ATG Reports Second Quarter 2010 Financial Results

CAMBRIDGE, Mass.--(BUSINESS WIRE)--Art Technology Group, Inc. (NASDAQ: ARTG), the premier provider of cross channel commerce solutions, today reported financial results for the second quarter ended June 30, 2010.

“ATG delivered another strong quarter with double-digit revenue, license bookings and cash flow from operations growth”

Revenue for the second quarter of 2010 grew to $49.2 million, an 11% increase over second quarter 2009 revenue of $44.4 million. Deferred revenue for the second quarter of 2010 increased to $67.2 million, a 23% increase over second quarter 2009 deferred revenue of $54.8 million.

“ATG delivered another strong quarter with double-digit revenue, license bookings and cash flow from operations growth,” stated Bob Burke, ATG’s president and CEO. “Going into the second half of the year, we continue to see healthy demand for both our Commerce and Optimization businesses.”

Product license bookings, a non-GAAP measure which the company defines as the sale of perpetual licenses, grew 10% to $18.2 million for the second quarter from $16.6 million in the year ago quarter. Approximately 31% of product license bookings were deferred in the second quarter of 2010 and will be recognized in future periods.

Net income in accordance with GAAP for the second quarter of 2010 was $4.2 million, or $0.03 per diluted share, compared with net income of $4.6 million, or $0.03 per diluted share, in the second quarter of 2009.

Non-GAAP net income was $8.2 million for the second quarter of 2010, or $0.05 per diluted share, compared with non-GAAP net income of $7.9 million, or $0.06 per diluted share, for the second quarter of 2009.

Cash flow from operations for the second quarter of 2010 was $8.1 million, a 62% increase over cash flow from operations of $5.0 million in the second quarter of 2009.

“We are very pleased with our performance in the first half of 2010,” stated Julie Bradley, ATG’s senior vice president and CFO. “Given our year-to-date results and market outlook, we anticipate a strong second half performance.”

Quarterly Conference Call

ATG management will discuss the company’s second quarter 2010 financial results, recent highlights, and business outlook on its quarterly conference call for investors at 10:00 a.m. ET today. The conference call will be broadcast live over the Internet. Investors interested in listening to the webcast should log on to the “Investors” section of the ATG website, www.atg.com. The live conference call also can be accessed by dialing (866) 723-3575 (or (706) 634-8872 for international calls) and using conference ID No. 84949138. A replay of the call will be available on the company’s website later in the day.

About ATG

ATG (Nasdaq: ARTG) provides the most advanced cross-channel commerce software and services to fuel the growth of the world’s top brands. Offering the industry’s leading commerce solution, ATG works in partnership with clients to drive sales via a personalized customer experience – unifying and optimizing interactions across the Web, contact center, mobile devices, social media, physical stores, and other key channels. Exclusively focused on online and cross-channel commerce, ATG is uniquely capable of powering the most innovative and successful commerce experiences, with results that outperform industry norms. ATG Commerce is the commerce platform and business user application solution top-rated by industry analysts for powering results-driven, personalized, and innovative e-commerce sites. ATG's platform-neutral optimization solutions for live help, lead performance, and product recommendations can be easily added to any website to increase conversions and reduce abandonment. ATG is headquartered in Cambridge, Massachusetts, with additional locations throughout North America and Europe. For more information, please visit http://www.atg.com.

© 2010 Art Technology Group, Inc. ATG and Art Technology Group are registered trademarks of Art Technology Group, Inc. All other product names, service marks, and trademarks mentioned herein are trademarks of their respective owners.

