i2 Reports Second Quarter 2008 Results
Second Quarter Features Growth in Software Solutions Revenue and Cash Flow from Operations of $11.5 Million; Year-to-Date Cash Flow from Operations Greater Than $20 Million
DALLAS--(BUSINESS WIRE)--i2 Technologies, Inc. (NASDAQ: ITWO) today announced results for the second quarter 2008.
A summary of second quarter results:
- Total revenue was $64.7 million
- Costs and expenses, excluding intellectual property settlement benefit, were $60.7 million
- Total operating expense benefit, including intellectual property settlement, of $20.6 million
- Net income applicable to common stockholders was $80.7 million
- Diluted earnings per share (GAAP) were $3.05
- Non-GAAP diluted earnings per share were $0.03 (excluding stock option expense, contract revenue and intellectual property settlement, net of taxes)
- Cash flow from operations was $11.5 million
- Total bookings of $64.1 million, including $8.3 million in software solutions bookings
Intellectual property settlement
During the second quarter, the company announced a settlement agreement with SAP America, Inc. and SAP AG to settle the existing patent litigation between the companies. Under the terms of the settlement agreement, each party will license to the other certain patents in exchange for a one-time cash payment to i2 of $83.3 million. The settlement was recorded as a benefit to the second quarter operating expenses, net of approximately $2.0 million in external patent litigation expenses incurred in the quarter. The company also recorded approximately $1.4 million of alternative minimum tax (AMT) and other state taxes in the quarter as a result of the settlement. The company received the $83.3 million payment on July 28, 2008.
The following table details the effect of the settlement on the company’s financial results for the quarter ended June 30, 2008:
| Amounts in $M | Qtr Ended 6-30-08 | |
| Settlement gross proceeds | $83.3 | |
| Less: External patent litigation expenses | 2.0 | |
| GAAP Operating income effect of settlement | 81.3 | |
|
Less: Applicable tax effect of settlement |
1.4 | |
| GAAP Net income effect of settlement | $79.9 |
Due to the nature of this intellectual property settlement, the company has elected to include the settlement, net of the impact of taxes, as a non-GAAP adjusting item to earnings per share. A reconciliation of GAAP diluted earnings per share to non-GAAP diluted earnings per share for the three month periods ended June 30 is as follows:
| Amounts in $ millions, except per share | Quarter Ended 6-30-08 | Quarter Ended 6-30-07 | ||||||||||
| Net income | Diluted EPS | Net income | Diluted EPS | |||||||||
| GAAP applicable to common stockholders | $ | 80.7 | $ | 3.05 | $ | 1.6 | $ | 0.06 | ||||
| Less: intellectual property settlement, net of taxes | $ | 81.9 | $ | 3.09 | $ | 0.0 | $ | 0.00 | ||||
| Add: Stock option expense | $ | 2.0 | $ | 0.07 | $ | 2.9 | $ | 0.11 | ||||
| Non-GAAP applicable to common stockholders | $ | 0.8 | $ | 0.03 | $ | 4.5 | $ | 0.17 | ||||
“Our Supply Chain Results Company strategy, and our introduction of SCM 2.0, continues to build momentum, with both new and existing customers turning to us for flexible solutions, rapid delivery and supply chain expertise,” stated i2 Chief Executive Officer Pallab Chatterjee. “In addition, we believe that our intellectual property settlement with SAP validates the value of our intellectual property,” concluded Chatterjee.
“We are reporting solid bookings and strong cash flow from operations for the second quarter,” stated i2 Executive Vice President and Chief Financial Officer Mike Berry. “Included in the financial results for the second quarter is approximately $79.9 million, net of external patent litigation expenses and the impact of taxes, related to our intellectual property settlement with SAP as well as $1.8 million of costs related to other litigation items, dating back to 2005, resolved during the quarter,” concluded Berry.
