For further information please contact:
Merant Merant Financial Dynamics
Gerald Perkel Scott Hildebrandt Harriet Keen,
Chief Executive Officer Chief Financial Officer Emma Rutherford
+1 (503) 617 2735 +1 (503) 617 2401 +44 (0) 20 7831 3113
Gerry.Perkel@merant.com Scott.Hildebrandt@merant.com
Merant Announces Third Quarter Financial Results
Improved operating profits for fourth consecutive quarter
St. ALBANS, UK and HILLSBORO, OREGON, US - 27 February 2003 - Merant (London
Stock Exchange (LSE): MRN; Nasdaq National Market (NNM): MRNT), a leading
provider of software and services for managing code, content and other
business-critical assets, announces results for the third quarter of fiscal
year 2003 ended 31 January, 2003. Financial figures and comparisons presented
below are on the basis of continuing operations.
Key Third Quarter Results - Highlights:
* Operating profits grew to $1.4 million (a 5 percent operating margin)
* Positive cash flow from operations of $2.3 million (excluding the cash
impacts of restructuring)
* Total revenue growth of 4 percent sequentially and 1 percent year on year
* License fees grew 7 percent sequentially and 3 percent year on year with 18
transactions valued at over $100,000
* Maintenance fee revenue accounted for 50 percent of total revenue for the
quarter
* Gross margins grew sequentially to 79.5 percent (Q2 2003 margins were 78.9
percent)
* Increased strategic investment to grow market share and extend into
adjacent markets
* Sales pipeline strengthening including initial order from new US DoD
agreement
* Cash of $75.2 million, with no debt at end of third quarter
* Separate announcement of proposed trust repurchase of 4.3 million shares
US $ (m) Q3 2003 Q2 2003 Q3 2002
Revenue 30.3 29.3 30.1
EBITA (loss) 1.4 0.4 (6.8)
(Earnings (loss) before interest, taxes and
amortization)
Profit (loss) before taxes including interest 1.6 0.8 (6.4)
income*
Earnings (loss) per share * 0.02 0.01 (0.05)
Goodwill amortization, taxes and exceptional (1.3) (7.1) (20.3)
charges
Net Income 0.3 (6.3) (26.7)
* Before exceptional restructuring charges, taxes and goodwill amortization
Gerry Perkel, President and CEO of Merant commented:
"We are very pleased to report that we have seen our operating profit
performance improve for the fourth consecutive quarter in spite of very
challenging market conditions," said Gerry Perkel, President and CEO. "Our new
management team, most of whom joined the company within the last year, is
committed to continuing the improvement in profits through focused cost
management and by driving revenue growth.
I am especially pleased that we have been able to engineer this improvement
while simultaneously increasing investments in new growth opportunities. We are
increasing our investments in our existing technology base with the goal of
both improving market share in our current markets and extending our technology
to adjacent markets."
"As we look forward we are pleased to see that our sales pipeline looks even
stronger going into the company's fourth quarter than it did going into the
third quarter," Perkel continued. "While we continue to focus on improving
results, our strategic investments should begin to drive additional growth in
our next fiscal year. We look to leverage that growth to drive improved
profitability with a multi-year goal of creating sustainable 15 percent
operating margins. While we still have a great deal of work to do, I am very
pleased with the progress we have made to date and am excited about the
opportunities we see for the future."
Third Quarter Results:
Operating earnings before interest and taxes (excluding charges for goodwill
amortization and restructuring) in the third quarter increased to a profit of
$1.4 million compared to the $0.4 million profit reported in the second
quarter, and the ($6.8) million loss reported in the previous year's third
quarter. Revenue for the third quarter increased 4% sequentially to $30.3
million from the $29.3 million reported for the second quarter and increased 1%
compared to the $30.1 million reported in the third quarter of the previous
year.
