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Wednesday November 25, 6:06 pm Eastern Time
Company Press Release
SOURCE: Peritus Software Services, Inc.
Peritus Software Services, Inc.
Announces Third Quarter 1998 Results and
Restatement of Third Quarter 1997, Fourth Quarter
1997 and Year 1997
BILLERICA, Mass., Nov. 25 /PRNewswire/ -- Peritus Software Services, Inc. (Nasdaq:
PTUS - news), a provider of solutions for software maintenance, today announced financial
results for the third quarter 1998. The Company also announced that it will restate its third
quarter 1997, fourth quarter 1997 and year 1997 financial results.
The Company previously announced its preliminary third quarter 1998 results on
September 23, 1998 and a restructuring plan on September 29, 1998. The financial results
announced today are generally in line with those earlier announcements.
Revenue for the three months ended September 30, 1998 was $5.3 million representing a
decrease of 39% for the restated comparable period in 1997. The Net Loss for the quarter,
excluding the restructuring charge and a charge for impairment of long-lived assets, was
$8.6 million. The Net Loss after the restructuring charge and the charge for impairment of
long-lived assets was $16.1 million, or $0.99 per share, as compared to the restated Net
Income of $0.1 million, or $0.01 per share, in the same period in 1997.
For the nine months ended September 30, 1998, Revenue was $25.8 million representing a
1% increase from the restated comparable period in 1997. The Net Loss for the period,
excluding restructuring charges and a charge for impairment of long-lived assets, was
$12.3 million. The Net Loss, after the restructuring charge and the charge for impairment
of long-lived assets, was $21.3 million, or $1.32 per share, as compared to the restated Net
Income of $0.9 million, or $0.02 per share, in the same period in 1997.
The details of the third quarter restructuring plan were announced on September 29, 1998.
The actual charge incurred was $3.3 million versus the originally estimated $3.7 million. In
the September 29, 1998 announcement, the Company stated that as a result of the
restructuring plan, it was evaluating the realizability of the intangible assets originally
recorded in connection with the acquisition of Millennium Dynamics, Inc. in December of
1997. The Company completed the evaluation and determined that $4.3 million of the $4.6
million carrying value was impaired. Therefore, the Company recorded a charge in the third
quarter 1998 for impairment of long-lived assets of $4.3 million. Details of the financial
results for the third quarter and nine months ended September 30, 1998 are presented at the
end of this release.
Commenting on the results, Dominic Chan, president and CEO, said: ''Obviously, we are
very disappointed by the overall results but we continue to believe in the strength of our
SAM offerings and Year 2000 products and services. We continue to receive positive
response from our customers and prospects and we are taking the steps we believe are
necessary for the future.''
Separately, the Company also reported that it, along with its independent auditor
PricewaterhouseCoopers LLP (PwC), conducted a review of 1997 financial results. During
the review, two instances were discovered where the Company had recorded revenue for
software licenses in advance of shipment of the software.
The first instance involved the recording of software license revenue of $1.2 million in the
third quarter of 1997. The Company has determined that the software involved was not
shipped until early in the fourth quarter of 1997. Payment of the License fee was received
in the fourth quarter. Therefore, the Company will restate its third quarter results to exclude
the $1.2 million license fee. The $1.2 million license fee will be included in the restated
results for the fourth quarter of 1997.
The second instance involved $571,000 of license revenue and $21,000 of associated
maintenance revenue in the fourth quarter of 1997. The Company has determined that the
software involved was not shipped until 1998. The Company encountered collection
difficulties with the customer during 1998. Despite entering into a settlement agreement
with the customer in the second quarter of 1998, the Company concluded in the third
quarter of 1998 that it would be unable to realize the amounts recorded. Accordingly, the
Company will restate the fourth quarter of 1997 to remove the $592,000 of Revenue
involved and will not record revenue in any subsequent periods.
