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PEOPLESOFT REVENUES UP 61 PERCENT IN 1998 TO $1.3 BILLION
COMPANY REPORTS SALES AND EARNINGS FOR THE
YEAR AND QUARTER ENDED DECEMBER 31, 1998
Pleasanton, CA., -- January 28, 1999 -- PeopleSoft, Inc. (Nasdaq - PSFT)
announced today the financial results for the year and quarter ended December
31, 1998. Revenues, net income and net income per share for the year ended
December 31, 1998 were $1,313.7 million, $143.2 million and $0.55, respectively.
The results for 1998 include a one-time write-off of in-process research and
development costs of $13.9 million incurred in connection with the acquisition
of Intrepid Systems, Inc. in the fourth quarter. Without the write-off of
in-process research and development, net income and net income per share for
the year ended December 31, 1998 would have been $157.1 million and $0.61,
respectively. This compares with revenues, net income and net income per share
of $815.7 million, $108.3 million, and $0.44, respectively, in 1997.
Revenues, net income and net income per share for the fourth quarter of 1998
were $364.2 million, $26.1 million, and $0.10, respectively. Without the
aforementioned write-off of in-process research and development, net income and
net income per share for the fourth quarter of 1998 would have been $40.0
million and $0.16, respectively. This compares with revenues, net income and
net income per share for the fourth quarter of 1997 of $260.6 million, $39.5
million and $0.16, respectively.
Revenues from license fees for the year ended December 31, 1998 of $576.5
million represented an increase of 33% over the prior year. Revenue from
services for the same period increased 93% over the comparable period of the
prior year and accounted for 56% and 47% of total revenues for the years ended
December 31, 1998 and 1997, respectively. Revenues from international operations
increased by 65% to $206.9 million or 16% of total revenues for the full year of
1998, compared to $125.1 million or 15% of total revenues for the prior year.
Revenues from license fees for the fourth quarter of 1998 increased 3% over the
comparable period of the prior year. Revenue from services for the fourth
quarter increased 82% over the comparable period of the prior year and accounted
for 61% and 46% of total revenues for the fourth quarters of 1998 and 1997,
respectively. Revenues from international operations increased by 60% to $64.4
million or 18% of total revenues for the fourth quarter of 1998, compared to
$40.3 million or 15% of total revenues for the same quarter of the prior year.
Quarterly Highlights
The following highlights were announced or occurred since PeopleSoft's last
earnings release:
· PeopleSoft announced general availability of PeopleSoft Enterprise
Performance Management (EPM), a comprehensive integrated
suite of analytic business applications. With this announcement, PeopleSoft
becomes the first enterprise application software provider to deliver a
comprehensive suite of analytic applications to all industries. In addition,
PeopleSoft announced the certification of Acta Technology, Inc., Ardent
Software, Informatica Corporation and Prism Solutions as PeopleSoft Enterprise
Warehouse solution partners.
· Three new divisions were formed to provide industry specific products and
skills to PeopleSoft?s customers: PeopleSoft Product Industries Division, which
includes manufacturing, retail, communications, transportation, and utilities
business; Service Industries Division, which includes healthcare, financial
services, and service industries business; and the Government and Higher
Education Division, which includes higher education, federal government, and
public sector.
· In the fourth quarter, PeopleSoft Select, PeopleSoft?s North American
middle market business unit, surpassed 110 new customers in 1998, its first year
of operation. Twenty of these customers are now live, and most went live in
less than 16 weeks.
· PeopleSoft announced PeopleSoft Advantage, a comprehensive framework of
customer service offerings. Deploying specialized professional skills and web
browser technology, PeopleSoft Advantage is designed to support PeopleSoft
customers throughout the application lifecycle, from selection to upgrade.
· PeopleSoft HRMS 7.5 for Education and Government started shipping to
customers, offering specific industry enhancements including many Web-based self
service applications to meet the unique requirements of state and local
governments as well as colleges and universities.
