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MERANT Reports First Quarter Results.

Business Editors/Hi-Tech Writers

ROCKVILLE, Md.--(BUSINESS WIRE)--Aug. 22, 2000

MERANT (London Stock Exchange (LSE): MRN; Nasdaq National Market (NNM): MRNT), a global leader in e-business software solutions, today reported its results for the first fiscal quarter ended July 31, 2000. A conference call has been scheduled for investors and analysts to review results today at 4:00 pm BST (11:00 am US EDT).

MERANT announced preliminary first quarter estimates on August 7, 2000, cautioning that revenues and earnings would be below market expectations.

Key First Quarter Points (ended July 31, 2000)

-- Revenues were (pound)47.6 million under U.K. GAAP ($72.8

million U.S. GAAP).

-- Egility e-business software solutions grew 7%, and now make up

62% of business.

-- Total Cobol revenue declined 24%, with Cobol license fees down


-- Pre-tax losses were (pound)5.4 million ($7.6 million) before

amortization of goodwill charges, resulting from shortfall in

first quarter revenue.

-- Cash position remains strong, totaling (pound)79 million ($119

million) at the end of the first fiscal quarter.

-- Strategic Egility partnerships announced with IBM, Compaq,

Netron and Sun.

Commenting on the results, Ken Sexton, chief financial officer at MERANT, said:

"Operating costs in the first quarter of this fiscal year have declined by more than (pound)8 million ($12 million), compared with the fourth quarter ended April 30, 2000. This was the result of actions taken at the end of last year to reduce our operating expenses in non-growth areas such as Cobol. The revenue shortfall was the major reason for our earnings being below original consensus estimates, as a relatively high percentage of the Company's operating expense is fixed over the short-term. We will continue to reduce expenses in areas where revenues are below expectations and where longer-term growth prospects are declining. The number of employees is below that at the end of last fiscal year and is expected to further decline. MERANT continues to have a strong financial position with (pound)79 million ($119 million) in cash on our balance sheet."

Gary Greenfield, MERANT president and chief executive officer, added:

"As discussed during our announcement of first quarter preliminary estimates, we are disappointed with our revenue. We firmly believe Egility e-business is the correct focus for the Company's future growth, but it did not grow as much as expected in the first quarter. A continuing transition to a solutions-based, customer-centric sales model has impacted revenues. We are taking action to improve execution, and will continue to make adjustments in sales and marketing in order to accelerate our transition to an e-business software solutions company and return MERANT to profitability.

Cobol revenues decreased at a faster than expected rate, and this decline could continue. This phenomenon was experienced across the industry, as other enterprise software companies have recently reported shortfalls associated with mainframe revenues. We will be reducing our cost base in Cobol to ensure future profitability for this revenue stream.

In addition, our overall European revenues were below expectations. This geographic shortfall was caused by a combination of market and execution issues.

The Company is considering a number of strategic alternatives to maximize shareholder value. In accordance with authority granted to MERANT at our last Annual General Meeting, to buy-back up to 10% of its outstanding shares, the Company plans to initiate a buy-back program, subject to market conditions."

Financial Commentary for the First Quarter - ended July 31, 2000

Under U.K. GAAP, revenues were (pound)47.6 million for the first fiscal quarter as compared to (pound)54.9 million for the period ended July 31, 1999. MERANT's Egility e-business revenue made up 62% of MERANT's total revenues for the quarter. Total revenue from Cobol solutions declined 24%, with Cobol license fees down 43% due to a greater than anticipated decline in demand for Cobol and mainframe-related products. Pre-tax losses before amortization of goodwill were (pound)5.4 million for the quarter ended July 31, 2000. The above pre-tax losses are excluding goodwill charges of (pound)10.5 million.

For the first fiscal quarter, revenues were $72.8 million under U.S. GAAP. Pre-tax losses were $7.6 million before goodwill amortization charges. The above pre-tax losses are excluding a goodwill amortization charge of $3.1 million.