The table at the end of this release shows the impact of the two restatements on third
quarter 1997, fourth quarter 1997 and year 1997 key financial results. The Company plans
to file with the Securities and Exchange Commission an amended Annual Report on Form
10-K for the year 1997 and an amended quarterly report on Form 10-Q for the third quarter
1997 as soon as it is able to complete them.
As a result of the restatement of results for 1997, the Company was informed by PwC that
users of the Company's 1997 financial statements should no longer rely upon PwC's
opinion for the year ended December 31, 1997. The Company expects that the opinion will
be reinstated once it completes and files its amended Form 10-K.
As reported in its October 26, 1998 press release, the Company received and responded to a
letter related to the Company's Form 10-K for the year ended December 31, 1997 from the
Securities and Exchange Commission regarding, among other things, the Company's
accounting for in-process research and development in connection with its acquisition of
Millennium Dynamics, Inc. The Company has not yet received a response from the
Securities and Exchange Commission to the Company's letter. Although the Company
believes it has properly accounted for the item, a different conclusion would require further
restatement of the Company's results beginning with the fourth quarter of 1997.
The Company previously reported restatement of its first quarter 1998 and second quarter
1998 results. In the announcement made by the Company on October 26, 1998, the
Company stated that the first restatement for $1.1 million of license revenue resulted
because, at that time, the Company believed that certain elements of the transaction were
not sufficient to substantiate the revenue recording. Based on further review, the Company
has determined that the customer involved did not require a separate license, and therefore,
no license revenue should have been recorded. This additional information does not change
the adjustments to the financial results as previously reported.
The Company also announced that it received a letter from the Nasdaq Stock Market on
November 24, 1998 regarding its delay in filing its Form 10-Q for the third quarter of
1998 with the Securities and Exchange Commission beyond the required due date. The
letter indicated that the Company's common stock is scheduled to be delisted from the
Nasdaq Stock Market if the Company fails to file its Form 10-Q by December 2, 1998. The
letter also indicated that a fifth character ''E'' would be appended to its trading symbol as a
result of the delayed filing of its Form 10-Q. If the Company is unable to file its Form
10-Q by the December 2, 1998 deadline, it intends to seek procedural remedies with the
Nasdaq Stock Market to attempt to avoid the delisting of its common stock.
Commenting on the restatement and other news, Dominic Chan, President and CEO, stated:
''Since we became aware of the need to restate our results in October, we have spent a great
deal of time working closely with our independent auditor to ensure the integrity of our
reported financial results. Unfortunately, our efforts uncovered two additional problems
that require restatement. Clearly, we understand such integrity is an essential requirement.
Devoting all of our efforts to the review has delayed certain filings with the Securities and
Exchange Commission. We will complete all such filings as expeditiously as possible.''
Finally, the Company reported that Douglas Catalano resigned from the Board of Directors
effective November 18, 1998.
About Peritus
Founded in 1991, Peritus Software Services, Inc. is a provider of software maintenance
outsourcing services. The Peritus Software Asset Maintenance (SAM) offerings enable
organizations to transform the maintenance process into an efficient, cost-effective
discipline that boosts productivity and performance. SAM offerings include customized
services for software providers, information systems organizations, and Year 2000
renovations. Peritus is headquartered in Billerica, MA, with offices worldwide. For more
information, see the Peritus web site at peritus.com.
This press release may contain certain forward-looking statements, which involve risks and
uncertainties. The Company's actual results may differ materially from the results discussed
in such statements. Certain factors that could cause actual results to differ materially from
those discussed in such forward-looking statements include the risks described in the
Company's Annual Report on Form 10-K for the year ended December 31, 1997, the
Quarterly Report on Form 10-Q for the quarter ended June 30, 1998, and other public
filings made by Peritus with the Securities and Exchange Commission, which factors are
incorporated herein by reference.
Peritus is a registered trademark and Software Asset Maintenance is a service mark of
Peritus Software Services, Inc.
PERITUS SOFTWARE SERVICES, INC.
