Oracle to Acquire ATG (ARTG); ATG Reports Third Quarter 2010 Financial Results

Nov. 2, 2010 (Business Wire) — Art Technology Group, Inc. (NASDAQ: ARTG), the leading provider of eCommerce software and related on demand commerce optimization applications, today announced that it has agreed to be acquired by Oracle Corporation for $6.00 per share in cash, or approximately $1.0 billion. The transaction is subject to stockholder and regulatory approval and other customary closing conditions and is expected to close by early 2011.

ATG’s eCommerce software platform is the industry’s top-ranked cross-channel commerce solution and is highly complementary to Oracle’s CRM, ERP, Retail, and Supply Chain applications, as well as its portfolio of middleware and business intelligence technologies. Together Oracle and ATG expect to help businesses grow revenue, strengthen customer loyalty, improve brand value, achieve better operating results, and increase business agility across online and traditional commerce environments.

“Driven by the convergence of online and traditional commerce and the need to increase revenue and improve customer loyalty, organizations across many industries are looking for a unified commerce and CRM platform to provide a seamless experience across all commerce channels,” said Thomas Kurian, Executive Vice President Oracle Development. “Bringing together the complementary technologies and products from Oracle and ATG will enable the delivery of next-generation, unified cross-channel commerce and CRM.”

“More than 1,000 global enterprises rely on ATG’s solutions to help increase the value of their online customer interactions,” said Bob Burke, President and CEO, ATG. “This combination will enhance the ability to bring all their commerce activities together – creating a more consistent and relevant experience for their customers across all interaction channels, including online, in stores, via mobile devices and with call centers.”

“The addition of ATG, which brings market-leading products used by some of the largest and most well-known retailers and brands, furthers Oracle’s strategy of delivering industry-specific enterprise applications,” said Bob Weiler, Executive Vice President, Oracle Global Business Units. “This acquisition builds upon our dedication to offer the most complete and integrated suite of best-of-breed software applications and technologies required to power the most demanding companies in the world in every industry.”

Third Quarter Financial Results

ATG’s revenue for the third quarter of 2010 grew to $50.3 million, a 16% increase over third quarter 2009 revenue of $43.4 million.

Product license bookings, a non-GAAP measure which the company defines as the sale of perpetual licenses, grew 37% to $14.2 million for the third quarter from $10.4 million in the year ago quarter. Approximately 26% of product license bookings were deferred in the third quarter of 2010 and will be recognized in future periods.

Net income in accordance with GAAP for the third quarter of 2010 was $4.2 million, or $0.03 per diluted share, compared with net income of $4.0 million, or $0.03 per diluted share, in the third quarter of 2009.

Non-GAAP net income was $8.0 million for the third quarter of 2010, or $0.05 per diluted share, compared with non-GAAP net income of $5.5 million, or $0.04 per diluted share, for the third quarter of 2009.

Cash flow from operations for the third quarter of 2010 was $14.9 million, a 51% increase over cash flow from operations of $9.9 million in the third quarter of 2009.

Quarterly Conference Call

ATG management will host a conference call for investors at 10:00 a.m. ET today. The conference call will be broadcast live over the Internet. Investors interested in listening to the webcast should log on to the “Investors” section of the ATG website, www.atg.com. The live conference call also can be accessed by dialing (866) 723-3575 (or (706) 634-8872 for international calls) and using conference ID No. 15475307. A replay of the call will be available on the company’s website later in the day.

About ATG

ATG (Nasdaq: ARTG) provides the most advanced cross-channel commerce software and services to fuel the growth of the world’s best brands. Offering the industry’s leading commerce solution, ATG works in partnership with clients to drive sales via a personalized customer experience – unifying and optimizing interactions across the Web, contact center, mobile devices, social media, physical stores, and other key channels. Exclusively focused on online and cross-channel commerce, ATG is uniquely capable of powering the most innovative and successful commerce experiences, with results that outperform industry norms. ATG Commerce is the commerce platform and business user application solution top-rated by industry analysts for powering results-driven, personalized, and innovative e-commerce sites. ATG’s platform-neutral optimization solutions for live help, lead performance, and product recommendations can be easily added to any website to quickly and measurably grow revenue, boost loyalty, and unlock profits and insight. ATG is headquartered in Cambridge, Massachusetts, with additional locations throughout North America and Europe. For more information, please visit http://www.atg.com.

© 2010 Art Technology Group, Inc. ATG and Art Technology Group are registered trademarks of Art Technology Group, Inc. All other product names, service marks, and trademarks mentioned herein are trademarks of their respective owners.

ART TECHNOLOGY GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
(UNAUDITED)
				September 30,				June 30,				December 31,					September 30,
				2010				2010				2009					2009
ASSETS
Current Assets:
	Cash, cash equivalents and marketable securities (including restricted cash of $50 at September 30, 2010, June 30, 2010, and December 31, 2009 and $0 at September 30, 2009)			$	152,008			$	145,184			$	79,094			$	73,972
	Accounts receivable, net				44,307				44,963				41,522				31,850
	Deferred costs, current				1,502				1,588				767				1,660
	Prepaid expenses and other current assets				6,493				6,298				3,789				2,910
Total current assets					204,310				198,033				125,172				110,392
	Property and equipment, net				15,220				14,017				9,934				10,168
	Intangible assets, net				7,205				8,391				4,064				4,991
	Deferred costs, less current portion				4,058				3,241				1,387				1,391
	Marketable securities (including restricted cash of $738 at September 30, 2010, June 30, 2010, and December 31, 2009 and $419 at September 30, 2009)				30,518				25,823				6,439				4,129
	Other assets				2,228				2,274				1,357				1,483
	Goodwill				77,689				77,442				65,683				65,683
Total long-term assets					136,918				131,188				88,864				87,845
Total assets				$	341,228			$	329,221			$	214,036			$	198,237
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
	Accounts payable			$	2,916			$	4,657			$	5,720			$	4,245
	Accrued expenses				18,474				15,772				18,873				16,203
	Deferred revenue, current portion				47,045				44,549				42,640				40,025
Total current liabilities					68,435				64,978				67,233				60,473
Other liabilities					1,527				1,346				536				249
Deferred revenue, less current portion					23,136				22,616				10,356				9,956
Total long-term liabilities					24,663				23,962				10,892				10,205
Stockholders’ equity					248,130				240,281				135,911				127,559
Total liabilities and stockholders’ equity				$	341,228			$	329,221			$	214,036			$	198,237