· The Company also delivered PeopleSoft Advancement and Student
Administration 7.5, reaffirming PeopleSoft?s continued leadership and commitment
to the higher education industry. The new Advancement application will allow
organizations to focus on maintaining and cultivating relationships with the
people who support it, monitor gifts and pledges, efficiently organize events,
manage fundraising campaigns, evaluate volunteer activity, and track planned
giving programs.
· IBM and PeopleSoft, Inc. announced an alliance to integrate PeopleSoft's
world-class human resources software product with IBM's HR Access International
Payroll. PeopleSoft and IBM will deliver an integrated solution that allows
multinational organizations to more strategically manage their global payroll
and human resource functions.
· PeopleSoft was ranked #6 on Fortune Magazine?s list of ?100 Best Companies
to Work For.?
· PeopleSoft announced it will acquire Distinction Software, Inc, an Atlanta,
Georgia based Supply Chain Management software company. PeopleSoft will combine
its existing Demand Planning application with Distinction?s software and
technology, leading to an enhanced Supply Chain Management product in 1999,
including the ability to perform the high-volume demand planning activities
associated with consumer products companies.
· PeopleSoft formed, and distributed to its shareholders, Momentum Business
Applications, Inc. (Momentum), a research and development company designed to
accelerate PeopleSoft's initiatives in critical areas including e-business,
analytic applications and industry-specific software products. Approximately
4.7 million shares of Momentum Class A Common Stock were distributed to holders
of PeopleSoft Common Stock. Prior to the distribution, PeopleSoft contributed
$250.0 million to Momentum. PeopleSoft has consolidated Momentum into its
financial statements for the fourth quarter of 1998. However, as Momentum is
now an independent company, PeopleSoft plans to exclude Momentum from its
financial statements by the end of the first quarter of 1999.
Strategic Restructuring
PeopleSoft is taking action in the first quarter of 1999 to redeploy resources
to new product development, global product support, and other strategic customer
value added programs. Accordingly, PeopleSoft will redeploy 100 employees to
these new strategic areas and eliminate 430 staff from other redundant and
unnecessary positions primarily in the administration, sales support, and
marketing support areas. This action will allow the Company to hire more staff
in support of its e-business, analytic applications and ERP development as well
as customer support programs. The reduction in staff represents approximately 6
percent of the Company?s total workforce with over 90 percent of the reductions
in North America.
Business Outlook
The following statements are based on current expectations and analysis. Due to
increasing uncertainties in the Company?s markets attributed to potential
reductions in ERP spending caused by ongoing Year 2000 projects in many
companies, recent global economic difficulties, and continued escalation of
competitive intensity, the Company?s degree of visibility and associated
confidence level in forecast information is considerably lower than it has been
over the past year and prior years. The following statements, as well as
certain others within this press release, are forward-looking and actual results
may differ materially from those forecasted for many reasons, including but not
limited to those set forth under ?Special Note? below:
· Based on management's current expectations of contracting activity, a
review of the Company's deferred license fee revenue position, and an analysis
of the Company's service delivery capacity and expected customer utilization of
such services, PeopleSoft expects total revenues for the first quarter of 1999
to increase approximately 20% to 25% over total revenues recorded in the same
quarter of the prior year, and for the full year PeopleSoft expects total
revenues to increase by 20% to 30% over 1998. As with any forecast, actual
results could vary within a few percentage points on either side of this
estimate even if there are no material changes to the underlying assumptions.
· The Company's current operating model is based on a rolling four quarter
target operating margin of between 16% and 18%. In accordance with normal
seasonal patterns, the Company forecasts that the 1999 first quarter operating
margin is likely to be slightly below this range, excluding any non-recurring
charges expected to be recorded in the first quarter. The Company expects to
record a charge of approximately $175 million in the first quarter related to
its formation of Momentum and distribution of Momentum shares to PeopleSoft
shareholders. The actual amount of the charge off has not yet been determined.