Second Quarter Results
Revenue Detail
Total revenue for the second quarter was $64.7 million as compared to $65.0 million in the second quarter of 2007, a decrease of $0.3 million or 0.4 percent.
i2 had total second quarter software solutions revenue, which includes core license revenue, recurring license revenue as well as fees received to develop the licensed functionality, of $12.6 million. This compares to $11.4 million of software solutions revenue in the second quarter of 2007, an increase of 10 percent year-over-year.
Services revenue in the second quarter was $30.5 million, a decrease of 3 percent from the $31.6 million of services revenue in the second quarter of 2007. Services revenue includes fees received from consulting and training services as well as arrangements to customize or enhance previously purchased licensed software. Services revenue also includes reimbursable expenses.
Second quarter maintenance revenue was $21.7 million, a decrease of 2 percent from $22.0 million in the comparable prior year quarter.
Costs and Expenses
Costs and expenses, subtotal excluding the intellectual property settlement, for the second quarter of 2008 were $60.7 million, a 2 percent decrease compared to $61.7 million in the second quarter of 2007. Costs and expenses in the second quarter included $3.0 million in stock-based compensation expense, which includes $2.0 million in expense related to stock options and $1.0 million in expense related to restricted stock units. Second quarter costs and expenses also included $1.8 million related to resolutions of certain outstanding litigations from 2005.
Including the $81.3 million intellectual property settlement, net of approximately $2.0 million in external patent litigation expenses, total costs and expenses for the second quarter of 2008 were a benefit of $20.6 million.
Net Income
The company reported second quarter 2008 net income applicable to common stockholders of $80.7 million, or $3.05 per diluted share. This compares to $1.6 million, or $0.06 per diluted share, in net income applicable to common stockholders in the second quarter of 2007.
First Half 2008 Results
For the six months ended June 30, 2008, total revenues were $127.3 million, a decrease of 3 percent as compared to $130.6 million for the same period in 2007. Total revenue in the first half of 2007 included $2.5 million of contract revenue. Excluding contract revenue, operating revenue declined 1 percent for the six months ended June 30, 2008 compared to the same period in 2007.
Software solutions revenue decreased 2 percent to $24.2 million for the six months ended June 30, 2008 compared to $24.8 million in the first half of 2007. Services revenue was $59.4 million in the first half of 2008 compared to $60.2 million in the first half of 2007, a decrease of 1 percent. Maintenance revenue increased 2 percent to $43.7 million in the first half of 2008 compared to $43.0 million in the comparable period in 2007.
Costs and expenses, subtotal excluding the intellectual property settlement, for the six months ended June 30, 2008 decreased 3 percent to $117.8 million as compared to $121.8 million in the first half of 2007. Costs and expenses for the six months ended June 30, 2008 included $5.9 million in stock-based compensation expense, which includes $4.0 million in expense related to stock options and $1.9 million in expense related to restricted stock units. Total costs and expenses for the six months ended June 30, 2008 were $37.9 million and included a benefit of $79.9 million related to the company’s intellectual property settlement. The benefit amount reflects the $83.3 million gross amount of the settlement, net of $3.5 million in external patent litigation related expenses.
The company reported net income applicable to common stockholders of $83.3 million or $3.15 per diluted share for the six months ended June 30, 2008. This compares to $5.1 million or $0.19 per diluted share in net income applicable to common stockholders in the comparable period in 2007.
Non-GAAP Diluted Earnings Per Share
The company provides non-GAAP financial measures to assist stockholders with the analysis of financial and business trends related to the company’s operations. These calculations are not in accordance with, or an alternative for, generally accepted accounting principles (GAAP) and may be different from non-GAAP measures presented by other companies.
