SEGU Segue Software (MM)

Company Increases Profit Guidance for 2005 from $2.25 million to $2.7 million Segue Software, Inc. (NASDAQ-CM: SEGU), a leader in Software Quality Optimization(TM) (SQO(TM)), today announced that net revenues for the third quarter ended September 30, 2005, totaled $9.1 million, an increase of 8% over the $8.4 million reported in the third quarter of 2004. Third quarter net income applicable to common shares increased 17% to $824,000, or $0.07 per diluted share, compared to $703,000, or $0.07 per diluted share, for the third quarter of 2004. Net revenues for the nine months ended September 30, 2005, totaled $26.4 million, an increase of 8% over the $24.5 million reported for the first nine months of 2004. Net income applicable to common shares for the first nine months of 2005 increased 50% to $1.8 million, or $0.16 per diluted share, compared to $1.2 million, or $0.11 per diluted share, for the comparable period in 2004. As of September 30, 2005, Segue posted deferred revenues of $10.5 million, had no long-term debt and enjoyed a strong cash position of $13.0 million, up from $9.9 million one year ago and $11.0 million as of December 31, 2004. "Our third quarter results represent a new milestone in Segue's history--we now have achieved seven straight quarters of profitable revenue growth," said Joseph Krivickas, president and chief executive officer. "This is a result of consistent execution of our corporate strategy and continued focus on our three strategic priorities: profitable revenue growth, market-driven product innovations and selective partnerships and alliances. "As we look to the remainder of 2005, we now expect net income applicable to common shares for the year will exceed $2.7 million, or $0.24 per diluted share, topping our previous estimate of $2.25 million, or $0.20 per diluted share. We continue to expect our 2005 revenue to grow at an annual rate equal to or exceeding the market growth rate of 8-10% projected by analysts for the overall Automated Software Quality market. Our long term goal of generating annual revenue of $50-60 million and net income before tax of $5-9 million in 2006 or 2007 remains unchanged." Conference Call and Webcast As previously announced, the Company will hold a conference call today at 8:00 a.m. EDT to discuss third quarter financial results and its 2005 outlook. To access the call from within the United States, dial 1-800-247-9979. To access the call from outside the United States, dial +1-973-409-9254. The call will also be available via webcast on Segue's Web site at http://www.segue.com on the About Segue/Investor Relations/Calendar of Events page. The Internet broadcast will be available live on Segue's site and an archived replay will be available for one year. About Segue Software Segue Software, Inc. (NASDAQ-CM: SEGU) is a global expert in delivering solutions to define, measure, manage and improve software quality throughout the entire software application lifecycle. Segue's Software Quality Optimization(TM) (SQO(TM)) solutions help companies reduce business risk, ensure the deployment of high quality software and increase return on investment. Leading businesses around the world, including many of the Fortune 500, rely on Segue's innovative Silk family of products to protect their business service levels, competitive edge and brand reputation. Headquartered in Lexington, Mass., with offices across North America and Europe, Segue can be reached at +1-781-402-1000 or www.segue.com. Segue and the Segue logo are registered trademarks and Software Quality Optimization and SQO are trademarks of Segue Software, Inc. All other marks are the property of their respective owners. This press release may contain forward-looking statements, such as our financial projections for 2005 and beyond. Forward-looking statements are statements that contain predictions or projections of future events or performance, and often contain words such as "anticipates", "can", "estimates", "believe", "expects", "projects", "will", "might", or other words indicating a statement about the future. The Company notes that any such forward-looking statements are subject to change and are not guarantees of future performance, and that actual results may differ materially from any such predictions or projections, based on various important factors and including, without limitation, the