License fee revenue accounted for approximately 38 percent of total revenue for
the third quarter, and increased 7 percent compared to the second quarter. The
company recorded 18 license fee transactions during the quarter valued at over
$100,000 leaving 67 percent of total license fees made up of deals valued at
less than $100,000. Software configuration management products (SCM)
represented 95 percent of total license fee revenue in the third quarter, of
which 41 percent was PVCS Dimensions (the industry's highest rated SCM suite)
and 59 percent was PVCS Professional (the industry's most popular SCM tool
set). Third quarter average license fee transaction size (excluding maintenance
and consulting deal value) was $50,000 for PVCS Dimensions products.
Maintenance fee revenue accounted for 50 percent of total revenue for the
quarter. The remaining 12 percent of third quarter revenue consisted of
consulting and training fees. North American sales for the third quarter
represented 62 percent of total revenue. European sales represented 32 percent
of total revenue with Asia-Pacific sales accounting for 6 percent.
The company continues to see robust spending in the U.S. government sector.
During the third quarter the company secured a Blanket Purchase Agreement with
the U.S. Department of Defense (DoD) for the DoD's "Enterprise Software
Initiative" (ESI). The ESI is a joint project designed to implement a true
software enterprise management process within the entire Department of Defense.
Merant received an initial order with the U.S. Navy under this new federal
program during the third quarter.
Gross margins were 79.5 percent during the third quarter, compared to 78.9
percent in the second quarter. Total costs associated with continuing
operations, excluding goodwill amortization and restructuring charges, were
$28.9 million, down substantially from $36.9 million reported in the third
quarter last year. The company ended the third quarter with 585 employees.
The company ended the quarter with $75.2 million in cash and marketable
securities and no debt. Operating cash flow (excluding restructuring) was $2.3
million during the quarter with depreciation of $0.8 million and positive
working capital change of $0.1 million.
Third quarter deferred revenue of $39.9 million grew $5.9 million compared to
the second quarter as the company recorded a significant amount of maintenance
contract renewals during the quarter. Days sales outstanding (DSO) improved to
77 days in the third quarter compared to 112 days in the third quarter of
fiscal 2002, but increased compared to the second quarter due to the growth in
renewals of maintenance contracts. Maintenance contracts are booked as deferred
revenue when the contract is renewed and are paid up front, with normal payment
terms. Deferred maintenance revenue is ratably recognized as revenue over the
term of the maintenance contract.
During the third quarter the company purchased an additional 0.2 million shares
for cancellation as part of the company's buy back program approved by
shareholders on 6 June, 2002. The company has now completed its return of
capital through share buybacks originally announced in December of 2001, with a
total share re-purchase of approximately �35 million or 32.2 million shares,
representing 24% of the then outstanding stock. The company committed in
December of 2001 to repurchase �35 million of company stock.
Separately, the company announces today that, based on the approval of the
Merant Board of Directors, it is directing Merant Trustees Limited, the trustee
of Merant's 1994 Employee Benefit Trust and 2003 Employee Benefit Trust, to
commence the purchase of up to approximately 4.3 million ordinary shares
(equating to approximately 4.2 percent of the Company's currently issued share
capital) for use under Merant's 1999 Employee Share Purchase Plan and 2003
Share Incentive Plan administered through such trusts. The specific periodic
amounts purchased, timing, price to be paid and method of purchase shall be at
the discretion of the trustee, subject to certain restrictions and price
conditions imposed by Merant. These periodic purchases are expected to be
funded out of the existing cash resources of Merant group companies. The
company is directing the trustee to initiate purchases beginning 4 March 2003.
Business Outlook and Strategic Direction
The company remains cautious regarding revenue and earnings performance over
the next several quarters as global recessionary pressures continue to limit
information technology and software development spending. However, the company
has resized the business to allow for these economic realities and has returned
to profitability while providing for increased expenses relating to new product
introductions. This commitment to fund future growth while at the same time
increasing profitability is at the core of the company's strategy looking
forward. The company continues to be committed to increasing its already strong
market share in the SCM space, and will continue to invest to deliver the best
customer solutions with its Professional and Dimensions SCM tools. In addition,
current initiatives aimed at driving incremental revenue beyond the company's
current core client server SCM market are:
* Growing market share in the SCM market though the extension of our current
product capability to the mainframe environment in addition to the current
offerings in client server environment.
