MUSE Micromuse (MM)

Micromuse Inc. (Nasdaq: MUSE) -- Q4 2005 revenues of $44.7 million for the quarter; 23% higher than Q4 2004 -- Q4 adjusted (non-GAAP) earnings per share of $0.06; GAAP earnings per share of $0.02 -- FY 2005 revenues of $160.8 million for the year; 10% higher than FY 2004 -- FY 2005 adjusted (non-GAAP) earnings per share of $0.21; GAAP loss per share of ($0.05) Micromuse Inc. (Nasdaq: MUSE), the leading provider of ultra-scalable, realtime business and service assurance software, today announced that fourth quarter 2005 net revenues were $44.7 million, an increase of 23% over $36.3 million in the fourth quarter of 2004. Adjusted (or non-GAAP) net income was $4.7 million, or $0.06 per share, versus $5.6 million, or $0.07 per share, in the fourth quarter a year ago. Net income on a GAAP basis for the fourth quarter of 2005 was $1.9 million, or $0.02 per share, compared to a net income of $4.9 million, or $0.06 per share, in the fourth quarter a year ago. Fiscal year 2005 net revenues were $160.8 million, an increase of 10% over $146.6 million in 2004. Adjusted net income was $17.1 million, or $0.21 per share, compared with adjusted net income of $14.1 million, or $0.17 per share, in fiscal year 2004. This represents an increase of 24% on a per share basis. Net loss on a GAAP basis was $3.8 million, or ($0.05) per share, compared with GAAP net income of $4.4 million, or $0.05 per share, in fiscal year 2004. Adjusted (or non-GAAP) results, as presented in the attached reconciliation table, exclude amortization of intangibles from acquisitions, in-process research and development write-off, amortization of deferred stock-based compensation and other items such as restructuring charges and credits, restatement and forensic accounting expenses, severance expenses, expenses related to the settlement of securities and patent lawsuits, a non-cash facilities expense, and related tax effects. In addition, as Micromuse begins to apply FAS 123(R) in Fiscal 2006, adjusted (non-GAAP) results will also exclude stock-based compensation expenses associated with the adoption of FAS 123(R). Cash and cash equivalents, short-term investments and long-term investments were $159.9 million as of September 30, 2005. "Fiscal 2005 was another year of excellent performance for Micromuse," said Lloyd Carney, CEO of Micromuse. "We achieved double digit revenue growth and adjusted earnings per share growth in excess of 20% for the second consecutive year, and we increased deferred revenues by 80%. We also accomplished our main operational goals for the year in the areas of partnership expansion, training and education, and product integration. We have continued confidence in the outlook for our business in FY06, and are providing guidance for the full fiscal year for the first time. Revenues for fiscal year 2006 are estimated to be in the $195-$200 million range, with adjusted (non-GAAP) earnings per share of $0.27-$0.29. Revenues for the first quarter of fiscal 2006 are estimated to be in the $44-$46 million range, with adjusted (non-GAAP) EPS of $0.03-$0.04. We are unable to provide earnings per share guidance on a GAAP basis as we are still assessing the impact of adopting FAS 123R, which addresses the accounting treatment of stock-based compensation. This guidance also reflects continued investment in pre-sales and professional services staff to support demand for recently acquired Quallaby and GuardedNet products." The Company has also decided to change its fiscal year end from September 30 to October 31 in order to better align with the buying patterns of its largest customers. Q4 2005 Conference Call, Webcast, and Replay Information Micromuse will host a conference call and simultaneous webcast on Wednesday, November 16, 2005 at 2:00 PM PT, 5:00 PM ET to announce adjusted and GAAP results for the fourth quarter and fiscal year 2005. The live call will be available to the general public by dialing 866-831-5605 (domestic) or 617-213-8851 (international) and entering access code 10159965. A live webcast of the conference call will be available at http://www.corporate-ir.net/ireye/ir_site.zhtml?ticker=MUSE&script=210 0 (Due to its length, this URL may need to be copied/pasted into your Internet browser's address field. Remove the extra space if one exists.) or via a link from the Micromuse web site at http://www.micromuse.com/. A replay of this conference call will be available by dialing 888-286-8010 (domestic) or 617-801-6888 (international) and entering access code 99286370. The replay will be available from Wednesday, November 16, 2005 at 7:00 PM PT until Wednesday, November 23, 2005 at 11:59 PM PT. The replay will also be available as an archived audio file at http://www.micromuse.com/. About Micromuse Micromuse Inc. (Nasdaq: MUSE) is the leading provider of ultra-scalable, realtime business and service assurance software solutions. The Netcool(R) software suite provides organizations with the assurance that their IT systems are supporting and driving profits 24 hours a day. Unlike traditional infrastructure management systems, Netcool solutions provide realtime end-to-end visibility and accurate troubleshooting from a business perspective. Such business intelligence allows organizations to respond to problems quickly, streamline workflow processes and improve business uptime. Micromuse customers include BT, Cable & Wireless, Deutsche Telekom, EarthLink, ITC DeltaCom, JPMorgan Chase, MCI, T-Mobile, and Verizon. Headquarters are located at 650 Townsend Street, Suite 475, San Francisco, Calif. 