 Summary financial results are as follows:

G.B. pounds, U.K. GAAP Three months ended
(in millions, except per
 ordinary share amounts) July 31, July 31,
 2000 1999
Revenue (pound)47.6m (pound)54.9m
EBITA ((pound)6.4m) (pound)0.8m
Pre-tax (loss) earnings -
 excluding goodwill ((pound)5.4m) (pound)1.4m
Net (loss) earnings per
 share - excluding goodwill (2.4p) 0.6p
(Loss) after goodwill & taxation ((pound)15.9m) ((pound)7.9m)
(Loss) per ordinary share (10.9p) (5.7p)

U.S. dollars, U.S. GAAP Three months ended
(in millions, except per ADS amounts) July 31, July 31,
 2000 1999
Revenue $72.8m $87.6m
EBITA ($9.2m) $1.3m
Pre-tax (loss) earnings
 - excluding goodwill ($7.6m) $2.3m
Net (loss) earnings per ADS
 - excluding goodwill ($0.17) $0.05
Net (loss) income ($10.7m) $0.9m
Net (loss) earnings per ADS - diluted ($0.36) $0.03


-- EBITA is earnings before interest, taxes and goodwill


-- Net (loss) earnings excluding goodwill amortization is

calculated based on an assumed tax rate of 35%. The actual tax

rate for the fiscal year could differ depending on future

operating results.

Operational Highlights

MERANT's first quarter business developments include:

-- MERANT Teams with IBM to Enhance WebSphere with Market-Leading

Data Access Technology - IBM will integrate MERANT's Egility

Unified Information Access technology into IBM's WebSphere

software platform for e-business.

-- MERANT Joins Compaq to Deliver Mainframe-Class Speed and

Scalability to E-Business Customers - this announcement is an

expanded relationship with Compaq Computer Corporation,

whereby MERANT's Egility solutions will be optimized for

Compaq's AlphaServer platform running Unix software. Under

this agreement, Compaq will also license and distribute

MERANT's Server Express.

-- MERANT and Netron Partner to Deliver Legacy-To-E-Business

Solutions - announced this quarter is a strategic relationship

whereby MERANT will incorporate Netron HotRod application

mining technology into MERANT's Egility legacy extension and

integration solutions.

-- MERANT Accelerates Deployment of Legacy Applications for

E-Business - Egility legacy extension solution first to wrap

Cobol applications into Enterprise Java Beans.

-- MERANT Enhances Middleware Technology for B2B Transactions and

Information Integration - this next generation of Egility

Unified Information Access technology introduces new

comprehensive capabilities to manage and secure data for

e-business for e-business and enterprise transactions, such as

Sun's Java 2 Platform Enterprise Edition (J2EE) and Windows

DNA, through highly interoperable standards-based middleware.

-- MERANT Expands Strategic Partnership with Sun - MERANT will

expand its strategic relationship with Sun Microsystems, Inc.,

delivering a framework of infrastructure solutions based on

Sun's J2EE.

Conference Call Update

A conference call has been scheduled today at 4:00 pm BST (11:00 am EDT) for investors and analysts to review the first quarter results. For those wishing to participate on the conference call, the telephone numbers are 800-446-2782 (US), 847-413-3235 (International) and ++353 1 240 5490 (Dublin). For access to our web presentation, please refer to the following web site at at least 10 minutes prior to the call.


