EXHIBIT 99.1
CONTACT: CYNTHIA BROCKHOFF
MERCATOR
203.563.1258
CBROCKHOFF@MERCATOR.COM
FOR IMMEDIATE RELEASE
---------------------
MERCATOR REPORTS ADJUSTED FIRST AND SECOND-QUARTER EARNINGS
CAUSED BY UNDERACCRUED EXPENSE ITEMS OF $2.4 MILLION
MERCATOR REVENUES UNAFFECTED BY THE CHANGES
MERCATOR ANNOUNCES IT IS IMPLEMENTING COMPREHENSIVE ACTIONS TO STRENGTHEN
CORPORATE FINANCE AND CONTROLS
WILTON, Conn., August 21, 2000--Mercator Software, Inc. (Nasdaq: MCTR), the e-
business transformation company, said today that its first and second-quarter
2000 earnings have been adjusted to account for underreported first-half 2000
expenses of about $2.4 million, or approximately 4% of total expenses, excluding
amortization of intangibles, for the period.
Mercator's revenue was unaffected by the changes.
The adjustments to previously announced results were reflected in Mercator's
quarterly report on Form 10-Q for the quarter ended June 30, 2000, and in an
amended quarterly report on Form 10-Q/A for the quarter ended March 31, 2000,
both filed today. The reports reflected adjustments to net income and earnings
per share from prior reports.
SECOND QUARTER, 2000
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In its Form 10-Q for the second quarter 2000, Mercator reported revenue for the
period of $35,696,000, a 51% increase from the same quarter of 1999, and
consistent with Mercator's announcement on July 20, 2000. In addition, on a pro
forma basis, excluding amortization of intangibles and assuming a tax rate of
38%, Mercator reported pro forma operating income for the second quarter of 2000
of $667,000 ($1,120,000 less than previously announced) and pro forma net income
of $500,000 ($694,000 less than previously announced). Mercator reported
earnings per share, on a pro forma basis, of $.02 for the second quarter of 2000
($.02 less than previously announced). The decreases in pro forma operating
income, net income and earnings per share from the results previously announced
are due to an additional $1,120,000 of expenses that Mercator, with the
assistance of its outside auditors, determined should be recorded. For the
second quarter, on an as-reported basis, Mercator's net loss was $17,788,000
($1,776,000 greater than previously reported) and its fully diluted net loss per
share was $.61 ($.06 greater than previously reported).
FIRST QUARTER, 2000
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In its amended Form 10-Q for the first quarter 2000, Mercator reported revenue
of $31,252,300, an 81% increase from the same quarter of 1999, and unchanged
from previous reports. In addition, on a pro forma
basis, excluding amortization of intangibles and assuming a tax rate of 38%,
Mercator reported pro forma operating income for the first quarter of 2000 of
$1,438,000 ($1,327,000 less than previously reported) and pro forma net income
of $987,000 ($823,000 less than previously reported). Mercator reported earnings
per share, on a pro forma basis, of $.03 for the first quarter of 2000 ($.03
less than previously reported). The decreases in pro forma operating income, net
income and earnings per share from the results previously reported are due to an
additional $1,327,000 of expenses that the Company, with the assistance of its
outside auditors, determined should have been recorded in the first quarter but
were not recorded. For the first quarter, on an as-reported basis, Mercator's
net loss was $11,497,000 ($1,621,000 greater than previously reported) and its
fully diluted net loss per share was $.41 ($.06 greater than previously
reported.)
After announcing its financial results for the second quarter and shortly before
Mercator's Form 10-Q for the second quarter was due to be filed with the
Securities and Exchange Commission, Mercator's audit committee became aware of
uncertainty regarding several expense items. After a review of these items,
Mercator, with the assistance of its outside auditors, determined that certain
expenses should have been recorded in the first or second quarters. The
adjusted second-quarter results and restated first-quarter results announced
today properly record these expenses.
Mercator also announced today a series of actions aimed at strengthening the
company's corporate finance operations, controls and oversight, including:
. The election of James P. Schadt, 62, as chairman of the board, a new
position. Schadt, a director of the company since 1998, was chairman of
the audit committee. An experienced executive and director, he is also
chairman of Dailey Capital Management, a private equity fund manager. He
has just resigned as executive chairman of PIPE9 Corporation, an
e-commerce venture, to focus on Mercator. Schadt served on the board of
Cadbury Schweppes, plc. for several years ending in 1991, and on the
board of The Readers' Digest Association, Inc., from 1991 until 1997.
Now retired, Mr. Schadt also formerly served as chairman and chief
executive officer of The Readers' Digest Association, Inc. At Cadbury
Schweppes he was president and CEO of its global beverage operations,
Cadbury Beverages, Inc. Schadt is also a trustee of Northwestern
University and the American Enterprise Institute.
. The imminent appointment of both an interim chief financial officer and
a controller, until the positions can be permanently filled. Spencer
Stuart has been engaged, from the top down, to assist in this matter.