* Continued focus on web content management initiatives, including
enhancements to Merant Collage, an open, standards-based, J2EE content
management solution that offers enterprise-class capability and seamless
integration with SCM solutions for a fraction of the price of competitive
offerings. While this is a new product and growth opportunity for the
company (only 3% of total revenues represent web content management
products) the company has closed over 30 deals in the current fiscal year.
* Enriching our strong PVCS Dimensions product feature set to focus on the
life sciences market, and other process management market opportunities.
The company is increasing its focus on several market segments, including
regulated industries such as life sciences where it can provide solutions
to help reduce compliance risks and software validations costs, as well as
improve quality, repeatability and accountability.
While we are realizing revenues today from Merant Collage, the majority of
these initiatives will not add incremental revenue to the company until the
beginning of fiscal 2004.
Over the longer term, once the economic conditions begin to improve and key
products emerge from our increased growth investments, the company's goal is to
generate a sustainable 15 percent operating margin on sales.
Conference Call
A conference call has been scheduled for today at 4:00 p.m. GMT (11:00 a.m. US
EST) for investors, analysts and press. For those wishing to participate in the
call, the telephone numbers are UK: +44 (0) 20 7162 0125; US: 1 800 513 7968.
The replay of the conference call will be available for two weeks after the
conference call. Replay numbers are UK: +44 (0) 20 8288 4459; US: 1 800 495
0250, passcode 737722.
About Merant
Merant's software and services give companies the most flexible control of
code, content and workflow, enabling them to better view, track, protect and
re-use these business-critical assets. More than 90 of the Fortune 100 rely on
Merant's cost-effective solutions to automate business processes, significantly
boosting productivity, visibility and overall ROI. For more information, please
visit www.merant.com.
Forward-Looking Statements
The following statement is made in accordance with the U.S. Private Securities
Litigation Reform Act of 1995: This release contains forward-looking statements
that include statements regarding expectations for future financial results and
results of operations, business strategy, and prospects, including the growth
and/or performance of our software configuration management and other
businesses and related revenues. When used in this release, the words
`anticipate,' `believe', `estimate', `intend', `expect', `goal,' `realize',
`likely', `unlikely', and other similar expressions, as they relate to Merant
or its management, are intended to identify these forward-looking statements.
These forward-looking statements involve a number of risks and uncertainties.
Actual results could differ materially from those anticipated by these
forward-looking statements. Future results will be difficult to predict as
Merant continues to transform its business strategy to focus on its software
configuration management and web content management products and services.
Merant's ability to recruit and retain key personnel, especially in the sales
and business units and at the management level, could materially alter
financial results and plans for the sales and business units. Other factors
that could cause actual results to differ materially include, among others, the
extent to which the current weakness and uncertainty in the economic climate
generally and in IT spending in particular continues, the ability of Merant to
effectively manage its costs against uncertain revenue expectations, the
potential for a decrease in revenue or a slowdown in revenue growth which may
be caused by delays in the timing of sales and the delivery of products or
services, the ability of Merant to develop, release, market and sell products
and services to customers in the highly dynamic market for the company's
products, the potential need for software configuration management and web
content management products to shift based on changes in technology and
customer needs, the effect of competitors' efforts to enter Merant's markets
and the possible success of new and existing competitors in those markets, and
Merant's ability to manage and integrate acquired businesses or other
businesses that it may acquire in the future.
Further information on potential factors which could affect Merant's financial
results and operations are found in filings or submissions on Form 6-K as
periodically submitted to the SEC, and in Merant's Annual report on Form 20-F
for the year ended April 30, 2002. Merant undertakes no obligation to release
publicly any updates or revisions to any forward-looking statements contained
in this release that may reflect events or circumstances occurring after the
date of this release.
