Exhibit 99
PERITUS SOFTWARE SERVICES, INC.
For Immediate Release
PERITUS SOFTWARE SERVICES, INC. ANNOUNCES THIRD QUARTER 1998 RESULTS AND
RESTATEMENT OF THIRD QUARTER 1997, FOURTH QUARTER 1997 AND YEAR 1997
BILLERICA, MA. -- NOVEMBER 25, 1998 -- Peritus Software Services, Inc. (NASDAQ:
PTUS), 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 http://www.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.
Contact: John Giordano
Chief Financial Officer
Peritus Software Services, Inc.
978-670-0800
Fax: 978-670-2060
Internet: jgiordano@peritus.com
---------------------
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 Reported As Restated As Reported As Restated As Reported As Restated
- -------------------------------------------------------------------------------------------------------
Revenue $ 9,852 $ 8,652 $ 13,608 $ 14,216 $ 40,301 $ 39,709
- -------------------------------------------------------------------------------------------------------
Income (Loss) 748 (452) (69,346) (68,738) (67,582) (68,173)
from
Operations
- -------------------------------------------------------------------------------------------------------
Net Income 1,166 84 (68,920) (68,418) (66,910) (67,490)
(Loss)
- -------------------------------------------------------------------------------------------------------
Diluted Income $ 0.08 $ 0.01 $ (4.97) $ (4.93) $ (6.97) $ (7.03)
(Loss) Per
Share
- -------------------------------------------------------------------------------------------------------