94103; (415) 568-9800. The Web site is at www.micromuse.com. Micromuse and Netcool are registered trademarks of Micromuse Ltd. All other trademarks and registered trademarks in this document are the properties of their respective owners. Any statements contained in this press release that do not describe historical facts may constitute forward-looking statements as that term is defined in the Private Securities Litigation Reform Act of 1995. Any forward-looking statements we make are based on current expectations, and are subject to a number of risks and uncertainties. Actual results could differ materially. Factors that could cause actual future results to differ materially from the forward-looking statements include: fluctuations in customer demand; the Company's ability to manage its growth (including the ability to hire sufficient sales and technical personnel); risks associated with the expansion of the Company's distribution channels; risk of new product introductions and customer acceptance of new products; rapid technological change which characterizes the Company's markets; risks associated with competition; risks associated with international sales; and the ability of the Company to compete successfully in the future; as well as risks relating to pending litigation, the completed restatement of certain of our financial statements, and other matters appearing under the caption "Risk Factors" in the Company's most recent Quarterly Reports on Form 10-Q and Form 10-K filed with the SEC and available on the Company's website. The Company disclaims any obligation or intention to update or revise any forward-looking statements. -0- *T MICROMUSE INC. CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands, except per share data) ASSETS September September 30, 30, 2005 2004 --------- --------- Assets: Cash and cash equivalents $ 55,657 $ 38,232 Short-term investments 87,422 24,469 Long-term investments 16,811 130,873 --------- --------- Total cash, cash equivalents and investments 159,890 193,574 Accounts receivable, net 39,790 19,901 Prepaid expenses and other assets 12,307 8,893 Property and equipment, net 7,396 5,002 Goodwill 95,205 50,240 Other intangible assets, net 18,250 6,743 --------- --------- $332,838 $284,353 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities: Accounts payable $ 4,118 $ 4,283 Accrued expenses 32,446 20,408 Income taxes payable 7,869 6,460 Deferred revenue 78,980 43,935 --------- --------- Total liabilities 123,413 75,086 Stockholders' equity Preferred stock; $0.01 par value; 5,000 shares authorized; no shares issued and outstanding - - Common stock; $0.01 par value; 200,000 shares authorized; 82,434 and 79,982 shares outstanding as of September 30, 2005 and September 30, 2004, respectively 824 800 Additional paid-in capital 232,009 216,580 Treasury stock; 3,009 and 1,400 shares as of September 30, 2005 and 2004, respectively (17,066) (7,147) Accumulated other comprehensive loss (3,383) (1,833) Retained earnings (2,959) 867 --------- --------- Total stockholders' equity $209,425 $209,267 ---------- --------- $332,838 $284,353 ========== ========= MICROMUSE INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (In thousands, except per share data) Three months ended Year ended September 30, September 30, ----------------- ----------------- 2005 2004 2005 2004 -------- -------- -------- -------- Revenues: License $24,116 $17,699 $81,097 $75,996 Maintenance and services 20,601 18,579 79,662 70,581 -------- -------- -------- -------- Total revenues 44,717 36,278 160,759 146,577 -------- -------- -------- -------- Cost of revenues: License 1,580 848 6,615 5,203 Maintenance and services 5,132 3,527 15,956 11,983 Amortization of developed technology 986 1,393 4,200 5,908 -------- -------- -------- -------- Total cost of revenues 7,698 5,768 26,771 23,094 -------- -------- -------- -------- Gross profit 37,019 30,510 133,988 123,483 -------- -------- -------- -------- Operating expenses: Sales and marketing 15,767 12,073 61,991 59,254 Research and development 11,110 7,306 35,100 31,427 General and administrative 7,856 6,220 27,008 24,236 Restatement and related litigation 196 209 643 5,634 Stock based compensation 492 - 1,419 553 Amortization of intangible assets 432 53 893 196 In-process R&D write-off - - 2,200 - Litigation settlement expense - - 10,900 - Other items* - - 1,304 - Restructuring charge (credit) - - (281) - -------- -------- -------- -------- Total operating expenses 35,853 25,861 141,177 121,300 -------- -------- -------- -------- Income (loss) from operations 1,166 4,649 (7,189) 2,183 Other income, net 1,388 982 5,304 3,847 -------- -------- -------- -------- Income (loss) before income taxes 2,554 5,631 (1,885) 6,030 Income tax provision 647 704 1,941 1,642 -------- -------- -------- -------- Net income (loss) $ 1,907 $ 4,927 $(3,826) $ 4,388 ======== ======== ======== ======== Per share data: Basic net income (loss) $ 0.02 $ 0.06 $ (0.05) $ 0.06 Diluted net income (loss) $ 0.02 $ 0.06 $ (0.05) $ 0.05 Weighted average