Motive, Inc. Reports Second Quarter Financial Results

AUSTIN, Texas--()--July 21, 2004--Motive, Inc. (Nasdaq:MOTV)

-- Core revenue of $22.0 million -- 30% increase from Q2 2003; total revenue of $24.0 million

-- Pro forma earnings of $0.04 per diluted share -- up from $0.01 in Q2 2003; GAAP loss of $0.20 per basic share

Motive, Inc. (Nasdaq:MOTV), a provider of management software that enables technology products to manage themselves, today announced results for the quarter ended June 30, 2004. Motive's core revenue, which excludes revenue acquired in business combination, was $22.0 million for the second quarter of 2004, a 30% increase over the same period in 2003 and a 14% increase over the first quarter of 2004. Motive's total revenue for the second quarter of 2004 was $24.0 million.

Motive's pro forma net income for the second quarter of 2004 was $798,000 or $0.04 per diluted share, compared to $257,000 or $0.01 per diluted share for the same period in 2003, and $617,000 or $0.03 per diluted share for the first quarter of 2004. Motive's GAAP net loss for the second quarter of 2004 was $2.1 million or $(0.20) per basic share. A reconciliation of GAAP to pro forma results has been provided in the financial statement tables included in this press release.

"Motive's second quarter results reflect the demand in the market for a new type of software that applies service-centric management to leading-edge Internet technologies being widely adopted in homes, small business and enterprises," said Scott Harmon, CEO of Motive. "We are very pleased to see the investments we've made in new products and market opportunities paying off."

"Our terrific execution allowed us to outperform our revenue and profit targets in the second quarter," said Logan Wray, COO of Motive. "Looking ahead, we are excited about our prospects for continued growth and solid results as we continue to apply our model in new segments and geographies."

Q2 2004 Highlights

-- Increased market share in broadband with new customer wins and extended strategic relationships in North America and Europe, bringing Motive's total broadband customers to 27 providers worldwide.

-- Major competitive wins, reflecting product leadership in addressing the needs of home networking, enhanced consumer services for VoIP, video and data, small business services, and network policy management.

-- Significant traction with new self-management products for business applications as evidenced by multiple customer orders less than 90 days after initial product introduction.

-- Strategic alliance announced with BEA to include Motive self-management capabilities in WebLogic Server, enabling Motive to solve new management problems associated with J2EE applications in the Global 2000.

Financial Outlook

Core revenue is expected to be in the range of $22.4 million to $22.7 million for the third quarter of 2004 and in the range of $95 million to $97 million for the 12 months ending June 30, 2005. Pro forma earnings are expected to be $0.04 per diluted share for the third quarter of 2004.

Conference Call Details

Motive has scheduled a conference call for 4:00 p.m. CDT today to discuss its second quarter results. The conference call will be hosted by CCBN and may be accessed over the Internet from the Investor Relations section of Motive's website at www.motive.com. To listen to the live call, please go to the website at least 15 minutes early to register, download and install any necessary audio software. For those who cannot listen to the live broadcast of the call, a replay will be available through the investor relations section of Motive's website at www.motive.com approximately two hours after the live call ends.

About Motive, Inc.

Motive, Inc. is a pioneer in helping companies to deliver technology management capabilities as an on-demand service. Motive's software adds self-management intelligence and automation to technology products and services allowing them to install, diagnose and repair themselves, or to guide users through simple steps when necessary. Companies worldwide have used Motive's software in connection with more than 30 million products and services. Founded in 1997, Motive is headquartered in Austin, Texas and has offices in Europe and Asia. For more information, visit www.motive.com.

Forward-Looking Statements

This press release contains "forward-looking statements" that involve risks and uncertainties concerning our expected financial performance, as well as our future business prospects and product and service offerings. Our actual results may differ materially from the results predicted or from any other forward-looking statements made by, or on behalf of, us and reported results should not be considered as an indication of future performance. These potential risks and uncertainties include, among other things: 1) our concentrated customer base; 2) the mix of perpetual and term licenses; 3) the effect of the timing of the recognition of revenue from products licensed; 4) our typically long sales cycle; 5) the dependence of our financial growth on the continued success and acceptance of our existing and new product and service offerings; 6) the compatibility of our software with hardware and software platforms that are used by our customers and their subscribers now or in the future; 7) the ability to attract and retain key personnel; 8) the intensely competitive nature of the market for our products and services; and 9) the additional risks factors described in our SEC filings, which are available at the SEC's website at www.sec.gov. Statements included in this press release are based upon information known to us as of the date of this release, and we assume no obligation to update any information contained in this press release.

