CIMdata PLM Industry Summary Online Archive

28 July 2004

Financial News

Intergraph Reports Second Quarter 2004 Results

Intergraph Corporation announced financial results for its second quarter ended June 30, 2004. Revenue for the quarter was $138.4 million, an increase of 8.6% from $127.3 million reported in the second quarter of 2003. For the six months ended June 30, 2004, revenue was $271.3 million, an increase of 9.4% from $247.9 million reported in the same period of 2003.

Operating income for the quarter was $9.5 million, or 6.9% of revenue, compared to $2.9 million, or 2.2% of revenue, reported in the second quarter of 2003. For the six months ended June 30, 2004, operating income was $17.7 million, or 6.5% of revenue, compared to $7.1 million, or 2.9% of revenue, reported in the same period of 2003. The Company recorded a restructuring charge of $0.8 million in the first quarter of 2004. Operating income for the first six months of 2004, excluding the restructuring charge, was $18.5 million, or 6.8% of revenue. The Company believes a separate disclosure of restructuring expenses provides a more comparative view of the current and prior period results of operations and, therefore, is useful information in evaluating the Company's financial results.

"We are pleased with our second quarter financial results of both top-line growth and bottom-line performance," said Halsey Wise, Intergraph President & CEO. "Guided by our three-phase plan to improve our operational performance (NOW-NEXT-AFTER NEXT), we made significant progress in the first half of the year as we grew revenue in all four business units and improved our overall operating margin to approximately seven percent in Q2. I attribute our progress to the people of Intergraph, their support of our mission and strong execution throughout the quarter."

"Additionally, I am pleased to announce that earlier today we repurchased 3.8 million shares through an Accelerated Stock Buyback (ASB) pursuant to our existing share repurchase program," Wise added. "As we evaluated our potential uses of cash, we determined that such a share repurchase is a responsible and prudent use of cash. Post-buyback, Intergraph will continue to be debt free and have a strong balance sheet to finance continued innovation and growth. The ASB is in addition to the 250,000 shares the Company repurchased during the second quarter in the open market. Since late 2001, after giving effect to the ASB, Intergraph has repurchased over 20 million shares of common stock for approximately $485 million. We believe such actions are evidence that Intergraph's Board and management team understand our responsibility to deploy capital in value-enhancing ways."

Net income for the quarter was $15.2 million, or $0.40 per share (diluted), compared to $0.8 million, or $0.02 per share (diluted), in the second quarter of 2003. For the six months ended June 30, 2004, net income was $151.2 million, or $3.98 per share (diluted), compared to $8.9 million, or $0.18 per share (diluted), reported in the same period of 2003. Net income for the first six months of 2004 includes $211.0 million of pre-tax intellectual property income, net of all fees and expenses.

"In addition, we are excited to announce the completion of the Company's first strategic plan in several years, which will provide the foundation for our growth strategy," Wise added. "I expect the strategic plan to play an integral role as we pursue a more focused approach to growing our business by leveraging our existing assets and capabilities, exiting non-core businesses, capitalizing on attractive market opportunities and making prudent investments in new products and acquisitions."

"Also, the Board has hired an executive recruiting firm to lead a Board director search. We believe this is another positive step that is consistent with our commitment to sound corporate governance, which was highlighted by the recent Institutional Shareholder Services (ISS) Corporate Governance Quotient of 99.1 relative to the Russell 3000 Index."

Second Quarter Financial Performance

Revenue for the quarter was $138.4 million, an increase of 8.6% from the second quarter of the prior year and 4.1% over the first quarter of 2004. The second quarter sequential revenue increase occurred across all business units. Gross margins for the quarter were 50.6%, compared to 48.4% in the second quarter of the prior year and 50.5% in the first quarter of 2004. The improvement in gross margins from the second quarter of 2003 was due to better cost controls in our professional services projects and higher software content in our maintenance contracts.

Operating income for the quarter was $9.5 million, compared to $2.9 million in the second quarter of the prior year and $8.2 million in the first quarter of 2004. Excluding restructuring charges, operating income was $9.0 million in the first quarter of 2004. The sequential increase of $0.5 million in operating income before restructuring was due to higher revenue partially offset by higher operating expenses, primarily in sales and marketing. Operating margins were 6.9% in the second quarter, compared to 2.2% in the second quarter of the prior year and 6.2% in the first quarter of 2004.

Total Other Income (Expense), net for the quarter was income of $8.5 million, which is primarily composed of $8.0 million pre-tax intellectual property income, net. Income Tax Expense for the quarter was $2.9 million, which included a reduction in the expected tax rate for the year and a favorable settlement of a tax audit. Net income for the quarter was $15.2 million, compared to $0.8 million in the second quarter of the prior year and $136.0 million in the first quarter of 2004.

Fluctuations in the value of the U.S. dollar in international markets can have a significant impact on the Company's results of operations. The Company estimates that the weakening of the U.S. dollar in its international markets, primarily in Europe, positively impacted revenue by approximately 2.4%, negatively impacted operating expenses by approximately 2.3% and improved its quarterly operating results by approximately $0.01 per share (diluted) in comparison to the second quarter of 2003. In contrast, the Company estimates the strengthening of the U.S. dollar in the second quarter of 2004 as compared with the first quarter of 2004 negatively impacted revenue by approximately 1.4%, positively impacted operating expenses by approximately 1.3%, and reduced its quarterly operating results by approximately $0.01 per share (diluted).