MERANT is a leading global e-business software solutions company. Founded in 1976, MERANT has approximately $360 million in annual revenues, 2,000 employees and more than 500 technology partners. More than 5 million professionals use MERANT technology solutions at 35,000 customer sites, including the entire Fortune 100, the majority of the Global 500 and over 400 leading dotcoms. MERANT uses its Egility framework, a comprehensive set of solutions combining expertise, market-leading technology, best practices and an extensive network of partners, to deliver an e-business applications infrastructure. Building on MERANT Egility, MERANT provides comprehensive enterprise-strength e-business solutions for companies, including e-business strategy, creative design, application development and legacy integration. For additional information, visit Investor inquiries can be forwarded to

Forward-Looking Statements

The following statement is made in accordance with the U.S. Private Securities Litigation Reform Act of 1995: This announcement contains forward-looking statements that include statements regarding expectations for MERANT's business strategy, its operating expenses and number of employees, its sales and marketing organization, and future prospects and growth, including the growth of MERANT's e-business solutions business and related revenues. These forward-looking statements involve a number of risks and uncertainties. Actual results could differ materially from those anticipated by these forward-looking statements. Future results will be difficult to predict as MERANT transforms its business strategy to provide e-business solutions and away from certain of its past primary markets, including the market for Year 2000 products and services. MERANT's ability to recruit and retain key personnel, especially in the sales and business units, could materially alter financial results and plans for the sales and business units. Other factors that could cause actual results to differ materially include, among others, the ability of MERANT to effectively manage its costs against uncertain revenue expectations, the potential for a decrease in revenue or a slowdown in revenue growth which may be caused by delays in the timing of sales and the delivery of products or services, the ability of MERANT to develop, release, market and sell products and services to customers in the highly dynamic market for enterprise application development and e-business solutions, the potential need for enterprise application development solutions and e-business solutions to shift based on changes in technology and customer needs, the market acceptance of MERANT's e-business solutions and e-business solutions generally, the effect of competitors' efforts to enter MERANT's markets and the possible success of existing competitors in those markets, and MERANT's ability to manage and integrate recently acquired businesses or other businesses that it may acquire in the future. Further information on potential factors which could affect MERANT's financial results is included in MERANT's Annual Report on Form 20-F for the year ended April 30, 1999, and Quarterly Reports on Form 6-K for the quarters ended July 31, 1999, October 31, 1999, and January 31, 2000, each as submitted to the SEC and as may be updated and amended with future filings or submissions, including MERANT's Form 20-F for the year ended April 30, 2000. MERANT undertakes no obligation to release publicly any updates or revisions to any forward-looking statements contained in this announcement that may reflect events or circumstances occurring after the date of this announcement.

Financial Statement Information

The financial information contained in this report does not constitute statutory accounts as defined in section 240 of the U.K. Companies Act 1985. Prior year figures are based on the financial statements of the Company for the year ended April 30, 2000, which will be filed with the U.K. Registrar of Companies.

U.S. Securities Filings

As a foreign private issuer in the United States, MERANT is not required to file quarterly reports with the SEC. However, starting in 1997 MERANT began furnishing to the SEC, on a voluntary basis, quarterly reports on Form 6-K which include MERANT's results for the applicable quarter in a format similar to that of a Form 10-Q. These materials are available on the SEC web site located at Copies of MERANT's Annual Report to Shareholders and Annual Report on Form 20-F, each for the year ended April 30, 1999, are available upon request to MERANT's offices in Rockville, Maryland or Newbury, United Kingdom.

Trademark Notice

MERANT and Egility are trademarks of MERANT. All other trademarks as they appear in this announcement are the property of their respective owners.