Financial Statement Information
The financial information contained in this report does not represent the
Company's full statutory accounts. The financial information relating to the
first and second quarters of fiscal 2003 and fiscal 2002 is unaudited and no
accounts have been delivered to the U.K. Registrar of Companies. Statutory
accounts dealing with fiscal 2002 have been delivered to the U.K. Registrar of
Companies and the Company's auditors made a report under section 235 on these
accounts which was unqualified and did not contain a statement under section
237(2) or section 237(3) of the Companies Act 1985.
U.S. Securities Filings
Copies of Merant's Annual Report to Shareholders and Annual Report on Form 20-F
for the year ended April 30, 2002, as well as its periodic reports on Form 6-K,
are available upon request to Merant's offices in Hillsboro, OR or St. Albans,
United Kingdom and are also available on the SEC website located at http://
www.sec.gov.
Merant plc
Management Trading Statement using UK GAAP results in USD
(unaudited) Three months Nine months
ending: ending
Jan-31 Jan-31 Jan-31 Jan-31
2003 2002 2003 2002
$'000 $'000 $'000 $'000
Revenue: continuing business
Licence fees 11,514 11,175 33,417 35,370
Maintenance subscriptions 15,172 14,170 44,398 43,119
Training and consulting 3,627 4,786 11,236 15,796
Total revenue 30,313 30,131 89,051 94,285
Cost of revenue: continuing business
Cost of licence fees 824 623 1,943 1,518
Cost of maintenance subscriptions 1,959 2,101 6,002 6,202
Cost of training and consulting 3,439 5,251 10,463 14,962
Total cost of revenue 6,222 7,975 18,408 22,682
Gross profit 24,091 22,156 70,643 71,603
Operating expenses
Research and development 6,802 6,271 20,256 19,116
Sales and marketing 12,449 17,437 36,952 50,729
General and administrative 3,456 5,252 11,495 14,868
Total operating expenses, excluding 22,707 28,960 68,703 84,713
amortisation
Operating profit (loss) before amortisation 1,384 (6,804) 1,940 (13,110)
Interest income, net 245 437 1,003 1,872
Profit (loss) before taxes, amortisation 1,629 (6,367) 2,943 (11,238)
and exceptional items
Amortisation of goodwill (1,321) (10,616) (18,983) (31,759)
Profit (loss) before taxes and exceptional 308 (16,983) (16,040) (42,997)
items
Exceptional items:
Cost of fundamental restructuring 0 (6,664) (3,603) (9,913)
Gain on disposal of business division 0 (3,064) 0 1,771
Provision for loss on disposal of fixed 0 0 0 (2,525)
assets
Profit (loss) before taxation 308 (26,711) (19,643) (53,664)
Taxation 0 0 (0) 0
Profit (loss) for the period from 308 (26,711) (19,643) (53,664)
continuing operations, after taxation
Profit (loss) from discontinued operations 0 0 0 (3,013)
308 (26,711) (19,643) (56,677)
Profit (loss) per share before taxes, amortisation
and exceptional items
Profit (loss) per ordinary share: basic & $0.02 ($0.05) $0.03 ($0.09)
diluted
Profit (loss) per ADR equivalent: basic & $0.08 ($0.25) $0.14 ($0.44)
diluted
Net Profit (loss) per share for the period
Profit (loss) per ordinary share: basic & $0.00 ($0.21) ($0.19) ($0.44)
diluted
Profit (loss) per ADR equivalent: basic & $0.02 ($1.04) ($0.97) ($2.20)
diluted
Ordinary shares - basic & diluted 98,645 128,872 101,618 128,577
ADR equivalents - basic & diluted 19,729 25,774 20,324 25,715
