensed Consolidated Statements of Cash Flows (in thousands) (Unaudited) Nine Months Ended December 31, 2005 2004 Cash flows from operating activities: Net income (loss) $ 7,554 $ (14,895) Adjustments to reconcile net income(loss) to net cash provided by (used in) operating activities: Depreciation and amortization 4,045 4,725 Provision for (recovery of) doubtful accounts (249) 241 Amortization of deferred stock compensation related to employee stock options and non-employee stock warrants 2,056 1,984 Amortization of acquired intangibles 1,798 1,798 Deferred rent (343) - Loss on disposal of assets 13 - Impairment of equity investment in private company - 1,057 Increase (decrease) in cash resulting from changes in assets and liabilities: Accounts receivable (1,999) (4,131) Prepaid expenses and other current assets 513 (258) Other assets 1,879 1,400 Accounts payable (1,456) 267 Accrued expenses and other liabilities (5,159) (4,512) Accrued salaries and commissions (2,554) 1,132 Deferred revenue (2,025) 3,786 Other liabilities 210 - Net cash provided by (used in) operating activities 4,283 (7,406) Cash flows from investing activities: Purchases of property and equipment (3,921) (3,851) Net maturities of marketable securities available for sale 13,174 3,366 Net cash provided by (used in) investing activities 9,253 (485) Cash flows from financing activities: Short-term borrowings - 3,533 Payments on short-term borrowings - (6,080) Payments on capital leases (466) (747) Proceeds from exercise of stock options and stock issued under the ESPP 3,096 2,932 Net cash provided by (used in) financing activities 2,630 (362) Effect of the exchange rate on cash (4,328) 1,987 Net increase/(decrease) in cash and cash equivalents 11,838 (6,266) Cash and cash equivalents at beginning of period 57,209 75,462 Cash and cash equivalents at end of period $ 69,047 $ 69,196 webMethods, Inc. Reconciliation of GAAP to Non-GAAP Financial Measures (in thousands, except shares and per share data) (Unaudited) Three Months Ended December 31, 2005 GAAP Net Income $ 5,510 Plus: Amortization of acquired intangibles(1) 599 Amortization of deferred warrant charges(2) 661 Less: Revision of accrual for excess facilities cost(3) (117) Adjustment to income tax expense(4) (2,283) Non-GAAP Net Income $ 4,370 Non-GAAP net income per share $ 0.08 Shares used in computing per share amount 53,772,555 GAAP Operating Income $ 4,111 Non-GAAP Operating Income(5) $ 5,254 Non-GAAP Operating Margin Percentage(6) 10.0% (1) Non-GAAP financial measures exclude amortization expense of acquired intangible asset charges of approximately $599,000. The amortization expense of acquired intangible assets is a non-cash amortization expense relating to three acquisitions completed by the company in fiscal year ended March 31, 2004. This amortization expense is a fixed, non-cash charge that relates to prior-year acquisitions rather than current-period operations. As a result, management does not include this charge in its internal review of the company's current period operations. (2) Non-GAAP financial measures exclude amortization expense of deferred warrant charges of approximately $661,000. The amortization expense of deferred warrant charge relates to a single warrant granted by the company in March 2001 in connection with an original equipment manufacturer (OEM) Agreement entered into by the company at that time. The company believes the issuance of that warrant was unusual in its sales and marketing practices and that there is no direct correlation between the non-cash amortization expense of the deferred warrant charge and the financial results achieved under the OEM Agreement. Amortization expense of the deferred warrant charge is expected to end in April 2006. As a result, management does not include this charge in its internal review of the company's current period operations. (3) Non-GAAP financial measures exclude the revision of an accrual for excess facilities cost of approximately $117,000. The revision in the accrual for excess facilities cost relates to the company's reassessment of the liability recorded in the fiscal year ended March 31, 2002 for the closure of one of the company's office facilities. The company reduced this liability to reflect future payments expected to be received under a sublease agreement entered into during the quarter ended December 31, 2005. This adjustment is a non-cash credit that relates to a prior year accrual of excess facilities costs rather than current period operations. As a result, management does not include this charge in its internal review of the company's current period operations. (4) Non-GAAP financial measures include a provision for income taxes assuming a 35% effective tax rate. This adjustment excludes the benefit of offsetting taxable income by the utilization of net operating loss carryforwards generated in prior years. Management uses this assumed tax rate to facilitate comparison of the operating performance of the company with the performance of other companies. (5) Non-GAAP operating income excludes amortization expense of acquired intangibles, amortization expense of deferred warrant charges and the revision of an accrual for excess facilities. (6) Operating margin is the percentage derived by dividing operating income by total revenue. In accordance with the Rules and Regulations of the Securities and Exchange Commission, webMethods prepares financial statements in accordance with GAAP. In addition to evaluating webMethods' GAAP based financial information, management of webMethods evaluates the performance of the company, makes decisions regarding operations, and historically has provided guidance using non-GAAP financial measures that exclude the effects of certain non-cash amortization charges and unusual or infrequent items that are required to be included in accordance with GAAP. This press release contains the following non-GAAP financial measures for the quarter ended December 31, 2005: non-GAAP net income; non-GAAP net income per share, non-GAAP operating income and non-GAAP operating margin percentage. webMethods believes that these non-GAAP financial measures provide management and investors with useful, additional information to evaluate the ongoing operations of the company and trends in the company's business. In addition, webMethods believes that these non-GAAP financial measures may be useful to investors because the company has historically provided similar information and some investors use these measures in analyzing the company's performance and in comparing the performance of other companies. The non-GAAP financial measure should not be considered in isolation from, or as a substitute for, measures of financial performance prepared in accordance with GAAP. Investors also are cautioned that there are material limitations associated with the use of the non-GAAP financial measures contained in this press release. Specific limitations include: * The non-GAAP financial measures do not present the comprehensive information regarding the Company's performance that is presented by the most nearly comparable GAAP financial information because each of these non-GAAP measures excludes items required by GAAP; * Although the company considers the charges and credits reflected in the non-GAAP adjustments to be unusual or infrequent, the company in the future may take actions that result in similar charges or credits; * Because the adjustments made in the non-GAAP financial measures are not in accordance with GAAP, the company's non-GAAP financial measures may differ from non-GAAP information used by other companies and may not permit meaningful comparisons to similar measures of other companies. Management compensates for these limitations by providing specific information regarding the GAAP amounts excluded from the non-GAAP financial measures. In addition, as noted above, management evaluates the non-GAAP financial measures together with the most nearly comparable GAAP financial information. First Call Analyst: FCMN Contact: shellym@webmethods.com DATASOURCE: webMethods, Inc. CONTACT: Christopher Martin, Investor Relations, +1-703-460-6609, , or John Conley, Public Relations, +1-703-460-5996, , both of webMethods, Inc. Web site: http://www.webmethods.com/

Copyright