. The engagement of its outside accountants to assist in a review of
finance and operating controls, as well as its systems, in order to
produce recommendations for immediate implementation by the company.
In addition, Mercator announced that it had accepted the resignation of the
company's chief financial officer, Kevin McKay, and terminated Ira Gerard, its
vice president of finance, who had just previously stepped down as chief
financial officer due to health reasons. Further, Mercator's controller has been
relieved of her duties as controller.
Commenting on these actions, including the decisions regarding management,
Schadt said, "The board is confident that each of these actions strengthens
the company and that each action is in the best interests of shareholders."
Connie Galley, president and chief executive officer of Mercator, said, "The
discovery of these under recorded expense issues was alarming. We moved swiftly
to identify the problems, took decisive actions to correct them, and immediately
initiated actions to restaff our financial-management team. On top of that, we
are accelerating the development of a substantially enhanced infrastructure to
accommodate and support Mercator's rapid growth. This includes the
implementation of a range of additional new procedures, controls and systems in
our financial operations, with the assistance and recommendations of our outside
accountants.
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"With these immediate initiatives underway, Mercator's management and board of
directors is focusing its full attention on actions aimed at increasing the
company's competitive advantage and maintaining our revenue momentum," said
Galley. "The fundamentals have not changed: the excellence of our people, the
unique quality and value of our products and services, and our continued
leadership in this dynamic market. We will now do everything reasonable to
maintain Mercator's revenue momentum by providing increased value to our
customers and by aggressively retaining, recruiting and incentivizing the people
who are both directly and indirectly responsible for delivering the top line
performance. Revenue, after all, is the principal value driver of this
company."
ABOUT MERCATOR
Mercator is the leading provider of integration software for transforming
business processes to enable e-business. Our products automate the end-to-end
integration of the commerce chain, enabling the seamless flow of information
throughout the enterprise and with the applications of customers and partners.
With Mercator, customers can lock in the benefits of e-business through the
adaptive transformation of business processes, while fully leveraging current
technology investments at every step.
More than 5,000 customers, across every industry, use our software to accelerate
their transformation to e-business. Over 100 partners, including application
software providers, systems integrators and Net markets, embed or resell our
technology to enhance their product or service offerings. Additional
information about Mercator can be found at www.mercator.com
Mercator is a registered trademark of Mercator Software, Inc. "The e-business
transformation company" is a trademark of Mercator Software, Inc.
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, estimates of future
business prospects or financial results and statements containing the words
"believe", "estimate", "project", "expect" or similar expressions. It is
important to note that actual outcomes and the company's actual results could
differ materially from those in the forward-looking statements. Factors that
could cause actual results to differ materially include risks and uncertainties
such as the company's ability to attract and retain key managers and other
personnel, changes in demand for application integration or e-business
integration software and the company's Mercator e-business integration broker
suite of products in particular, the company's ability to expand its
international operations, the company's ability to manage expanded global
operations, the company's ability to continue to add resellers and other
distribution channels, the success of third parties in utilizing and marketing
the company's products, or 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, and
the company assumes no obligation to update any such forward-looking statements
or reasons why results might differ.
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MERCATOR SOFTWARE
Consolidated Condensed Statements of Operations
(In thousands, except per share data)
Quarter Ended Six Months Ended
June 30, June 30,
2000 1999 2000 1999
-------- --------- -------- ---------
Revenues:
Software licensing $ 20,397 $ 12,547 $ 38,704 $ 22,347
Professional Services 8,916 6,312 15,513 10,599
Maintenance 6,383 4,785 12,731 7,934
-------- -------- -------- --------
Total Revenues $ 35,696 $ 23,644 $ 66,948 $ 40,880
-------- -------- -------- --------
Cost of Revenues:
Software licensing 367 381 653 817
Service, maintenance, other 7,332 5,236 14,458 9,467
-------- -------- -------- --------
Total Cost of Revenues $ 7,699 $ 5,617 $ 15,111 $ 10,284
-------- -------- -------- --------
Gross Profit $ 27,997 $ 18,027 $ 51,837 $ 30,596
Operating Expenses:
Product development 5,120 3,718 10,209 5,929
Selling & marketing 17,378 9,970 31,160 16,603
General & admin 4,832 1,956 8,362 4,018
Amortization of intangibles 12,251 7,047 23,228 9,371
-------- -------- -------- --------
Total Operating Expenses $ 39,581 $ 22,691 $ 72,959 $ 35,921
-------- -------- -------- --------
Operating Loss *(11,584) (4,664) *(21,122) (5,325)
Interest Income, net 139 231 294 742
-------- -------- -------- --------
Income before income taxes (11,445) (4,433) (20,828) (4,583)
Provision for Income Taxes 6,343 102 8,457 172
-------- -------- -------- --------
Net Loss $(17,788) $ (4,535) $(29,285) $ (4,755)
======== ======== ======== ========
Net Loss per Share
- Basic $ (0.61) $ (0.18) $ (1.02) $ (0.20)
- Diluted $ (0.61) $ (0.18) $ (1.02) $ (0.20)
======== ======== ======== ========
Weighted average no. of common and common
equivalent shares outstanding:
- Basic 29,100 25,374 28,653 24,106
- Diluted 29,100 25,374 28,653 24,106
======== ======== ======== ========
Pro Forma Net Income *$500 $ 1,620 *$1,488 $ 2,969
======== ======== ======== ========
Pro Forma Net Income Per Share - Diluted *$0.02 $ 0.06 *$0.05 $ 0.11
*Excluding amortization of intangibles of ($12,251,000) and ($23,228,000),
operating income would have been $667,000 for the quarter ended June 30, 2000,
and $2,106,000 for the six months ended June 30, 2000, respectively.