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(In thousands, except per share-related data)
(unaudited)
Three Months Nine Months
Ended Ended
September 30, September 30,
1997 1997
1998 Restated 1998 Restated
Revenue:
Outsourcing services $ 2,270 $2,979 $ 7,685 $8,542
License 763 3,957 8,602 12,744
Other services 2,260 1,716 9,522 4,207
Total revenue 5,293 8,652 25,809 25,493
Cost of revenue:
Cost of outsourcing
services 1,826 2,444 5,833 6,847
Cost of license 474 155 1,520 430
Cost of other
services 2,551 1,280 7,636 3,605
Total cost
of revenue 4,851 3,879 14,989 10,882
Gross profit 442 4,773 10,820 14,611
Operating expenses:
Sales and marketing 3,980 2,197 10,355 5,615
Research and
development 2,150 1,975 7,195 5,578
General and
administrative 2,969 1,053 6,017 2,853
Impairment of
long-lived assets 4,294 -- 4,294 --
Restructuring charges 3,279 -- 4,718 --
Total operating
expenses 16,672 5,225 32,579 14,046
Income (loss)
from operations (16,230) (452) (21,759) 565
Interest
income, net 95 462 440 482
Income (loss)
before gain on sale
of majority owned
subsidiary, income taxes
and minority interest
in consolidated
subsidiary (16,135) 10 (21,319) 1,047
Gain on sale of
majority owned
subsidiary (11) -- (11) --
Provision (benefit)
for income taxes -- (68) 25 104
Minority interest in
consolidated
subsidiary 8 (6) (4) 15
Net income (loss) (16,132) 84 (21,329) 928
Accrual of dividends
on Series A and B
preferred stock -- -- -- (675)
Accretion to redemption
value of
redeemable stock -- -- -- (57)
Net income (loss)
available to
common stockholders $(16,132) $84 $(21,329) $196
Net income (loss) per common share:
Basic $(0.99) $0.01 $(1.32) $0.02
Diluted $(0.99) $0.01 $(1.32) $0.02
Weighted average common shares outstanding:
Basic 16,294 12,432 16,121 8,107
Diluted 16,294 14,280 16,121 11,466
PERITUS SOFTWARE SERVICES, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
(In thousands)
(unaudited)
December 31,
September 30, 1997
1998 Restated
Assets
Cash and cash equivalents $ 4,004 $11,340
Short-term investments 2,500 3,000
Accounts receivable, net 5,554 12,627
Costs and estimated earnings
in excess of billings
on uncompleted contracts 1,692 2,547
Prepaid expenses and
other current assets 1,264 710
Total current assets 15,014 30,224
Property and equipment, net 5,239 3,859
Intangible and other
assets, net 676 5,787
$20,929 $39,870
Liabilities and Stockholders' Equity
Accounts payable $843 $1,650
Billings in excess of
costs and estimated
earnings on
uncompleted contracts 394 976
Deferred revenue 2,125 2,818
Other accrued expenses
and current liabilities 6,193 3,849
Total current liabilities 9,555 9,293
Long-term liabilities 1,345 572
Total liabilities 10,900 9,865
Stockholders' equity 10,029 30,005
$20,929 $ 39,870
Peritus Software Services, Inc.
Summary of 1997 Restatement
(In thousands, except per share-related data)
(unaudited)
3rd Qtr. 3rd Qtr. 4th Qtr.4th Qtr. 1997 1997
As As As As As As
Reported Restated Reported Restated Reported Restated
Revenue $9,852 $8,652 $13,608 $14,216 $40,301 $39,709
Income (Loss)
from
Operations
748 (452) (69,346) (68,738) (67,582) (68,173)
Net Income
(Loss)
1,166 84 (68,920) (68,418) (66,910) (67,490)
Diluted Income
(Loss)
Per Share $0.08 $0.01 $(4.97) $(4.93) $(6.97) $(7.03)
SOURCE: Peritus Software Services, Inc |