Non-GAAP Financial Information

Motive has provided in this release certain financial information that has not been prepared in accordance with generally accepted accounting principles (GAAP). This information includes but is not limited to pro forma gross margin, pro forma operating income and margin, pro forma net income and pro forma diluted earnings per share. These measures may be different from measures used by other companies. Our management uses these non-GAAP measures to evaluate our financial results, develop budgets and manage expenditures. Investors are encouraged to review the reconciliation of these non-GAAP financial measures to the comparable GAAP results, which is included in this press release.

                             MOTIVE, INC.

           CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
         (in thousands, except per share amounts; unaudited)

                                     Three Months       Six Months
                                         Ended             Ended
                                        June 30,          June 30,
                                   ----------------- -----------------
                                     2004     2003     2004     2003
                                   -------- -------- -------- --------
Revenue:
 License fees                      $13,586  $11,228  $25,081  $17,618
 Services:
  Services                           8,374    5,615   16,129   11,914
  Acquired in business combination   2,062    7,827    5,488   15,830
                                   -------- -------- -------- --------
  Total services revenue            10,436   13,442   21,617   27,744
                                   -------- -------- -------- --------
   Total revenue                    24,022   24,670   46,698   45,362
                                   -------- -------- -------- --------

Cost of revenue:
 License fees                          157    1,026      351    1,069
 Amortization of acquired
  technology                           234      117      448      214
 Services                            7,084    8,146   14,621   15,578
                                   -------- -------- -------- --------
  Total cost of revenue              7,475    9,289   15,420   16,861
                                   -------- -------- -------- --------
Gross margin                        16,547   15,381   31,278   28,501
                                   -------- -------- -------- --------

Operating expenses:
 Sales and marketing                 8,262    8,735   15,817   15,884
 Research and development            4,683    3,913    8,917    7,523
 General and administrative          2,046    2,081    4,215    3,971
 Amortization of intangibles           802      571    1,575    1,047
 Amortization of deferred stock
  compensation(a)                      637      115    1,488      281
 Business restructuring charge          --       --       --    1,422
                                   -------- -------- -------- --------
  Total operating expenses          16,430   15,415   32,012   30,128
                                   -------- -------- -------- --------
Income (loss) from operations          117      (34)    (734)  (1,627)
Interest income (expense), net      (2,018)    (458)  (2,528)    (948)
Other income (expense), net            (55)      85      417      142
                                   -------- -------- -------- --------
Loss before income taxes            (1,956)    (407)  (2,845)  (2,433)
Provision for income taxes             187    1,130      868    1,387
                                   -------- -------- -------- --------
Net loss                           $(2,143) $(1,537) $(3,713) $(3,820)
                                   ======== ======== ======== ========

Basic and diluted loss per share    $(0.20)  $(0.15)  $(0.36)  $(0.38)
                                   ======== ======== ======== ========

Shares used in computing basic and
 diluted loss per share             10,820    9,982   10,288    9,973


(a) If the amortization of deferred stock compensation were allocated
    to specific operating statement line items, it would be allocated
    as follows:

 Cost of services revenue              $32      $11      $85     $(17)
 Sales and marketing                   248       19      568      121
 Research and development              210       14      498       31
 General and administrative            147       71      337      146
                                   -------- -------- -------- --------
                                      $637     $115   $1,488     $281
                                   ======== ======== ======== ========


                             MOTIVE, INC.

                CONSOLIDATED CONDENSED BALANCE SHEETS
                 (in thousands, except share amounts)

                                               June 30,   December 31,
                                                 2004         2003
                                             ------------ ------------
                                             (unaudited)
ASSETS
Current assets:
 Cash and cash equivalents                       $80,362      $28,433
 Accounts receivable, net                         12,635       21,276
 Prepaid expenses and other current assets         2,943        2,437
                                             ------------ ------------
Total current assets                              95,940       52,146
                                             ------------ ------------
Restricted cash                                       --       15,000
Property and equipment, net                        6,630        7,008
Goodwill                                          59,143       59,143
Acquired technology, net                           8,455        8,903
Other intangibles, net                            10,018       11,593
Other assets                                       3,888        4,650
                                             ------------ ------------
Total assets                                    $184,074     $158,443
                                             ============ ============

LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED
 STOCK AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
 Accounts payable                                 $5,767       $5,651
 Accrued liabilities                              13,980       17,684
 Deferred revenue                                 11,911       13,886
 Current portion of long-term debt                 1,105          278
                                             ------------ ------------
Total current liabilities                         32,763       37,499
Deferred revenue                                   7,281        7,347
Long-term debt, net of current portion             5,000        6,026
Related party subordinated debt, net                   -       10,757
                                             ------------ ------------
Total liabilities                                 45,044       61,629
                                             ------------ ------------