ART TECHNOLOGY GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
(UNAUDITED)

		June 30,		March 31,		December 31,			June 30,
		2010		2010		2009			2009
ASSETS

Current Assets:
	Cash, cash equivalents and marketable securities (including restricted cash of $50 at June 30, 2010, March 31, 2010 and December 31, 2009 and $0 at June 30, 2009)	$	145,184	$	138,703	$	79,094		$	71,335
	Accounts receivable, net		44,963		36,385		41,522			39,155
	Deferred costs, current		1,588		1,216		767			876
	Prepaid expenses and other current assets		6,298		5,364		3,789			3,826

Total current assets			198,033		181,668		125,172			115,192

	Property and equipment, net		14,017		11,347		9,934			10,500
	Intangible assets, net		8,391		9,600		4,064			5,917
	Deferred costs, less current portion		3,241		2,025		1,387			1,884
	Marketable securities (including restricted cash of $738 at June 30, 2010, March 31, 2010 and December 31, 2009 and $419 at June 30, 2009)		25,823		30,412		6,439			419
	Other assets		2,274		2,394		1,357			1,457
	Goodwill		77,442		77,555		65,683			65,683

Total long-term assets			131,188		133,333		88,864			85,860

Total assets		$	329,221		315,001	$	214,036		$	201,052


LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities:
	Accounts payable	$	4,657	$	3,477	$	5,720		$	5,229
	Accrued expenses		15,772		17,134		18,873			15,398
	Deferred revenue, current portion		44,549		42,661		42,640			41,765

Total current liabilities			64,978		63,272		67,233			62,392

Other liabilities			1,346		1,527		536			1,775
Deferred revenue, less current portion			22,616		15,659		10,356			13,046

Total long-term liabilities			23,962		17,186		10,892	#		14,821


Stockholders' equity			240,281		234,543		135,911			123,839

Total liabilities and stockholders' equity		$	329,221	$	315,001	$	214,036		$	201,052

ART TECHNOLOGY GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(UNAUDITED)

	Three months ended							Six months ended
	June 30,		March 31,			June 30,		June 30,			June 30,
	2010		2010			2009		2010			2009
Revenue:
Product licenses	$	16,351	$	12,857		$	13,576	$	29,208		$	26,506
Recurring services		27,211		26,670			24,028		53,881			47,131
Professional and education services		5,601		5,197			6,823		10,798			12,701

Total revenue		49,163		44,724			44,427		93,887			86,338

Cost of Revenue:
Product licenses		512		534			457		1,046			847
Recurring services		10,254		9,716			8,722		19,970			17,619
Professional and education services		4,807		4,840			5,505		9,647			10,807

Total cost of revenue		15,573		15,090			14,684		30,663			29,273

Gross Profit		33,590		29,634			29,743		63,224			57,065

Operating Expenses:
Research and development		8,149		8,661			7,663		16,810			15,133
Sales and marketing		15,450		14,429			12,541		29,879			24,829
General and administrative		5,114		5,125			4,670		10,239			9,159
Restructuring charges		352		-			-		352			-

Total operating expenses		29,065		28,215			24,874		57,280			49,121

Income from operations		4,525		1,419			4,869		5,944			7,944
Interest and other income (expense), net		76		(221	)		339		(145	)		550

Income before income taxes		4,601		1,198			5,208		5,799			8,494
Provision (benefit) for income taxes		427		(861	)		588		(434	)		900
Net income	$	4,174	$	2,059		$	4,620	$	6,233		$	7,594

Basic net income per share	$	0.03	$	0.01		$	0.04	$	0.04		$	0.06

Diluted net income per share	$	0.03	$	0.01		$	0.03	$	0.04		$	0.06

Basic weighted average common shares outstanding		157,437		146,157			126,877		151,828			126,497

Diluted weighted average common shares outstanding		164,618		154,514			133,111		159,606			131,242

Art Technology Group, Inc.
Condensed Consolidated Statements of Cash Flows
(In thousands)
(UNAUDITED)

	Three months ended									Six Months Ended
	June 30,			March 31,			June 30,			June 30,			June 30,
	2010			2010			2009			2010			2009

Cash Flows from Operating Activities:
Net income	$	4,174		$	2,059		$	4,620		$	6,233		$	7,594
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		3,063			2,764			2,417			5,827			4,680
Non-cash stock-based compensation expense		2,502			2,361			2,402			4,863			4,357
Amortization of investment premiums		1,023			308			-			1,331			-
Non-cash tax benefit		-			(1,073	)		-			(1,073	)		-
Net changes in operating assets and liabilities		(2,693	)		3,130			(4,481	)		437			(3,582	)

