Mercator Reports Fourth Quarter Revenue of $32.3 Million
Wednesday February 5, 4:08 pm ET
Quarterly Highlights Include License Revenue of $16.4 Million and Positive Operating Cash Flow
WILTON, Conn.--(BUSINESS WIRE)--Feb. 5, 2003--Mercator Software, Inc. (Nasdaq: MCTR - News), today reported revenue of $32.3 million for the fourth quarter ended December 31, 2002, representing a 28% sequential increase over the third quarter of 2002 and a 7% decrease compared with the fourth quarter a year ago.
Fourth quarter license revenue of $16.4 million represents 51% of total revenue in the fourth quarter compared to 33% in the previous quarter and 46% a year ago.
The Company also announced that for the fourth quarter ended December 31, 2002 it generated positive cash flow from operations of $1.6 million compared to a negative ($7.3) million in the previous quarter and $7.0 million in the fourth quarter a year ago.
Under generally accepted accounting principles in the United States (GAAP), the Company's net loss for the fourth quarter of 2002 was narrowed by 16% to ($6.9) million, or ($0.20) per share, compared to ($8.2) million, or ($0.26) per share a year ago.
Pro forma net income for the fourth quarter of 2002 was $1.5 million or $0.04 per share, compared to pro forma net income of $0.6 million and $0.02 per share a year ago. A reconciliation of these pro forma results to GAAP results can be found in the accompanying financial tables.
"We had a strong fourth quarter delivering license revenue, improving operations and serving our customers better," said Roy C. King, Chairman and CEO. "We closed several million-dollar-plus customer contracts, improved productivity, reduced our expenses to further improve our cost structure, and enhanced our cash position."
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OPERATING STATEMENT HIGHLIGHTS For the Three Months Ended
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(in millions, except per share data) December September December
31, 2002 30, 2002 31, 2001
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Revenues (a) $32.3 $25.3 $34.7
Pro Forma Gross Profit Margin (a) (b) 78.9% 70.1% 73.5%
Pro Forma Operating Income (Loss) (c) $3.0 ($4.7) $0.9
Pro Forma Operating Margin (c) 9.4% (18.8%) 2.5%
Pro Forma Net Income (Loss) (c) (d) $1.5 ($3.2) $0.6
Pro Forma Net Income (Loss) per Basic
and Fully Diluted Share (c) (d) $0.04 ($0.09) $0.02
Shares Outstanding, Basic 34.5 34.3 31.1
Shares Outstanding, Fully Diluted 34.6 34.3 33.1
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(a) Includes reimbursements received for "out-of-pocket" expenses
incurred in accordance with the adoption of Emerging Issues Task Force
("EITF") Issue No. 01-14 "Income Statement Characterization of
Reimbursements Received for 'Out-of-Pocket' Expenses Incurred"
effective January 1, 2002. All prior periods have been adjusted to
include such amounts.
(b) Adjusted to exclude amortization of intangible assets and stock
option re-pricing charge (see below).
(c) Adjusted to exclude amortization of intangible assets,
restructuring charge, stock option re-pricing charge and in 2001
amortization of goodwill. In accordance with Statement of Financial
Accounting Standards ("SFAS") No.142, goodwill is no longer being
amortized effective January 1, 2002 (see below).
(d) Amounts presented on a pro forma basis, assuming a tax rate of
38%.
Fourth Quarter Highlights
Mercator completed 40 customer transactions in excess of $100,000 in the fourth quarter, including three valued greater than $1 million, one of which is the largest contract in the Company's history and which represented 10.8% of total revenue for the fourth quarter. Customers in the quarter included ABN Amro, Bank of New York, CP Ships, Exel Logistics, The Home Depot, IBM Retail, Lawson Software, Matsushita Electric, Northrop Grumman, PacifiCare Health System, State of Illinois, Sumitomo Pharmaceuticals, Telkom South Africa, and Verizon.
The Company reported a pro forma gross profit margin, which excludes amortization of intangibles and stock option re-pricing charges, of 78.9% in the fourth quarter compared to 70.1% in the third quarter of 2002 and 73.5% in the fourth quarter of 2001.
The Company recorded a restructuring charge of $7.9 million, of which $5.4 million was for costs for unoccupied lease space and $2.5 million was for severance costs. The global workforce was reduced by 20% in the fourth quarter.
Excluding amortization of intangibles and goodwill, stock option re-pricing charges, and restructuring charges, total pro forma expenses of $29.3 million were down 3% compared to $30.0 million for the third quarter of 2002 and down 14% compared to $33.8 million in the fourth quarter of 2001, marking the 8th consecutive quarter of reduced total pro forma expenses.
Total cash and cash equivalents improved to $29.9 million in the fourth quarter of 2002, including $9.3 million of net proceeds from a term loan with Foothill Capital, from $20.2 million in the third quarter and $28.2 million in the fourth quarter of 2001. The Company also reported that DSO's (days sales outstanding) were 62 days in the fourth quarter compared to 56 days in the third quarter of 2002, and 75 days in the fourth quarter of 2001.
Kenneth J. Hall, Mercator's Executive Vice President and CFO, said, "In the quarter, we completed a new credit facility, generated positive operating cash flow and increased deferred revenue by $4.7 million to $24.5 million."
Additional Significant Highlights of the Fourth Quarter
On December 24, 2002, Mercator entered into a three-year, $20 million credit facility with Foothill Capital Corporation ("Foothill"), a wholly owned subsidiary of Wells Fargo & Company. Under the $20 million revolving credit facility, Foothill provided Mercator with a $10 million term loan sub-facility, a $5 million letter of credit sub-facility and a revolving line of credit equal to the difference between $20 million and the amounts outstanding under the term loan and letter of credit facility. As of December 31, 2002 as required under the terms of the facility, Mercator had drawn upon the term loan, supplementing its cash position with $10 million, less $0.7 million of closing costs and fees.