In addition, PeopleSoft will record a charge to earnings of approximately $6
million related to separation packages and outplacement services being offered
to employees whose positions are being eliminated.
· Based on projected cash and investment balances, including the impact of
the $250 million contribution to Momentum at the end of the fourth quarter,
constant interest rates and no unusual items of other income or expense, the
Company expects other income for the first quarter of 1999 to be approximately
15% below the level recorded in the first quarter of 1998.
· Based on current tax law and the Company's forecasted operating results by
country, the Company expects its effective tax rate in 1999 to be approximately
38.5%.
Special Note
The Business Outlook and certain other announcements referenced above contain
forward-looking statements as defined in the Private Securities Litigation
Reform Act of 1995. These forward-looking statements are subject to risks and
uncertainties that could cause actual results to differ materially from those
anticipated. Such risks and uncertainties include, but are not limited to:
· The Company is currently responding to a comment letter from the SEC
related to its accounting for the PMAN acquisition in 1996, and is clearing with
the SEC its accounting for the Intrepid acquisition completed in the fourth
quarter of 1998. In both cases, the SEC is reviewing the charge to In Process
Research and Development in light of recent guidance from the SEC on valuation
of purchase accounting for acquisitions. Upon completion of the SEC review, the
Company may be required to restate its financial statements of 1996, 1997 and
1998 to reflect a lower In Process R&D write-down from 1996 for PMAN, and/or to
change the In Process R&D write-down taken in the fourth quarter of 1998 for
Intrepid. The Company believes its accounting for PMAN was proper and in
accordance with GAAP and with industry practices in effect in 1996, and the
Company?s calculation of the adjustment required to reflect the recent SEC
guidelines show that any adjustment would not be material to the financial
statements of 1996, 1997 or 1998. The Company also believes that its accounting
for Intrepid in the fourth quarter of 1998 is in accordance with the SEC?s
recent guidelines. However, there can be no assurance that the SEC comments
once issued will not require a material change in reported earnings of 1996,
1997, or 1998 related to the accounting for the PMAN or Intrepid acquisitions.
· The Company relies heavily on the recognition of license fee revenues from
contracts executed and booked in the current quarter. Contracting activity may
be adversely impacted by the increasingly intense competition from other
application vendors, increasingly difficult and protracted contract
negotiations, fluctuations in customer demand, and the timing and complexity of
large transactions. During 1998 certain competitors became more aggressive with
their product pricing reductions, payment terms and/or issuance of contractual
implementation terms or guarantees. This increased competition may have
adversely affected the ultimate price of certain selected transactions executed
by the Company during the fourth quarter, and if this trend continues or
expands, it may have an adverse impact on the Company's future results and
ability to meet financial forecasts. In addition, contracting activity may be
impacted by the timing, quality and acceptance of new software products and
releases.
· General macroeconomic uncertainties leading to lowered capital spending, as
well as the potential impact of the Year 2000 problem, may further decrease
aggregate demand in the ERP market and thus adversely impact the Company's
ability to meet financial forecasts. Although the Company has no statistical
data to support or refute Year 2000 related demand hypotheses, a number of
application software vendors have attributed ERP market weakness to the Year
2000 problem. Both of these factors may cause customers to either defer
indefinitely or cancel new ERP software implementation projects.
· License agreements executed during the quarter may not meet the Company's
revenue recognition criteria. As a result, the Company may meet or exceed its
internal forecast of aggregate contracting activity, but not meet its forecast
for license revenues. In addition, Statement of Position (SOP) 97-2, "Software
Revenue Recognition", SOP 98-4, ?Deferral of the Effective Date of a Provision
of SOP 97-2, Software Revenue Recognition? and SOP 98-9,?Modification of SOP
97-2, Software Revenue Recognition, With Respect to Certain Transactions? were
issued in October 1997, March 1998, and December 1998, respectively and address
software revenue recognition matters primarily from a conceptual level and do
not include specific implementation guidance. These SOPs supersede SOP 91-1 and,
in part, are effective for transactions entered into for fiscal years beginning
after December 15, 1997. Based on its reading and interpretation of SOPs 97-2
and 98-4, the Company believes it is currently in compliance with the standards.