(in thousands - except per
 share and ADS data) Three months ended
 July 31, July 31,
 2000 1999
Net revenue
 License fees $ 30,611 $ 42,526
 Maintenance subscriptions 27,954 25,380
 Training and consulting 14,251 19,689
 --------- ---------
Total net revenue 72,816 87,595
Cost of revenue
 Cost of license fees 2,375 2,555
 Cost of maintenance subscriptions 5,390 5,694
 Cost of training and consulting 15,095 14,916
 --------- ---------
Total cost of revenue 22,860 23,165
Gross profit 49,956 64,430
Operating expenses
 Research and development 14,770 14,492
 Sales and marketing 38,112 40,830
 General and administrative 6,249 7,812
 Goodwill amortization 3,121 978
 --------- ---------
Total operating expenses 62,252 64,112
 --------- ---------
(Loss) income from operations (12,296) 318
Interest income, net 1,583 1,013
 --------- ---------
(Loss) income before income taxes (10,713) 1,331
Income taxes -- 479
 --------- ---------
Net (loss) income ($ 10,713) $ 852
Net (loss) income per share: basic ($ 0.07) $ 0.01
Net (loss) income per ADS: basic ($ 0.36) $ 0.03
Shares used in computing basic net
 (loss) income per share 149,355 143,792
ADSs used in computing basic net
 (loss) income per ADS 29,871 28,758
Net (loss) income per share: diluted ($ 0.07) $ 0.01
Net (loss) income per ADS: diluted ($ 0.36) $ 0.03
Shares used in computing diluted net
 (loss) income per share 149,355 148,606
ADSs used in computing diluted net
(loss) income per ADS 29,871 29,721
Note: Each American depositary share ("ADS") represents five ordinary


(in thousands)
(unaudited) July 31, April 30,
 2000 2000
Current assets:
 Cash and cash equivalents $ 101,556 $ 106,140
 Short-term investments 17,162 19,538
 Accounts receivable, net 73,680 92,840
 Prepaid expenses and other assets 11,980 10,127
 --------- ---------
Total current assets 204,378 228,645
 --------- ---------
Long-term assets:
 Property, plant and equipment, net 45,436 47,518
 Goodwill, net 41,746 44,297
 Software product assets, net 4,883 5,569
 Other assets 3,255 2,987
 --------- ---------
Total assets $ 299,698 $ 329,016
Liabilities and shareholders' equity
Current liabilities:
 Borrowings $ 2,644 $ 2,785
 Accounts payable 10,525 12,208
 Accrued employee compensation 14,358 20,088
 Income taxes payable 8,334 7,601
 Deferred revenue 64,288 69,830
 Other current liabilities 35,174 41,945
 --------- ---------
Total current liabilities 135,323 154,457
 --------- ---------
Deferred income taxes 14,724 13,157
 --------- ---------
Total liabilities 150,047 167,614
Shareholders' equity:
 Ordinary shares 4,878 4,876
 Additional paid-in capital
 and other reserves 172,924 172,892
 Treasury stock (9,646) (11,742)
 Retained earnings (4,271) 6,442
 Accumulated other
 comprehensive loss (14,234) (11,066)
 --------- ---------
Total shareholders' equity 149,651 161,402
Total liabilities and
 shareholders' equity $ 299,698 $ 329,016


(in thousands) Three months ended
(unaudited) July 31, July 31,
 2000 1999
Operating activities:
 Net (loss) income ($ 10,713) $ 852
 Adjustments to reconcile net
 (loss) income to cash
 (used) provided by
 Depreciation of fixed assets 3,470 3,251
 Amortisation of software
 product assets and other 3,617 3,481
 Changes in operating assets
 and liabilities (2,412) (4,330)
 Deferred taxation -- 1,398
 --------- ---------
Net cash (used) provided by
 operating activities (6,038) 4,652
 --------- ---------
Investing activities:
 Purchases of property, plant
 and equipment (2,665) (3,303)
 Software product assets and
 other intangibles (98) (1,517)
 Available-for-sale securities 2,376 13,809
 --------- ---------
Net cash (used) provided by
 investing activities (387) 8,989
 --------- ---------
Financing activities:
 Issuance of ordinary shares,
 net of expenses 2,377 1,139
 Own shares (847) --
 Repayment of borrowings -- 1,644
 --------- ---------
Net cash provided by
 financing activities 1,530 2,783
 --------- ---------
Effect of exchange rates on cash 311 141
 --------- ---------
(Decrease) increase in cash (4,584) 16,565
 --------- ---------
Cash at beginning of period 106,140 86,580
 --------- ---------
Cash at end of period $ 101,556 $ 103,145