On December 30, 2002, Mercator announced it had received final approval from the federal district court of an agreement to settle the consolidated stockholder litigation initially filed against the Company in August 2000. The Company had previously announced on October 29, 2002, that a Stipulation of Settlement had been executed and filed with the Court and was subject to final court approval and notice to the class. The terms of the Stipulation of Settlement included no admission of liability by the Company. Under the terms of the settlement, Mercator's directors and officers liability insurance carriers paid $8.2 million to resolve all claims related to the stockholder litigation.
Mercator's Annual Results for 2002
For the full year 2002, Mercator reported revenue of $111.9 million, including license revenue of $45.1 million, leading to a net loss of ($29.4) million and a net loss per share of ($0.86) on a GAAP basis. This compared to revenue of $128.8 million, including license revenue of $59.0 million and a net loss of ($63.5) million and a net loss per share of ($2.08) in 2001.
On a pro forma basis, excluding amortization of goodwill and intangibles, stock option re-pricing charges (benefits), restructuring charges, and assuming a 38% tax benefit, Mercator reported a net loss of ($8.6) million and a net loss of ($0.25) per share for the full year 2002, compared to pro forma net loss of ($14.1) million and a net loss per share of ($0.46) in 2001.
Total pro forma gross profit, which excludes amortization of intangibles and stock option re-pricing charges (benefits) for the full year 2002 was $79.6 million, resulting in a pro forma gross margin of 71.1%, compared to $90.9 million in 2001, resulting in a pro forma gross margin of 70.6%.
Total pro forma expenses, excluding amortization of intangibles and goodwill, stock option re-pricing charges (benefits), and restructuring charges were $124.5 million in 2002 as compared to $151.6 million in 2001.
During 2002, Mercator signed or renewed significant partnership agreements with select technology and systems integrator partners, including, BEA Systems, Accenture, Lawson Software, Logica, Siebel Systems, Descartes, WIPRO, and IT Plus.
The Company introduced several new products and solutions in 2002 culminating in the recent launch of Mercator Inside Integrator(TM) 6.7, the latest version of the Company's suite of Industry-Ready Integration Solutions(TM) featuring state-of-the-art data transformation and routing as well as specific solutions for mandate and standards-driven compliance challenges in the healthcare, financial services, manufacturing, retail and distribution industries.
Mercator InsidePayments(TM) for financial services; Mercator InsideSupplyChainVisibility(TM) for manufacturing, retail and distribution; and Mercator Inside Healthcare HUB(TM) for the healthcare industry were each introduced to the market in conjunction with pilot customers in 2002.
A conference call to discuss the Company's fourth quarter 2002 results will be hosted by Mercator Chairman and CEO Roy C. King at 5:00 PM ET today. The domestic phone number for the conference call is (888) 455-8716; the international number is (712) 257-3674. The pass code for the call is "Q4 Results." The teleconference will be webcast simultaneously and can be accessed by using the link on our Web site www.mercator.com. An audio replay of the call will be available after the call. The toll free domestic phone number for the audio replay is (888) 567-0405; the international number is (402) 998-1779. A replay of the webcast will be accessible via ir.mercator.com.
About Mercator Software, Inc.
Mercator delivers large global organizations The Advantage Inside Integration(TM), providing Industry-Ready Integration Solutions(TM) that solve critical business problems in real-time, while leveraging current technology investments and maximizing ROI. Mercator Inside Integrator(TM) 6.7 integration suite features a Solutions-Oriented Architecture,(TM) which easily and seamlessly automates high-volume, complex transactions. Over 1,100 global businesses leverage the power, speed and flexibility of Mercator's proven integration technology and industry expertise to build better business value and faster ROI. To hear why our customers and partners believe Mercator is the advantage inside integration, visit our Web site at www.mercator.com.
(C) 2003 Mercator Software, Inc. All rights reserved. Mercator and the Mercator logo are registered trademarks of Mercator Software, Inc. All other marks appearing with a "TM" thereafter are intellectual property of Mercator Software, Inc. Any other product or company names mentioned are used for identification purposes only, and may be trademarks or service marks of their respective owners.
Legal Notice Regarding Forward-Looking Statements
Statements in this press release that are not purely historical are forward-looking statements, including statements regarding Mercator's beliefs, expectations, hopes or intentions regarding the future. Forward-looking statements in this release include, but are not limited to, statements regarding the growth of the enterprise application market; the demand for the Company's application integration solutions; and the speed of deployment of new products, including the Mercator Inside Integrator suite of products and Industry-Ready Integration Solutions; and sometimes contain words such as "believe," "expect, " "intend, " "anticipate," "plan," and "estimate" or similar expressions. It is important to note that actual outcomes and the Company's actual results could differ materially from forward-looking statements. Factors that could cause actual results to differ materially include risks and uncertainties such as changes in demand for application integration or e-business integration software and, in particular, the Company's Mercator Inside Integrator suite of products and Industry-Ready Integration Solutions; the ability of the Company to manage its global operations; the ability of the Company to develop and introduce new or enhanced products; the ability of the Company to continue to add resellers and other distribution channels; the success of third parties in utilizing and marketing the Company's products; the success of the vertical industries and platforms we target; the Company's access to and success of third party products in which we embed our products or in which our products are embedded; the Company's ability to raise financing; and seasonality in operating results. Readers should also refer to the risk disclosures outlined in the Company's reports filed with the Securities and Exchange Commission. All forward-looking statements and reasons why results might differ included in this release are made as of the date hereof based on information available to the Company as of the date hereof. The Company assumes no obligation to update any such forward-looking statement or reasons why results might differ.
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