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i2 Technologies, Inc. (NASDAQ: ITWO) today announced results for the first quarter 2006.
A summary of first quarter results: Total revenue was $64.0 million / Total costs and expenses were $59.8 million
- Diluted earnings per share (GAAP) were $0.07
- Non-GAAP diluted earnings per share were $0.21 (excluding stock option expense
and contract revenue and contract expense)
- Total bookings were $61.6 million, including $9.4 million of software solutions
“In the first quarter, we recorded our fourth consecutive quarter of profitability while at the same time implementing strategies to drive future growth,” stated i2 Chief Executive Officer Michael McGrath. “Equally important, we have made excellent progress with our new next-generation solutions, which I believe will reshape the supply chain management market. We will be describing our progress on these next-generation solutions in detail next week at i2 Planet.”
First Quarter Results
Total revenue for the first quarter was $64.0 million, as compared to $81.9 million in the first quarter of 2005. Total revenue in the first quarter of 2005 included a one-time customer settlement of $8.5 million as well as contract revenue of $3.1 million.
i2 had total first quarter software solutions revenue, which includes core license revenue, recurring license revenue as well as fees received to develop the licensed functionality, of $16.9 million. This compares to $25.4 million of software solutions revenue in the first quarter of 2005. Excluding the $8.5 million customer settlement recorded in first quarter 2005, software solutions revenue was flat year-over-year.
Services revenue in the first quarter was $23.9 million, which compares to first quarter 2005 services revenue of $27.6 million. Services revenue includes fees received from arrangements to customize or enhance previously purchased licensed software. Services revenue also includes reimbursable expenses.
First quarter maintenance revenue was $23.2 million, compared to $25.8 million in the first quarter of 2005.
Costs and Expenses
Total costs and expenses for the first quarter of 2006 were $59.8 million, including $3.7 million in stock option expense. This compares to $101.3 million in the first quarter of 2005. Costs and expenses in the year-ago quarter included $23.6 million of restructuring and non-operating legal expenses. The year-over-year reductions in operating expenses were across virtually all areas of the cost structure and are a realization of the restructuring efforts implemented in 2005.
The company reported first quarter 2006 net income applicable to common shareholders of $1.8 million or $0.07 per fully diluted share.
Non-GAAP Earnings Per Share
The company provides non-GAAP financial measures to assist shareholders 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, but are used as a tool by management to measure the effectiveness of i2’s business.
Non-GAAP diluted earnings per share in the first quarter 2006 were $0.21, compared to a loss of ($1.52) per diluted share in the comparable period last year on a non-GAAP basis. Non-GAAP diluted earnings per share exclude stock option expense and the net effect of contract revenue and contract expense.
Contract revenue is the result of the recognition of certain revenue carried on i2’s balance sheet as a portion of deferred revenue and is a result of the company’s 2003 financial restatement. The timing of the recognition of deferred contract revenue is difficult to predict and is not typically associated with current business or cash collections. The company did not recognize a material amount of contract revenue or expense during the first quarter of 2006.
Please see the attached schedule for a reconciliation of GAAP to non-GAAP financial measures.
Balance Sheet Items
On March 31, 2006, i2’s total cash (including restricted cash) totaled $115.1 million.
Total debt at the end of the first quarter was $107.2 million, which included $83.3 million of long-term debt and $23.9 million of short-term debt. The increase in total debt from the December 31, 2005 amount of $100.7 million was primarily due to the exercise of the remaining overallotment option granted to the holders of the company’s 5 percent senior convertible notes due 2015. This increase was partially offset by the open-market repurchase of $1.1 million of our 5.25 percent convertible subordinated notes due December 15, 2006.
The company experienced negative cash flow from operations of $8.0 million in first quarter 2006. Included in the first quarter operating cash outflows were the cash payment of employee profit-sharing and bonuses earned in 2005, non-operating legal fees, the 2006 director and officer insurance premium as well as other pre-paid expenses.
Full Year 2006 Outlook
Effective January 1, 2006, the company adopted Statement of Financial Accounting Standards No. 123(R), “Share-Based Payment,” using the modified prospective method of transition, which does not require restatement of prior periods. During the first quarter, the company recorded $3.7 million of non-cash stock option expense. The company estimates that full year 2006 stock option expense will be approximately $16 million, or approximately $0.62 per fully diluted share.
The company is revising its full year 2006 operating revenue (operating revenue is total revenue less contract revenue) outlook. Previous expectations were for 2006 operating revenue to be equal to or slightly above the comparable amount from 2005, but the company now expects operating revenue in 2006 to be below the 2005 amount. Software solutions revenue is expected to be lower than previous expectations due to lower than planned bookings and a shift in the mix of anticipated bookings to more of the company’s next-generation solutions, which generally have a longer revenue recognition period than its traditional solutions. In addition, services revenue has not increased as quickly as anticipated, largely due to lower than planned headcount.
Although operating revenue is expected to be lower than its previous outlook, because of lower operating costs the company is not currently changing its previously announced expectation of non-GAAP earnings per share for full year 2006 (excluding stock option expense and the impact of contract revenue) of $1.00 to $1.20 per fully diluted share.
The company’s statements regarding future financial performance are based on current expectations, which include the company achieving projected software solutions and services revenue and bookings expectations as well as continued cost controls. These statements regarding future financial performance are forward looking. 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, May 4 at 10 a.m. EDT to discuss the first quarter 2006 financial results. Investors and other interested parties may access the call and accompanying slide presentation via webcast through the company’s Web site at 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 825819. The webcast will also be archived via the company's Web site at http://www.i2.com/investor.
In addition, i2 will host a meeting for investors and analysts next week at i2 Planet 2006. The meeting is scheduled from 5-7 p.m. EDT on Thursday, May 11 at the Wynn Hotel in Las Vegas, NV. The meeting will be open to the public via webcast and available on the company’s Web site at http://www.i2.com/investor.
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