Mercury Sees Sales Soar

Mercury Interactive Corp. Wednesday reported a 26% rise in sales for its second quarter ended June 30 as it rides a wave of demand for its application-testing and management software. But earnings were down year-over-year because of staffing increases, more spending for marketing, and one-time charges relating to the company's recent acquisitions.

The company reported revenue of $118.1 million, up 26% from $94.0 million in the same period one year earlier. Product revenue was up 23% to $70.5 million, including a 7% increase in license fees to $48.0 million and an 82% increase in subscription fees to $22.5 million. Maintenance and professional-service fees also increased. Sales of application-testing products reached $54.5 million while application-management product sales were $16.0 million.

"It's clear that business technology optimization has emerged as a strategic technology area," president and CEO Amnon Landan said Wednesday during a conference call with financial analysts. Business technology optimization is Mercury Interactive's term for application testing, monitoring, and management. "We continue to take market share in the application performance-management space."

The company reported net income of $16.9 million (20 cents per share), down 6% from one year ago. During the quarter the company increased spending for professional services, marketing and sales, research and development, and administration. Landan said the company also increased its staff count during the quarter.

Mercury Interactive has been on a buying spree lately, and acquisition and restructuring charges ate into profits. During the quarter the company completed its $22.5-million acquisition of Performant Inc., a developer of Java 2 Enterprise Edition diagnostic tools. The company also has a deal to acquire IT-governance software vendor Kintana Inc. for $225 million in cash and stock. That deal is expected to close this quarter, resulting in one-time charges of $8 million to $9 million for severance and in-process research and development.

For the current quarter, not including the pending Kintana acquisition, the company expects revenue in the range of $118 million to $125 million and earnings of 17 cents to 23 cents per share. For all of 2003 the company projects revenue of $480 million to $500 million and earnings of 82 cents to 92 cents per share.