(in thousands - except
 per share data) Three months ended
(unaudited) July 31, July 31,
 2000 1999
 (pound) 000 (pound)000
 Licence fees 20,035 26,749
 Maintenance subscriptions 18,248 15,815
 Training and consulting 9,300 12,331
 -------- --------
Total revenue 47,583 54,895
Cost of revenue
 Cost of licence fees 1,553 1,597
 Cost of maintenance subscriptions 3,514 3,568
 Cost of training and consulting 9,842 9,275
 -------- --------
Total cost of revenue 14,909 14,440
Gross profit 32,674 40,455
Operating expenses
 Research and development 9,630 9,069
 Sales and marketing 24,851 25,464
 General and administrative 4,630 5,136
 Goodwill amortisation 10,510 8,754
 -------- --------
Total operating expenses 49,621 48,423
 -------- --------
Operating (loss) before interest
 and taxation (16,947) (7,968)
Interest income, net 1,082 638
 -------- --------
(Loss) before taxation (15,865) (7,330)
Taxation -- (592)
 -------- --------
(Loss) for the period
 after taxation (15,865) (7,922)
(Loss) per share: basic (10.9p) (5.7p)
(Loss) per share: diluted (10.9p) (5.7p)
Number of shares: basic 145,323 139,982
Number of shares: diluted 145,323 139,982


(unaudited) July 31, April 30,
 2000 2000
 (pound) 000 (pound)000
Fixed assets:
 Intangible fixed assets 109,186 120,205
 Tangible fixed assets 30,290 30,075
 Investment 6,011 7,431
 --------- ---------
Total fixed assets 145,487 157,711
Current assets:
 Stock 1,440 1,444
 Trade debtors 49,120 58,760
 Other debtors and prepaid
 expenses 9,802 7,101
 Cash and bank deposits 79,145 79,543
 --------- ---------
Total current assets 139,507 146,848
 --------- ---------
Creditors: amounts falling
 due within one year
 Bank loans and overdrafts 1,763 1,763
 Trade creditors 7,017 7,726
 Accrued employee compensation 9,572 12,714
 Current corporation tax 5,403 4,801
 Accrued expenses and other
 current liabilities 15,180 15,429
 Deferred revenue 42,859 44,196
 --------- ---------
Total current liabilities 81,794 86,629
Net current assets 57,713 60,219
Total assets less current
 liabilities 203,200 217,930
Provisions for liabilities
 and charges 20,273 19,446
 --------- ---------
Net assets 182,927 198,484
Capital and reserves
 Called up share capital 2,989 2,988
 Share premium account and
 other reserves 200,442 200,421
 Profit and loss account (20,504) (4,925)
 --------- ---------
Total shareholders' equity 182,927 198,484


(unaudited) Three months ended
 July 31, July 31,
 2000 1999
 (pound) 000 (pound)000
Operating (loss): (16,947) (7,968)
 Depreciation of fixed assets 2,268 1,557
 Amortisation of software product
 assets and other intangibles 11,082 11,110
 Changes in operating assets and
 liabilities 3,624 2,213
 Restructuring charges (637) --
 Deferred taxation -- (3,113)
 ------- -------
Net cash (outflow) / inflow
 from operating activities (610) 3,799
Returns on investments and
 servicing of finance 1,082 638
Taxation (48) 1,204
Capital expenditure and
 financial investment (3,106) (5,774)
 ------- -------
Cash (outflow) before financing (2,682) (133)
Financing 2,002 1,778
 ------- -------
(Decrease) / increase in cash (680) 1,645

Reconciliation of net cash flow
 to movements in net funds:
 (Decrease) / increase in cash (680) 1,645
 Cash outflow from increase in
 loans -- (1,012)
 Cash outflow from increases
 in liquid resources -- (7)
 ------- -------
Change in cash resulting
 from cash flows (680) 626
Currency translation difference 282 67
 ------- -------
Movement in cash during the period (398) 693
Net funds at beginning of period 77,780 73,692
 ------- -------
Net funds at end of period 77,382 74,385
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