Merant plc - CONSOLIDATED PROFIT & LOSS ACCOUNT
(unaudited) Three months Nine months
ending: ending
Jan-31 Jan-31 Jan-31 Jan-31
2003 2002 2003 2002
$'000 $'000 $'000 $'000
Revenue: continuing business
Licence fees 11,514 11,175 33,417 35,370
Maintenance subscriptions 15,172 14,170 44,398 43,119
Training and consulting 3,627 4,786 11,236 15,796
30,313 30,131 89,051 94,285
Revenue: discontinued business 0 0 0 44,589
Total revenue 30,313 30,131 89,051 138,874
Cost of revenue: continuing business
Cost of licence fees 824 623 1,943 1,518
Cost of maintenance subscriptions 1,959 2,101 6,002 6,202
Cost of training and consulting 3,439 5,251 10,463 14,962
6,222 7,975 18,408 22,682
Cost of revenue: discontinued business 0 0 0 7,212
Total cost of revenue 6,222 7,975 18,408 29,894
Gross profit 24,091 22,156 70,643 108,980
Operating expenses
Research and development 6,802 6,271 20,256 28,108
Sales and marketing 12,449 17,437 36,952 68,584
General and administrative 3,456 5,252 11,495 19,923
Total operating expenses, excluding 22,707 28,960 68,704 116,615
amortisation
Operating profit (loss) before amortisation 1,384 (6,804) 1,939 (7,635)
Amortisation of goodwill (1,321) (10,616) (18,983) (40,248)
Operating profit (loss):
Continuing business 63 (17,420) (17,044) (44,870)
Discontinued business 0 0 0 (3,013)
Total operating profit (loss) 63 (17,420) (17,044) (47,883)
Exceptional items:
Cost of fundamental restructuring 0 (6,664) (3,603) (9,913)
Gain on disposal of business division 0 (3,064) 0 1,771
Provision for loss on disposal of fixed 0 0 0 (2,524)
assets
Amounts written off investments 0 0 0 0
Operating profit (loss), before interest 63 (27,148) (20,647) (58,549)
income
Interest income, net 245 437 1,003 1,872
Profit (loss) before taxation 308 (26,711) (19,644) (56,677)
Taxation 0 0 (0) 0
Profit (loss) for the period after taxation 308 (26,711) (19,644) (56,677)
Profit (loss) per ordinary share: basic & $0.00 ($0.21) ($0.19) ($0.44)
diluted
Ordinary shares - basic & diluted 98,645 128,872 101,618 128,577
Merant plc - CONSOLIDATED BALANCE SHEET
(unaudited) Jan-31 Oct-31 Apr-30
2003 2002 2002
$000 $000 $000
Fixed assets
Intangible fixed assets 15,694 15,693 31,802
Tangible fixed assets 3,101 6,948 9,174
Investment 7,909 8,201 8,553
Total fixed assets 26,704 30,842 49,529
Current assets:
Stock 120 130 137
Trade debtors 25,677 20,893 32,226
Other debtors and prepaid expenses 5,167 7,934 4,460
Cash and bank deposits 75,235 76,510 104,565
Total current assets 106,199 105,467 141,388
Creditors: amounts falling due within one year
Trade creditors 2,774 2,896 3,814
Accrued employee compensation 8,347 9,599 7,621
Current corporation tax 13,607 13,882 14,499
Accrued expenses and other current liabilities 9,743 12,198 18,247
Deferred revenue 39,871 33,927 40,754
Total current liabilities 74,342 72,502 84,935
Net current assets 31,857 32,965 56,453
Total assets less current liabilities 58,561 63,807 105,982
Provision for liabilities and charges 7,927 13,765 19,421
Net assets 50,634 50,042 86,561
Capital and reserves
Called up share capital 3,456 3,289 3,358
Share premium account 330,874 314,264 293,262
Capital redemption reserve 1,482 1,400 1,018
Profit and loss account -285,178 -268,911 -211,077
Total shareholders' equity 50,634 50,042 86,561
END