Non-GAAP diluted earnings per share applicable to common stockholders in the second quarter of 2008 were $0.03, compared to $0.17 per diluted share in the comparable period last year on a non-GAAP basis. Non-GAAP diluted earnings per share applicable to common stockholders for the six months ended June 30, 2008 were $0.20, compared to $0.33 per diluted share in the comparable period in 2007 on a non-GAAP basis. Non-GAAP diluted earnings per share excludes stock option expense, the net effect of contract revenue and contract expense and the effect of the intellectual property settlement, net of the impact of taxes applicable to the settlement. Contract revenue is the result of the recognition of certain revenue that was carried on i2’s balance sheet as a portion of deferred revenue and was a result of the company’s 2003 financial restatement. As of March 31, 2007, the deferred contract revenue balance was zero.
A full reconciliation of GAAP to non-GAAP financial measures can be found in Schedule A included with this release.
Other Financial Information
On June 30, 2008, i2’s total cash balance was $149.7 million (including restricted cash of $6.7 million), an increase of $10.9 million from March 31, 2008. Total debt at the end of the second quarter was $86.3 million, which represents the face value of the company’s 5% senior convertible notes.
The company generated cash flow from operations of $11.5 million in the second quarter of 2008, bringing the first half 2008 cash flow from operations to $20.4 million. The company has recorded approximately $32 million in cash flow from operations during the trailing four quarter period.
Third Quarter 2008 Outlook
The company currently expects financial performance in the third quarter of 2008 to be reasonably comparable to the third quarter of 2007. Cash flow from operations in the third quarter of 2008 is expected to be greater than $80 million due to the cash received from the company’s patent litigation settlement with SAP, net of external related expense cash payments. This outlook assumes no significant changes to the company’s management or operations during the third quarter of 2008.
The company’s statements regarding future financial performance are based on current expectations for bookings, cash collections, revenue, expense and diluted shares outstanding. Such statements are forward-looking, and the company expressly disclaims any current intention to update forward-looking statements. Actual results may differ materially. See “i2 Cautionary Language” below.
Earnings Conference Call and Webcast Information
The i2 management team will host a live conference call with investors today, August 7 at 10:00 a.m. ET to discuss the second quarter 2008 financial results. Investors and other interested parties may access the call via webcast through the company’s Web site at http://www.i2.com/investor.
An audio replay of the conference call will be available for approximately 24 hours following the call. To access the replay, dial (800) 475-6701 (USA) or (320) 365-3844 (International) and enter access code 954503. The webcast will also be archived via the company's Web site at http://www.i2.com/investor.
About i2
Throughout its 20-year history of innovation and value delivery, i2 has dedicated itself to building successful customer partnerships. As a full-service supply chain company, i2 is uniquely positioned to help its clients achieve world-class business results through a combination of consulting, technology, and managed services. i2 solutions are pervasive in a wide cross-section of industries; 21 of the AMR Research Top 25 Global Supply Chains belong to i2 customers. Learn more at www.i2.com.
i2 is a registered trademark of i2 Technologies US, Inc. and i2 Technologies, Inc.
i2 Cautionary Language
This press release contains forward-looking statements that involve risks and uncertainties, including forward-looking statements regarding i2’s outlook for third quarter 2008 revenue, diluted earnings per share, operating cash flow and total bookings. These forward-looking statements are based on current expectations for bookings, cash collections, revenue, expense and diluted shares outstanding, and involve risks and uncertainties that may cause actual results to differ from those projected, including, without limitation, the risk that (i) we will be unable to develop and generate additional demand for our products, (ii) we will be unable to remain competitive, (iii) our strategy to sell new-generation solutions may not be successful, (iv) product quality, performance claims and other litigation may have a material adverse effect on our relationships with customers and our business, and (v) key personnel leave the company or the company is unable to attract, train and retain additional personnel. For a discussion of factors which could impact i2's financial results and cause actual results to differ materially from those in forward-looking statements, please refer to i2's recent filings with the SEC, particularly the Quarterly Report on Form 10-Q filed May 12, 2008 and the Annual Report on Form 10-K filed March 17, 2008. i2 expressly disclaims any current intention to update the forward-looking information contained in this news release.