Net cash provided by operating activities		8,069			9,549			4,958			17,618			13,049

Cash Flows from Investing Activities:
Purchases of marketable securities		(38,100	)		(84,018	)		(6,926	)		(122,118	)		(8,854	)
Maturities of marketable securities		12,850			2,968			4,082			15,818			9,325
Purchases of property and equipment		(4,518	)		(2,342	)		(2,312	)		(6,860	)		(3,642	)
Increase in other assets		63			(1,000	)		-			(937	)		-
Payment of acquisition costs, net of cash acquired		(37	)		(15,140	)		-			(15,177	)		-

Net cash used in investing activities		(29,742	)		(99,532	)		(5,156	)		(129,274	)		(3,171	)

Cash Flows from Financing Activities:
Proceeds from exercise of stock options		607			476			364			1,083			513
Proceeds from employee stock purchase plan		314			298			276			612			518
Net proceeds from equity offering		-			94,968			-			94,968			-
Repayment of acquired debt		-			(1,573	)		-			(1,573	)		-
Payment of employee restricted stock tax withholdings		(1,184	)		(990	)		(445	)		(2,174	)		(828	)

Net cash provided by (used in) financing activities		(263	)		93,179			195			92,916			203

Effect of foreign exchange rate changes on cash and cash equivalents		(275	)		(266	)		1,018			(541	)		742
Net increase (decrease) in cash and cash equivalents		(22,211	)		2,930			1,015			(19,281	)		10,823
Cash and cash equivalents, beginning of period		60,249			57,319			57,221			57,319			47,413

Cash and cash equivalents, end of period	$	38,038		$	60,249			58,236		$	38,038		$	58,236

ART TECHNOLOGY GROUP, INC.
STATEMENTS OF OPERATIONS DATA
(In thousands)
(UNAUDITED)

	Three months ended						Six months ended
	June 30,		March 31,			June 30,	June 30,		June 30,
	2010		2010			2009	2010		2009
Equity-Related Compensation:

Cost of revenue	$	576	$	521	$	488	$	1,097	$	898
Research and development		444		456		432		900		802
Sales and marketing		676		632		609		1,308		1,121
General and administrative		806		752		873		1,558		1,536

Total equity-related compensation	$	2,502	$	2,361	$	2,402	$	4,863	$	4,357

Depreciation and Amortization:

Depreciation
Cost of revenue	$	1,325	$	1,060	$	913	$	2,385	$	1,728
Research and development		336		323		301		659		570
Sales and marketing		113		121		192		234		368
General and administrative		80		99		85		179		162
	$	1,854	$	1,603	$	1,491	$	3,457	$	2,828

Amortization
Cost of revenue	$	495	$	495	$	399		990		799
Sales and marketing		714		666		527		1,380		1,053
	$	1,209	$	1,161	$	926	$	2,370	$	1,852

Total depreciation and amortization	$	3,063	$	2,764	$	2,417	$	5,827	$	4,680

Capital Expenditures:

Purchases of property and equipment	$	4,518	$	2,342	$	2,312	$	6,860	$	3,642

RECONCILIATION OF GAAP TO NON-GAAP NET INCOME
(In thousands, except per share data)
(UNAUDITED)

	Three months ended									Six months ended
	June 30,			March 31,			June 30,			June 30,			June 30,
	2010			2010			2009			2010			2009

Net income GAAP	$	4,174		$	2,059		$	4,620		$	6,233		$	7,594

Amortization of acquired intangibles		1,209			1,161			926			2,370			1,852
Equity-related compensation		2,502			2,361			2,402			4,863			4,357
Tax adjustments		-			(1,073	)		-			(1,073	)		-
Restructuring charges		352			-			-			352			-

Net income (non-GAAP)	$	8,237		$	4,508		$	7,948		$	12,745		$	13,803

Net income (non-GAAP) per share:

Basic	$	0.05		$	0.03		$	0.06		$	0.08		$	0.11
Diluted	$	0.05		$	0.03		$	0.06		$	0.08		$	0.11

Shares used in per share calculations:

Basic		157,437			146,157			126,877			151,828			126,497
Diluted		164,618			154,514			133,111			159,606			131,242



Reconciliation of Product License Bookings
(In thousands)
(UNAUDITED)

	Three months ended									Six months ended
	June 30,			March 31,			June 30,			June 30,			June 30,
	2010			2010			2009			2010			2009

Product license bookings	$	18,185		$	13,850		$	16,612		$	32,035		$	28,960

Increase in product license deferred revenue		(5,632	)		(5,219	)		(7,292	)		(10,851	)		(11,978	)

Product license deferred revenue recognized		3,798			4,226			4,256			8,024			9,524

Product license revenue	$	16,351		$	12,857		$	13,576		$	29,208		$	26,506

Use of Non-GAAP Financial Measures

ATG is providing the non-GAAP historical and forward-looking financial measures presented above as the company believes that these figures are helpful in allowing individuals to better assess the ongoing nature of ATG's core operations. A "non-GAAP financial measure" is a numerical measure of a company's historical or future financial performance that excludes amounts that are included in the most directly comparable measure calculated and presented in the GAAP statement of operations.

Net income (non-GAAP) and net income per share (non-GAAP), as we present them in the financial data included in this press release, have been normalized to exclude the net effects of amortization of acquired intangible assets, equity-related compensation, non-cash tax adjustments and restructuring charges. Management believes that these normalized non-GAAP financial measures excluding these items better reflect the company’s operating performance as these non-GAAP figures exclude the effects of non-recurring or non-cash expenses. Management believes that these charges are not necessarily representative of underlying trends in the company's performance and their exclusion provides investors with additional information to compare the company's results over multiple periods.

ATG considers “product license bookings,” a non-GAAP financial measure which the company defines as the sale of perpetual software licenses regardless of the timing of revenue recognition under GAAP, to be an important indicator of growth in its software license business, as its business increasingly evolves toward a recurring, ratable revenue model.

The company uses these non-GAAP financial measures internally to focus management on period-to-period changes in the company's core business. Therefore, the company believes that this information is meaningful in addition to the information contained in the GAAP presentation of financial information. The presentation of this additional non-GAAP financial information is not intended to be considered in isolation or as a substitute for the financial information prepared and presented in accordance with GAAP.

In accordance with the requirements of Regulation G issued by the Securities and Exchange Commission, the tables above present the most directly comparable GAAP financial measure and reconcile non-GAAP net income and product license bookings to the comparable GAAP measures.

ATG Statement Under Private Securities Litigation Reform Act

This press release contains forward-looking statements about the company’s estimated revenue and earnings. These statements involve known and unknown risks and uncertainties that may cause ATG’s actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by such forward-looking statements. These risks include the effect of weakened or weakening economic conditions or perceived conditions on the level of spending by customers and prospective customers for ATG’s software and services; financial and other effects of cost control measures; quarterly fluctuations in ATG’s revenues or other operating results; customization and deployment delays or errors associated with ATG’s products; the risk of longer sales cycles for ATG’s products and ATG’s ability to conclude sales based on purchasing decisions that are delayed; satisfaction levels of customers regarding the implementation and performance of ATG’s products; ATG’s need to maintain, enhance, and leverage business relationships with resellers and other parties who may be affected by changes in the economic climate; ATG’s ability to attract and maintain qualified executives and other personnel and to motivate employees; activities by ATG and others related to the protection of intellectual property; potential adverse financial and other effects of litigation (including intellectual property infringement claims) and the release of competitive products and other activities by competitors. Further details on these risks are set forth in ATG’s filings with the Securities and Exchange Commission (SEC), including the company’s annual report on Form 10-K for the period ended December 31, 2009 and its quarterly report on Form 10-Q for the period ended March 31, 2010. These filings are available free of charge on a website maintained by the SEC at http://www.sec.gov.