OPSW Opsware (MM)

Opsware Inc. (Nasdaq:OPSW): -- Q2 non-EDS revenue totals $19.9 million, up 121% year-over-year -- Q2 revenue grows to $25.1 million, up 78% year-over-year -- Annual revenue growth rate accelerating to 67% this year vs. 62% last year Opsware Inc. (Nasdaq:OPSW), the leading provider of IT automation software, today reported results for its second quarter ended July 31, 2006, highlighted by 121% year-over-year growth in non-EDS revenue. Net revenue for the second quarter ended July 31, 2006, totaled $25.1 million, up 78% from the same quarter last year and above the company's previous guidance of $23.0 to $23.5 million. Non-EDS revenue grew to $19.9 million in the second quarter, a 121% increase over the same quarter last year. A chart depicting Opsware's historical non-EDS revenue growth is included in this release. Non-EDS Derived Bookings (which equals net revenue, plus the change in deferred revenue, plus the change in advances from customers, all excluding the impact of EDS) totaled $17.0 million in the second quarter, a 59% increase from the same quarter last year. Non-EDS Derived Bookings increased 14% sequentially. A chart depicting Opsware's historical non-EDS derived bookings growth is included in this release. Non-GAAP net income in the second quarter was $1.0 million or $0.01 per share, above the company's guidance of $0.00 per share. GAAP net loss in the second quarter was $(3.8) million or $(0.04) per share. Non-GAAP net income in the second quarter excludes non-cash charges of approximately $0.7 million relating to previous acquisitions and $4.0 million of non-cash stock-based compensation. A reconciliation between net income (loss) on GAAP and non-GAAP bases is provided in a table immediately following the Condensed Consolidated Statements of Operations attached to this release. The company raised its full year revenue expectation to $102 million. "Q2 was a strong quarter and I'm pleased with our results. We grew non-EDS revenue by 121%, far outpacing the competition, and we reached the key milestone of non-GAAP profitability," said Ben Horowitz, president and CEO of Opsware Inc. "During Q2 we also shipped the Opsware System 6 suite, the most important release in our company's history." Financial Outlook Management provides the following guidance for its third quarter ending October 31, 2006: -- Net revenue is expected to range between $25 and $26 million. -- Non-GAAP EPS is expected to be $0.00. Management provides the following guidance for its fiscal year ending January 31, 2007: -- Net revenue is expected to be $102 million. -- Non-GAAP EPS is expected to be $0.03. The company will provide additional detail on its financial results on the conference call referenced below. About the Conference Call and Webcast Opsware management will host a conference call today, August 24, 2006, beginning at 5:00 a.m. PT (8:00 a.m. ET) to discuss today's announcement. Interested parties may access the conference call by dialing (800) 810-0924. A live audio version and replay of the conference call will be available on the Investor Relations section of Opsware's web site at http://investor.opsware.com. About Non-GAAP Financial Information When used in connection with historical results or forward-looking guidance, non-GAAP net income (loss), non-GAAP profitability and non-GAAP EPS each exclude non-cash stock-based compensation expense and non-cash charges relating to past acquisitions. With respect to historical results, a reconciliation between both net income (loss) and net income (loss) per share on GAAP and non-GAAP bases is provided in a table immediately following the Condensed Consolidated Statement of Operations attached to this release. With respect to forward-looking guidance, a reconciliation between EPS on GAAP and non-GAAP bases has not been provided because EPS on a GAAP basis depends in part upon the amount of stock based compensation expense, which expense is dependent upon our future stock price and other factors that cannot be determined at this time. To supplement our consolidated financial statements presented on a GAAP basis, we believe that these non-GAAP measures better reflect our core operating results and thus are appropriate to enhance the overall understanding of our past financial performance and our prospects for the future. These adjustments to our GAAP results are made with the intent of providing both management and investors a more complete understanding of our underlying operational results and trends and our performance. Management uses these non-GAAP measures to evaluate its financial results, develop budgets and manage expenditures. The presentation of additional information is not meant to be considered in isolation or as a substitute for net loss or net loss per share prepared in accordance with GAAP. About Opsware Inc. (Nasdaq:OPSW) Opsware Inc. is the world's leading IT automation and utility computing software company. The growth of the Internet is driving a shift from client/server computing to Web architecture. With this shift comes an overwhelming proliferation of servers, network devices and applications, creating massive complexity that makes an automated IT model a necessity. The Opsware System automates the complete IT lifecycle and delivers utility computing by enabling IT to automatically provision, patch, configure, secure, change, scale, audit, recover, consolidate, migrate, and reallocate servers, network devices and applications. Over 350 of the world's largest companies, outsourcers and government agencies use Opsware to deliver this new, automated model of IT. For more information on Opsware Inc., please visit our web site at www.opsware.com. This press release contains forward-looking statements within the meaning of the federal securities laws, including forecasts of our expected revenue and earnings per share and the "Financial Outlook" section. These forward-looking