| i2 TECHNOLOGIES, INC. | ||||||||
| CONDENSED CONSOLIDATED BALANCE SHEETS | ||||||||
| (In thousands, except par value) | ||||||||
| (unaudited) | ||||||||
| June 30, | December 31, | |||||||
| 2008 | 2007 | |||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | 143,061 | $ | 120,978 | ||||
| Restricted cash | 6,668 | 8,456 | ||||||
| Accounts receivable, net | 29,020 | 25,108 | ||||||
| Other current assets | 91,868 | 7,746 | ||||||
| Total current assets | 270,617 | 162,288 | ||||||
| Premises and equipment, net | 6,081 | 7,559 | ||||||
| Goodwill | 16,684 | 16,684 | ||||||
| Non-current deferred tax asset | 7,192 | 8,454 | ||||||
| Other non-current assets | 6,945 | 7,168 | ||||||
| Total assets | $ | 307,519 | $ | 202,153 | ||||
| LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | 5,958 | $ | 4,741 | ||||
| Accrued liabilities | 15,696 | 14,631 | ||||||
| Accrued compensation and related expenses | 17,354 | 17,636 | ||||||
| Deferred revenue | 72,408 | 61,715 | ||||||
| Total current liabilities | 111,416 | 98,723 | ||||||
| Total long-term debt, net | 84,768 | 84,453 | ||||||
| Taxes payable | 6,278 | 4,484 | ||||||
| Total liabilities | 202,462 | 187,660 | ||||||
| Commitments and contingencies | ||||||||
| Stockholders' equity: | ||||||||
|
Preferred Stock, $0.001 par value, 5,000 shares authorized, none issued and outstanding |
- | - | ||||||
|
Series A junior participating preferred stock, $0.001 par value, 2,000 shares authorized, none issued and outstanding |
- | - | ||||||
|
Series B 2.5% convertible preferred stock, $1,000 par value, 150 shares authorized, 108 issued and outstanding at June 30, 2008 and 107 issued and outstanding December 31, 2007 |
105,003 | 103,450 | ||||||
|
Common stock, $0.00025 par value, 2,000,000 shares authorized, 21,560 and 21,448 shares issued and outstanding at June 30, 2008 and December 31, 2007, respectively |
5 | 5 | ||||||
| Additional paid-in capital | 10,464,084 | 10,458,101 | ||||||
| Accumulated other comprehensive income | 9,649 | 9,963 | ||||||
| Accumulated deficit | (10,473,684 | ) | (10,557,026 | ) | ||||
| Net stockholders' equity | 105,057 | 14,493 | ||||||
| Total liabilities and stockholders' equity | $ | 307,519 | $ | 202,153 | ||||
| i2 TECHNOLOGIES, INC. | ||||||||||||||||
| CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS | ||||||||||||||||
| (In thousands, except per share data) | ||||||||||||||||
| (Unaudited) | ||||||||||||||||
|
Three Months Ended |
Six Months Ended |
|||||||||||||||
| 2008 | 2007 | 2008 | 2007 | |||||||||||||
| Revenues: | ||||||||||||||||
| Software solutions | $ | 12,569 | $ | 11,412 | $ | 24,241 | $ | 24,845 | ||||||||
| Services | 30,508 | 31,553 | 59,350 | 60,248 | ||||||||||||
| Maintenance | 21,651 | 22,018 | 43,713 | 43,027 | ||||||||||||
| Contract | - | - | - | 2,450 | ||||||||||||
| Total revenues | 64,728 | 64,983 | 127,304 | 130,570 | ||||||||||||
| Costs and expenses: | ||||||||||||||||
| Cost of revenues: | ||||||||||||||||
| Software solutions | 2,874 | 2,175 | 5,488 | 4,649 | ||||||||||||
| Services | 23,624 | 24,467 | 46,095 | 48,310 | ||||||||||||