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MERCATOR SOFTWARE
Consolidated Condensed Balance Sheets
(In thousands)
June 30, March 31, Dec. 31,
2000 2000 1999
---------- ----------- --------
(unaudited) (unaudited) (audited)
ASSETS
Current Assets:
Cash & cash equivalents $ 13,228 $ 15,177 $ 9,237
Marketable securities, at cost 4,245 4,107 5,648
Accounts receivable, net 43,709 40,150 38,270
Prepaid Expenses and other current assets 2,167 2,432 2,985
Deferred tax asset 10,379 10,379 10,379
--------- --------- ---------
Total Current Assets $ 73,728 $ 72,245 $ 66,519
Furniture, fixtures & equipment, net 8,088 7,774 6,517
Goodwill & other intangibles 147,037 142,307 153,228
Other Assets 583 566 551
--------- --------- ---------
Total Assets $ 229,436 $ 222,892 $ 226,815
========= ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 3,458 $ 4,538 $ 3,937
Accrued expenses 13,064 12,836 8,176
Deferred revenue 15,974 15,173 14,737
--------- --------- ---------
Total Current Liabilities $ 32,496 $ 32,547 $ 26,850
--------- --------- ---------
Deferred tax liability 15,767 11,487 12,253
Deferred revenue, less current portion 128 50 59
--------- --------- ---------
Total Liabilities $ 48,391 $ 44,084 $ 39,162
--------- --------- ---------
Stockholders' Equity:
Common stock $ 294 $ 285 $ 278
Additional paid-in capital 229,169 208,485 205,421
Accumulated deficit (45,953) (28,165) (16,668)
Cumulative foreign currency translation adjustment (1,897) (1,148) (495)
Deferred compensation (568) (649) (883)
--------- --------- ---------
Total Stockholders' Equity $ 181,045 $ 178,808 $ 187,653
--------- --------- ---------
$ 229,436 $ 222,892 $ 226,815
========= ========= =========
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MERCATOR SOFTWARE
Pro forma Consolidated Statements of Operations
Impact of Amortization on Reported Net Income (Loss)
(In thousands, except per share data)
(Unaudited)
For the Quarter Ended June 30, 2000
As Reported Adjustments* As Adjusted
Revenues $ 35,696 $ 35,696
Cost of revenues 7,699 7,699
-------- --------
Gross margin 27,997 27,997
Operating expenses 39,581 $(12,251) 27,330
-------- -------- --------
Income (Loss) from operations (11,584) 12,251 667
Interest and other, net 139 -- 139
-------- -------- --------
Income (Loss) before provision for taxes (11,445) 12,251 806
Provision for income taxes 6,343 (6,037) 306
-------- -------- --------
Net Income (Loss) $(17,788) $ 18,288 500
Net Income (Loss) per share-Basic $(0.61) $0.02
Net Income (Loss) per share-Fully diluted (0.61) 0.02
Pro forma shares outstanding-Basic 29,100 29,100
Pro forma shares outstanding-Fully Diluted 29,100 32,261
For the Six Months Ended June 30, 2000
As Reported Adjustments* As Adjusted
Revenues $ 66,948 $ 66,948
Cost of revenues 15,111 15,111
-------- --------
Gross margin 51,837 51,837
Operating expenses 72,959 $(23,228) 49,731
-------- -------- --------
Income (Loss) from operations (21,122) 23,228 2,106
Interest and other, net 294 -- 294
-------- -------- --------
Income (Loss) before provision for taxes (20,828) 23,228 2,400
Provision for income taxes 8,457 (7,545) 912
-------- -------- --------
Net Income (Loss) $(29,285) $ 30,773 1,488
Net Income (Loss) per share-Basic $(1.02) $0.05
Net Income (Loss) per share-Fully diluted (1.02) 0.05
Pro forma shares outstanding-Basic 28,653 28,653
Pro forma shares outstanding-Fully Diluted 28,653 32,330
*The adjustments to income (loss) before provision for taxes represent the
reversals of acquisition related amortization. The adjustment to the provision
for income taxes is to reflect a 38% tax rate, although the actual rate is
expected to exceed 38% based on the impact of goodwill amortization.
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