Redeemable convertible preferred stock:
 Preferred Stock: $0.001 par value;
  47,000,000 shares authorized, 10,322,056
  shares issued and outstanding at December
  31, 2003                                            --      119,785
                                             ------------ ------------

Stockholders' equity (deficit):
Common stock: $0.001 par value; 150,000,000
 shares authorized, 25,597,912 shares issued
 and outstanding at June 30, 2004
 unaudited); 25,000,000 shares authorized,
 9,723,131 shares issued and outstanding at
 December 31, 2003                                    26           10
Additional paid-in capital                       234,277       69,734
Deferred stock compensation                       (2,779)      (4,168)
Accumulated comprehensive loss                      (415)        (181)
Accumulated deficit                              (92,079)     (88,366)
                                             ------------ ------------
Total stockholders' equity (deficit)             139,030      (22,971)
                                             ------------ ------------
Total liabilities, redeemable convertible
 preferred stock and stockholders' equity
  (deficit)                                     $184,074     $158,443
                                             ============ ============

                             MOTIVE, INC.

        RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES
         (in thousands, except per share amounts; unaudited)

                             Three Months Ended     Six Months Ended
                                  June 30,              June 30,
                              2004       2003       2004       2003
                           ---------- ---------- ---------- ----------

GAAP revenue                 $24,022    $24,670    $46,698    $45,362

GAAP gross margin            $16,547    $15,381    $31,278    $28,501
Pro forma adjustments:
 Amortization of acquired
  technology                     234        117        448        214
                           ---------- ---------- ---------- ----------
Pro forma gross profit       $16,781    $15,498    $31,726    $28,715
                           ========== ========== ========== ==========
Pro forma gross margin            70%        63%        68%        63%
                           ========== ========== ========== ==========


GAAP income/(loss) from
 operations                     $117       $(34)     $(734)   $(1,627)
Pro forma adjustments:
 Amortization of acquired
  technology                     234        117        448        214
 Amortization of
  intangibles                    802        571      1,575      1,047
 Amortization of deferred
  stock compensation             637        115      1,488        281
 Business restructuring
  charge                          --         --         --      1,422
                           ---------- ---------- ---------- ----------
    Total pro forma
     adjustments               1,673        803      3,511      2,964
                           ---------- ---------- ---------- ----------
Pro forma income from
 operations                   $1,790       $769     $2,777     $1,337
                           ========== ========== ========== ==========
Pro forma operating
 margin                            7%         3%         6%         3%
                           ========== ========== ========== ==========


GAAP net loss                $(2,143)   $(1,537)   $(3,713)   $(3,820)
Pro forma adjustments:
 Total pro forma
  adjustments affecting
  income/(loss) from
  operations                   1,673        803      3,511      2,964
 Write-off of unamortized
  subordinated debt
  discount                     1,511         --      1,511         --
 Tax adjustment to reflect
  35% effective tax rate        (243)       991        106      1,201
                           ---------- ---------- ---------- ----------
Pro forma net income            $798       $257     $1,415       $345
                           ========== ========== ========== ==========

GAAP shares used in
 computing basic loss
 per share                    10,820      9,982     10,288      9,973
Pro forma adjustments:
 Redeemable convertible
  preferred stock
  outstanding                  9,641     10,322      9,982      9,940
 Incremental shares
  related to stock
  warrants                       469        450        471        450
 Incremental shares
  related to stock options     1,637        211      1,641        215
                           ---------- ---------- ---------- ----------
Shares used in computing
 pro forma earnings per
 diluted share                22,567     20,965     22,382     20,578
                           ========== ========== ========== ==========
Pro forma earnings per
 diluted share                 $0.04      $0.01      $0.06      $0.02
                           ========== ========== ========== ==========

Motive is a trademark or registered trademark of Motive, Inc. in the United States and other countries. Other product and company names are used herein for identification purposes only, and may be trademarks of their respective companies.

MOTIVE, INC.

12515 Research Blvd. Building 5, Austin, TX 78759

Tel: 512-339-8335 Fax: 512-339-9040

Contacts

Motive, Inc., Austin
Media:
Cybele Diamandopoulos, 512-506-4272
cdiamand@motive.com
or
Investor:
April Downing, 512-531-1038
ir@motive.com

Contacts

Motive, Inc., Austin
Media:
Cybele Diamandopoulos, 512-506-4272
cdiamand@motive.com
or
Investor:
April Downing, 512-531-1038
ir@motive.com