ability of the Company to continue to achieve positive cash flow and sustain profitability in this difficult economic and business climate; the ability of the Company to close large enterprise orders; the Company's transition to a new management team; the timing and success of introductions of our new products; market acceptance of recently-introduced products (including SilkCentral Test Manager 8.0) and updated releases; the effectiveness of our additional distributors and resellers; growth in license revenue; new products and announcements from other companies; the Company's continued access to capital; and changes in technology and industry standards. Additional information on the factors that could affect the Company's business and financial results is included in the Company's periodic reports filed with the Securities and Exchange Commission. -0- *T Segue Software, Inc. Consolidated Condensed Balance Sheets (In thousands, except per share data) (Unaudited) September December 30, 31, 2005 2004 --------- -------- ASSETS Current assets: Cash and cash equivalents $12,994 $11,028 Accounts receivable, net of allowances of $303 and $281, respectively 7,302 6,421 Other current assets 1,168 1,013 --------- -------- Total current assets 21,464 18,462 Property and equipment, net 805 749 Goodwill, net 1,506 1,506 Other assets 486 604 --------- -------- Total assets $24,261 $21,321 ========= ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $1,372 $564 Accrued compensation and benefits 1,416 1,602 Accrued lease obligations on excess space 764 1,059 Accrued expenses 845 1,134 Deferred revenue 10,530 10,524 --------- -------- Total current liabilities 14,927 14,883 Stockholders' equity: Preferred stock, par value $.01 per share; 9,000 shares authorized; 949 and 921 shares of Series B and 605 and 570 shares of Series C preferred stock issued and outstanding, respectively 5,090 4,726 Common stock, par value $.01 per share; 30,000 shares authorized; 10,460 and 10,195 shares issued, respectively 104 102 Additional paid-in capital 58,279 57,959 Cumulative translation adjustment 243 429 Unearned stock-based compensation (27) (47) Accumulated deficit (53,755) (56,131) --------- -------- 9,934 7,038 Less treasury stock, at cost, 145 shares (600) (600) --------- -------- Total stockholders' equity 9,334 6,438 --------- -------- Total liabilities and stockholders' equity $24,261 $21,321 ========= ======== Segue Software, Inc. Consolidated Condensed Statements of Operations (In thousands, except per share data) Unaudited Three Months Nine Months Ended Ended September 30, September 30, 2005 2004 2005 2004 --------- ------- --------- -------- Revenue: Software $3,936 $3,766 $11,244 $10,938 Services 5,263 4,711 15,383 13,659 --------- ------- --------- -------- Gross revenue 9,199 8,477 26,627 24,597 Less vendor consideration to a customer (123) (46) (248) (104) --------- ------- --------- -------- Net revenue 9,076 8,431 26,379 24,493 Cost of revenue: Cost of software 86 82 297 259 Cost of services 1,172 1,217 3,558 3,823 --------- ------- --------- -------- Total cost of revenue 1,258 1,299 3,855 4,082 Gross margin 7,818 7,132 22,524 20,411 Operating expenses: Sales and marketing 3,906 3,478 11,182 10,439 Research and development 1,673 1,550 5,443 4,835 General and administrative 1,323 1,176 3,767 3,404 --------- ------- --------- -------- Total operating expenses 6,902 6,204 20,392 18,678 --------- ------- --------- -------- Income from operations 916 928 2,132 1,733 Other income, net - - - 15 Interest income, net 76 23 190 60 --------- ------- --------- -------- Income before provision for income taxes 992 951 2,322 1,808 Provision (benefit) for income taxes (26) 61 (54) 63 --------- ------- --------- -------- Net income 1,018 890 2,376 1,745 Preferred stock dividend-in-kind (194) (187) (558) (527) --------- ------- --------- -------- Net income applicable to common shares $824 $703 $1,818 $1,218 ========= ======= ========= ======== Net income per common share - Basic $0.08 $0.07 $0.18 $0.12 Net income per common share - Diluted $0.07 $0.07 $0.16 $0.11 Weighted average common shares outstanding - Basic 10,268 9,962 10,218 9,827 Weighted average common shares outstanding - Diluted(a) 11,334 10,604 11,361 10,622 (a) The assumed conversion of preferred shares into common shares is not included because their inclusion would be anti-dilutive. *T