shares used in computing: Basic net income (loss) per share 79,873 78,833 79,251 78,479 Diluted net income (loss) per share 82,765 79,852 79,251 80,957 * Other items consists of executive severance and forensic accounting expense. MICROMUSE INC. NON-GAAP CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (In thousands, except per share data) Three months ended Year ended September 30, September 30, ----------------- ----------------- 2005 2004 2005 2004 -------- -------- -------- -------- Revenues: License $24,116 $17,699 $81,097 $75,996 Maintenance and services 20,601 18,579 79,662 70,581 -------- -------- -------- -------- Total revenues 44,717 36,278 160,759 146,577 -------- -------- -------- -------- Cost of revenues: License 1,580 848 6,615 5,203 Maintenance and services 5,028 3,527 15,852 11,983 -------- -------- -------- -------- Total cost of revenues 6,608 4,375 22,467 17,186 -------- -------- -------- -------- Gross profit 38,109 31,903 138,292 129,391 -------- -------- -------- -------- Operating expenses: Sales and marketing 15,525 12,073 61,749 59,254 Research and development 10,807 7,306 34,797 31,427 General and administrative 7,722 6,220 26,874 24,236 -------- -------- -------- -------- Total operating expenses 34,054 25,599 123,420 114,917 -------- -------- -------- -------- Income from operations 4,055 6,304 14,872 14,474 Other income, net 1,388 982 5,304 3,847 -------- -------- -------- -------- Income before income taxes 5,443 7,286 20,176 18,321 Income tax provision 762 1,676 3,126 4,214 -------- -------- -------- -------- Net income $ 4,681 $ 5,610 $17,050 $14,107 ======== ======== ======== ======== Per share data: Basic net income $0.06 $0.07 $0.22 $0.18 Diluted net income $0.06 $0.07 $0.21 $0.17 Weighted average shares used in computing: Basic net income per share 79,873 78,833 79,251 78,479 Diluted net income per share 82,765 79,852 81,794 80,957 Certain non-cash expenses for our former San Francisco facility, which were $783, are included in the following line items in our GAAP financial statements: $104 in cost of revenues -- maintenance and services, $242 in sales and marketing, $303 in research and development, and $134 in general and administrative expenses. These costs are excluded from our non-GAAP financial statements presented above. MICROMUSE INC. RECONCILIATION BETWEEN NET INCOME ON A GAAP AND NON-GAAP BASIS (Unaudited) (In thousands, except per share data) Three months ended Year ended September 30, September 30, ----------------------------------- 2005 2004 2005 2004 -------- -------- -------- -------- GAAP net income - $ 1,907 $ 4,927 $(3,826) $ 4,388 Add: Amortization of developed technology and other intangible assets 1,418 1,446 5,093 6,104 Restructuring charge (credit) - - (281) - Restatement and related litigation 196 209 643 5,634 Stock based compensation 492 - 1,419 553 In-process R&D write-off - - 2,200 - Litigation settlement expense - - 10,900 - Non-cash facilities expense 783 - 783 - Other items - - 1,304 - Income tax effect (115) (972) (1,185) (2,572) -------- -------- -------- -------- NON-GAAP net income - $ 4,681 $ 5,610 $17,050 $14,107 ======== ======== ======== ======== Diluted earnings per share reconciliation: GAAP earnings per share - $ 0.02 $ 0.06 $ (0.05) $ 0.05 Add: Amortization of developed technology and other intangible assets 0.02 0.02 0.06 0.07 Restructuring charge (credit) - - - - Restatement and related litigation - - 0.01 0.07 Stock based compensation 0.01 - 0.02 0.01 In-process R&D write-off - - 0.03 - Litigation settlement expense - - 0.13 - Non-cash facilities expense 0.01 - 0.01 - Other items - - 0.02 - Income tax effect - (0.01) (0.02) (0.03) -------- -------- -------- -------- NON-GAAP diluted earnings per share - $ 0.06 $ 0.07 $ 0.21 $ 0.17 ======== ======== ======== ======== Shares used in computing diluted earnings per share - 82,765 79,852 81,794 80,957 ======== ======== ======== ======== The non-GAAP condensed consolidated statement of operations and non-GAAP earnings guidance are presented for informational purposes only as an alternative view of the Company's operating results and guidance. In the calculation of the Company's non-GAAP earnings results, and in the provision of non-GAAP earnings guidance, Micromuse excludes certain items such as the amortization of developed technology and other intangibles assets, restructuring charges (credits), the cost of the restatement and related litigation, certain stock-based compensation costs, in-process research and development write-offs, litigation settlement expenses, a non-cash facilities expense, other items, and their related income tax effects. In addition, as Micromuse begins to apply FAS 123(R) in Fiscal 2006, non-GAAP results will also exclude stock-based compensation expense associated with the adoption of FAS 123(R). Micromuse believes that excluding these items provides investors with a representation of the Company's core performance, and may be more meaningful in analyzing the results of operations and income generation. The non-GAAP condensed consolidated statement of operations should not be considered as a substitute for financial information presented in accordance with generally accepted accounting principles, and may be different from non-GAAP measures used by other companies. *T