Detailed implementation guidelines for these standards have not yet been issued.
Complying with SOP 98-4 or such detailed implementation guidance, once issued,
could lead to unanticipated changes in the Company's current revenue accounting
practices, and such changes could adversely impact the Company's ability to
recognize revenue consistent with its current practice. SOP 98-9 will be
effective for PeopleSoft in the year 2000. PeopleSoft has not fully assessed
its ability to comply with SOP 98-9 using current contracting and business
practices. However, PeopleSoft believes that SOP 98-9 may require significantly
more revenue to be deferred for certain types of transactions. Although this
new standard is not effective until the year 2000, PeopleSoft, in accordance
with its historical practice of complying with new revenue recognition standards
as soon as issued, may choose to adopt the standard in 1999, requiring either
changes in revenue recognition practices or changes in it?s the Company?s sales
and contracting practices in order to comply. Such changes may have a
significant adverse impact on revenues and margins in the quarter and year they
are implemented.
· The Company may initiate further acquisitions of companies, technologies,
or products over the coming year in order to enhance its product offerings,
improve its competitive position, or take advantage of potential synergies with
other organizations. Due to the recent distribution of Momentum to shareholders
and to other factors that are used to judge the accounting treatment of any
acquisition, the Company may not qualify for pooling of interests accounting for
acquisitions of companies made in 1999 and thus may need to account for
acquisitions of other companies using the purchase method, in addition to using
the purchase method for acquisitions of technologies or products. The purchase
method of accounting for acquisitions would require large write-offs of any in
process research and development costs related to companies acquired, as well as
ongoing amortization costs for goodwill and other intangible assets valued in
the acquisition. Such write-offs and ongoing amortization charges may have a
material adverse impact on operating margins and net income in the quarter of
the acquisition and for several subsequent years.
· The Company's expense levels are based, in significant part, on the
Company's expectations as to future revenues, and are therefore relatively fixed
in the short term. If revenue levels fall below expectations, operating margins
and net income will be disproportionately adversely affected. The Company?s tax
rate may also be adversely impacted by operating results that differ from
expectations, particularly from any changes in operating results by country. In
addition, the Company continues to evaluate opportunities to enhance and expand
its technology and product offerings through potential partnerships, licenses or
acquisitions. Such activities, to the extent they are material, could adversely
impact the Company's operating results.
· Other risks that are detailed in the Company's filings with the Securities
and Exchange Commission, including, but not limited to, the September 30, 1998
Quarterly Report (Form 10-Q) and the 1997 Annual Report to Shareholders (Form
10-K).
About PeopleSoft
PeopleSoft Inc. (NASDAQ: PSFT) was established in 1987 to provide innovative
software solutions that meet the changing business demands of enterprises
worldwide. A client/server applications pioneer and market leader, PeopleSoft
develops, markets, and supports a complete suite of enterprise solutions for
finance, materials management, distribution, supply chain planning,
manufacturing, and human resources. In addition, PeopleSoft provides
industry-specific enterprise solutions to customers in select markets including
communications, financial services, healthcare, manufacturing, higher education,
public sector, retail, services, transportation, U.S. federal government, and
utilities. The Company also offers PeopleSoft Select, a complete packaged
solution including software, hardware, and services to address the needs of
medium-sized organizations.
With more than 2,900 customers around the world, PeopleSoft has been recognized
for both its award-winning customer service and its remarkable growth.
PeopleSoft was listed by Fortune as one of the fastest growing companies in
America in 1994, 1995, 1996, 1997 and again in 1998. PeopleSoft was added to the
S&P 500 index in October 1998. PeopleSoft product, service, and quarterly
operational review information is located on the World Wide Web at
peoplesoft.com and, for recent press releases and financial
information, via fax-on-demand at 1-800-296-0937.
PEOPLESOFT, INC.
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