The Company's Balance Sheet reflects a cash balance of $354.6 million and no debt as of June 30, 2004. The cash balance increased $104.1 million from $250.5 million at March 31, 2004, due primarily to collections of intellectual property-related settlements offset by payments for legal fees and other intellectual property-related expenses, tax payments and stock repurchases.

Second Quarter Business Highlights

Process, Power & Marine (PPM) signed Air Products and Chemicals Inc. to a multi-year contract that globally standardizes the firm on PPM's engineering software (including SmartPlant 3D, SmartPlant Foundation, SmartPlant P&ID, INtools and MARIAN), further validating Intergraph's integration and engineering enterprise platform strategy.

Process, Power & Marine completed the acquisition of CadView B.V., located in the Benelux region, on June 29 to improve its regional distribution channel in this market. The acquisition is expected to generate $1 million of incremental revenue on an annual basis.

Intergraph Mapping and Geospatial Solutions (IMGS) held its GeoSpatial World 2004 international management and training conference in May with record attendance from 56 countries and 39 states.

Intergraph Solutions Group (ISG) was awarded the NAVSEA II (Naval Sea Systems Command) contract enabling the Department of Defense to order up to $45 million worth of products, services and maintenance during the next five years. The contract's ordering period is through September 30, 2004, with four option year extensions. ISG received orders for $2 million under the contract in the second quarter.

Intergraph Public Safety (IPS) second quarter customer wins included Scottsdale, Arizona, Polk County (Des Moines), Iowa, Northern Constabulary, Scotland and SOS Zurich, Switzerland, increasing the number of lives protected by IPS solutions by approximately seven million people.

Share Repurchase Update

On July 28, 2004, the Company repurchased 3,797,949 shares from Goldman, Sachs & Co. in a private transaction in connection with an Accelerated Stock Buyback (ASB). No trading activity has occurred in the public market related to this transaction prior to the issuance of this press release. The shares were repurchased for an upfront payment of $100 million or $26.33 per share, subject to a market price adjustment provision based on the volume weighted market trading price over the next nine months. Separately, during the second quarter the Company repurchased 250,000 shares of its common stock through transactions on the open market for approximately $6.4 million. As a result, giving effect to the ASB, the Company has approximately $28 million remaining (subject to any accelerated buyback adjustments) under its $250 million open market repurchase program. In total, the Company has repurchased more than 20 million shares for approximately $485 million since late 2001.

Business Unit Performance

Intergraph Mapping and Geospatial Solutions (IMGS):

IMGS revenue for the quarter was $54.9 million, an increase of 13.0% from the second quarter of the prior year and a sequential increase of 5.5% from the first quarter.

Process, Power & Marine (PPM):

PPM revenue for the quarter was $35.6 million, an increase of 8.8% from the second quarter of the prior year and a 5.4% sequential increase from the first quarter. The revenue growth over the second quarter of last year was primarily due to increasing maintenance and service revenues on new products and maintenance on shipbuilding products from a contract signed in April 2003. Operating income was $5.8 million, or 16.2% of revenue, compared to $4.3 million, or 13.2% of revenue, in the second quarter of the prior year and $3.3 million, or 9.8% of revenue, from the first quarter, which included a restructuring charge of $0.8 million. The increase in operating income from the same quarter last year is due to higher revenues mentioned above, which were partially offset by higher operating expenses, primarily in sales and marketing. The sequential increase in operating income of $2.5 million over the first quarter was due to higher software revenues and a restructuring charge taken in the first quarter of 2004.

Intergraph Solutions Group (ISG):

ISG revenue for the quarter was $31.5 million, an increase of 4.8% from both the second quarter of last year and the first quarter of 2004. The year-over-year revenue growth was due to a 17% increase in ISG's services business, which offset lower product sales and the expected expiration of legacy hardware maintenance contracts. The sequential revenue increase was due to the delivery of products associated with a large international mapping customer. Operating income for the quarter was $4.7 million, compared to $2.8 million in the second quarter last year and $3.8 million in the first quarter of 2004. The increase in operating income from the first quarter was due to a higher mix of Intergraph products as compared to third-party products and a slight reduction in overhead expenses. This was partially offset by an increase in sales and marketing costs associated with the Company's Homeland Security and Force Protection business. Total systems and services backlog declined from $61.9 million to $56.9 million during the second quarter, reflecting continued performance on federal government contracts that are cyclically funded.

Intergraph Public Safety (IPS):

IPS revenue for the quarter was $17.7 million, an increase of 5.1% from the second quarter of 2003 and 4.6% from the first quarter of this year.

Intellectual Property

The Company possesses an intellectual property (IP) portfolio, which it defends through ongoing licensing and litigation. Further information on the Company's IP licensing and litigation activities is available on the Company's Web site at www.intergraph.com/ip/

Conference Call and Webcast

Intergraph will provide an online, real-time Webcast and rebroadcast of the second quarter conference call to be held Thursday, July 29, 2004, at 11:00 a.m. (Eastern time). The live broadcast will be available online at http://www.intergraph.com/investors The replay will be available shortly after the conference call ends and is expected to remain available online until July 29, 2005. In addition, the replay can be heard by telephone any time before the close of business on August 29, 2004. Call 1-800-925-0264 and refer to reservation #5370723.

This news release contains forward-looking statements (all statements other than those made solely with respect to historical fact) within the meaning of the Private Securities Litigation Reform Act of 1995. Please see press releases and the annual, quarterly, or other filings with the Securities and Exchange Commission.

 

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