| Maintenance | 2,655 | 2,800 | 5,498 | 5,737 | ||||||||||||
| Amortization of acquired technology | - | 6 | 4 | 12 | ||||||||||||
| Sales and marketing | 13,072 | 12,957 | 25,022 | 24,654 | ||||||||||||
| Research and development | 7,541 | 8,750 | 15,174 | 17,555 | ||||||||||||
| General and administrative | 10,919 | 10,549 | 20,428 | 20,928 | ||||||||||||
| Amortization of intangibles | 25 | 25 | 50 | 28 | ||||||||||||
| Restructuring charges and adjustments | - | (49 | ) | - | (75 | ) | ||||||||||
| Costs and expenses, subtotal | 60,710 | 61,680 | 117,759 | 121,798 | ||||||||||||
| Intellectual property settlement, net | (81,315 | ) | - | (79,860 | ) | - | ||||||||||
| Total (benefit) costs and expenses | (20,605 | ) | 61,680 | 37,899 | 121,798 | |||||||||||
| Operating income | 85,333 | 3,303 | 89,405 | 8,772 | ||||||||||||
| Non-operating expense, net: | ||||||||||||||||
| Interest income | 932 | 1,302 | 2,127 | 2,648 | ||||||||||||
| Interest expense | (1,236 | ) | (1,236 | ) | (2,475 | ) | (2,476 | ) | ||||||||
| Foreign currency hedge and transaction losses, net | (464 | ) | (74 | ) | (605 | ) | (191 | ) | ||||||||
| Other (expense) income, net | (335 | ) | (231 | ) | 284 | (553 | ) | |||||||||
| Total non-operating expense, net | (1,103 | ) | (239 | ) | (669 | ) | (572 | ) | ||||||||
| Income before income taxes | 84,230 | 3,064 | 88,736 | 8,200 | ||||||||||||
| Income tax expense | 2,714 | 740 | 3,842 | 1,598 | ||||||||||||
| Net income | $ | 81,516 | $ | 2,324 | $ | 84,894 | $ | 6,602 | ||||||||
| Preferred stock dividend and accretion of discount | 776 | 765 | 1,552 | 1,524 | ||||||||||||
| Net income applicable to common stockholders | $ | 80,740 | $ | 1,559 | $ | 83,342 | $ | 5,078 | ||||||||
| Net income per common share applicable to common stockholders: | ||||||||||||||||
| Basic | $ | 3.09 | $ | 0.06 | $ | 3.20 | $ | 0.20 | ||||||||
| Diluted | $ | 3.05 | $ | 0.06 | $ | 3.15 | $ | 0.19 | ||||||||
| Weighted-average common shares outstanding: | ||||||||||||||||
| Basic | 26,105 | 25,770 | 26,080 | 25,690 | ||||||||||||
| Diluted | 26,475 | 26,806 | 26,459 | 26,870 | ||||||||||||
| i2 TECHNOLOGIES, INC. | ||||||||
| CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS | ||||||||
| (In thousands) | ||||||||
| (unaudited) | ||||||||
| Six Months Ended June 30, | ||||||||
| 2008 | 2007 | |||||||
| Cash flows from operating activities: | ||||||||
| Net income | $ | 84,894 | $ | 6,602 | ||||
|
Adjustments to reconcile net income to net cash provided by operating activities: |
||||||||
| Amortization of debt issuance expense | 541 | 504 | ||||||
| Warrant accretion | 315 | 315 | ||||||
| Depreciation and amortization | 1,850 | 2,471 | ||||||
| Stock based compensation | 5,872 | 7,347 | ||||||
| Loss on disposal of premises and equipment | 144 | 222 | ||||||
| Expense (credit) for bad debts charged to costs and expenses | 173 | (116 | ) | |||||
| Deferred income taxes | 1,398 | (92 | ) | |||||
|
Changes in operating assets and liabilities, excluding the effects of acquisitions: |
||||||||
| Accounts receivable | (4,033 | ) | (440 | ) | ||||
| Other assets | (86,212 | |||||||