statements are based on current information and expectations, and are subject to risks and uncertainties that could cause actual events or results to differ materially from these statements, including without limitation: that the IT automation software market is relatively new and may not develop as we expect, that our market is highly competitive and subject to rapid and significant change, that enterprise software spending and budgets may fluctuate depending on economic conditions and that our revenue and operating results may vary significantly from period to period, including due to the timing of signing contracts with customers, delays in product releases, and our dependence on closing a small number of relatively large transactions each quarter. In addition, please see the section entitled "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Form 10-Q for the quarter ended April 30, 2006 that we filed with the Securities and Exchange Commission, and subsequent filings with the SEC. We assume no obligation to update the information in this press release or to revise any forward-looking statements. The graphics displaying non-EDS revenue and derived bookings in this press release solely present historical data, and are not necessarily indicative of results in future periods. Continued growth is subject to several risks and uncertainties, including those described in our SEC filings as referenced in the preceding paragraph. Opsware is a service mark and trademark of Opsware Inc. -0- *T OPSWARE INC. CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands, unaudited) July January 31, 2006 31, 2006 ---------- ---------- ASSETS Current assets: Cash and cash equivalents $ 96,765 $ 101,898 Accounts receivable, net 21,058 17,867 Prepaid expenses and other current assets 5,997 6,546 --------- --------- Total current assets 123,820 126,311 Property and equipment, net 5,208 3,944 Restricted cash 2,274 2,296 Prepaid rent 1,190 1,540 Other assets 433 380 Intangibles, net 6,135 7,613 Goodwill 27,523 27,668 --------- --------- Total assets $ 166,583 $ 169,752 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 2,381 $ 1,217 Other accrued liabilities 13,108 11,389 Advances from customers -- 721 Deferred revenue, current portion 25,126 29,473 Accrued restructuring costs, current portion 298 298 Capital lease obligations, current portion 16 14 --------- --------- Total current liabilities 40,929 43,112 Capital lease obligations, net of current portion 65 74 Deferred revenue, net of current portion 1,117 1,838 Accrued restructuring costs, net of current portion 1,029 1,190 --------- --------- Total liabilities 43,140 46,214 --------- --------- Stockholders' equity: Common stock 100 100 Additional paid-in capital 616,414 609,455 Deferred stock compensation -- (2,606) Accumulated deficit (492,835) (483,270) Accumulated other comprehensive loss (236) (141) --------- --------- Total stockholders' equity 123,443 123,538 --------- --------- Total liabilities and stockholders' equity $ 166,583 $ 169,752 ========= ========= OPSWARE INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share amounts, unaudited) Three Months Six Months Ended Ended July 31, July 31, ----------------- ------------------- 2006 2005 2006 2005 -------- -------- --------- --------- Revenue: License revenue $17,907 $ 9,888 $ 33,268 $ 18,037 Services revenue 7,227 4,235 13,862 8,701 -------- -------- --------- --------- Net revenue 25,134 14,123 47,130 26,738 -------- -------- --------- --------- Cost and expenses: Cost of license revenue 360 260 866 340 Cost of services revenue(a) 5,096 3,222 10,079 6,164 Cost of developed technology 412 412 824 816 Research and development(a) 7,614 5,644 14,956 11,336 Sales and marketing(a) 11,946 5,747 22,852 10,824 General and administrative(a) 4,457 3,100 8,703 5,767 Restructuring recoveries, net -- -- -- (18) Amortization of other acquisition-related intangibles 327 327 654 648 In-process research and development charges -- -- -- 1,190 -------- -------- --------- --------- Total cost and expenses 30,212 18,712 58,934 37,067 -------- -------- --------- --------- Loss from operations (5,078) (4,589) (11,804) (10,329) Loss on sale of assets and liabilities from Managed Services Business -- (11) -- (44) Interest and other income, net 1,311 686 2,293 1,332 -------- -------- --------- --------- Loss before income taxes (3,767) (3,914) (9,511) (9,041) Provision for income taxes -- 10 54 12 -------- -------- --------- --------- Net loss $(3,767) $(3,924) $ (9,565) $ (9,053) ======== ======== ========= ========= Basic and diluted net loss per share $ (0.04) $ (0.04) $ (0.10) $ (0.09) ======== ======== ========= ========= Shares used in computing basic and diluted net loss per share 99,686 97,912 99,525 97,729 ======== ======== ========= ========= (a) Includes stock-based compensation expense of the following: Cost of services revenue $ 366 $ 2 $ 702 $ 5 Research and development 1,287 274 2,494 592 Sales and marketing 1,311 58 2,492 151 General and administrative 1,079 288 2,001 28 -------- -------- --------- --------- Total stock-based compensation expense $ 4,043 $ 622 $ 7,689 $ 776 ======== ======== ========= ========= A reconciliation between GAAP and non-GAAP net income (loss) is as follows: (unaudited) Three Months Six Months Ended Ended July 31, 2006 July 31, 2006 ------------- ------------- GAAP net loss $ (3,767) $ (9,565) Non-cash charge related to equity transactions 4,043 7,689 Cost of developed technology 412 824 Amortization of other acquisition- related intangibles 327 654 ------------- ------------- Non-GAAP net income (loss) $ 1,015 $ (398) ============= ============= GAAP diluted net loss per share $ (0.04) $ (0.10) ============= ============= Non-GAAP diluted net income per share $ 0.01 $ 0.00 ============= ============= Shares used in computing non-GAAP diluted net income per share 106,214 99,525 ============= ============= *T