ART TECHNOLOGY GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(UNAUDITED)
			Three months ended													Nine months ended
			September 30,				June 30,				September 30,					September 30,				September 30,
			2010				2010				2009					2010				2009
Revenue:
Product licenses			$	13,729			$	16,351			$	10,890				$	42,937			$	37,396
Recurring services				30,165				27,211				24,904					84,046				72,035
Professional and education services				6,441				5,601				7,587					17,239				20,288
Total revenue				50,335				49,163				43,381					144,222				129,719
Cost of Revenue:
Product licenses				735				512				399					1,781				1,246
Recurring services				10,878				10,254				9,393					30,848				27,012
Professional and education services				5,759				4,807				6,029					15,406				16,836
Total cost of revenue				17,372				15,573				15,821					48,035				45,094
Gross Profit				32,963				33,590				27,560					96,187				84,625
Operating Expenses:
Research and development				8,983				8,149				7,599					25,793				22,732
Sales and marketing				15,205				15,450				12,503					45,084				37,332
General and administrative				5,165				5,114				4,831					15,404				13,990
Restructuring charges				–				352				–					352				–
Total operating expenses				29,353				29,065				24,933					86,633				74,054
Income from operations				3,610				4,525				2,627					9,554				10,571
Interest and other income (expense), net				838				76				(314)					694				236
Income before income taxes				4,448				4,601				2,313					10,248				10,807
Provision (benefit) for income taxes				275				427				(1,650)					(158)				(750)
Net income			$	4,173			$	4,174			$	3,963				$	10,406			$	11,557
Basic net income per share			$	0.03			$	0.03			$	0.03				$	0.07			$	0.09
Diluted net income per share			$	0.03			$	0.03			$	0.03				$	0.06			$	0.09
Basic weighted average common shares outstanding				158,232				157,437				127,224					153,986				126,742
Diluted weighted average common shares outstanding				164,139				164,618				134,736					161,141				132,409

Art Technology Group, Inc.
Condensed Consolidated Statements of Cash Flows
(In thousands)
(UNAUDITED)
				Three months ended												Nine Months Ended
				September 30,				June 30,				September 30,				September 30,				September 30,
				2010				2010				2009				2010				2009
Cash Flows from Operating Activities:
Net income				$	4,173			$	4,174			$	3,963			$	10,406			$	11,557
	Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization					3,133				3,063				2,149				8,960				6,829
Non-cash stock-based compensation expense					2,863				2,502				2,463				7,725				6,820
Amortization of investment premiums					1,041				1,023				–				2,373				–
Non-cash tax benefit					(253)				–				(1,871)				(1,326)				(1,871)
Net changes in operating assets and liabilities					3,899				(2,693)				3,237				4,336				(345)
Net cash provided by operating activities					14,856				8,069				9,941				32,474				22,990
Cash Flows from Investing Activities:
Purchases of marketable securities					(38,982)				(38,100)				(19,433)				(161,100)				(28,287)
Maturities of marketable securities					47,509				12,850				5,400				63,327				14,725
Purchases of property and equipment					(3,068)				(4,518)				(978)				(9,929)				(4,620)
Increase in other assets					27				63				–				(913)				–
Payment of acquisition costs, net of cash acquired					–				(37)				–				(15,174)				–
Net cash provided by (used in) investing activities					5,486				(29,742)				(15,011)				(123,789)				(18,182)
Cash Flows from Financing Activities:
Proceeds from exercise of stock options					879				607				915				1,962				1,428
Proceeds from employee stock purchase plan					302				314				279				914				797
Net proceeds from equity offering					–				–				–				94,968				–
Repayment of acquired debt					–				–				–				(1,573)				–
Repurchase of common stock					(1,478)								(4,265)				(1,478)				(4,265)
Payment of employee restricted stock tax withholdings					–				(1,184)				(45)				(2,174)				(873)
Net cash provided by (used in) financing activities					(297)				(263)				(3,116)				92,619				(2,913)
Effect of foreign exchange rate changes on cash and cash equivalents					759				(275)				388				219				1,130
Net increase (decrease) in cash and cash equivalents					20,804				(22,211)				(7,798)				1,523				3,025
Cash and cash equivalents, beginning of period					38,038				60,249				58,236				57,319				47,413
Cash and cash equivalents, end of period				$	58,842			$	38,038				50,438			$	58,842			$	50,438

ART TECHNOLOGY GROUP, INC.
STATEMENTS OF OPERATIONS DATA
(In thousands)
(UNAUDITED)
			Three months ended											Nine months ended
			September 30,			June 30,				September 30,				September 30,			September 30,
			2010			2010				2009				2010			2009
Equity-Related Compensation:
Cost of revenue			$	560		$	576		$	498				$	1,656		$	1,396
Research and development				489			444			435					1,389			1,237
Sales and marketing				805			676			653					2,113			1,774
General and administrative				1,009			806			877					2,567			2,413
Total equity-related compensation			$	2,863		$	2,502		$	2,463				$	7,725		$	6,820
Depreciation and Amortization:
Depreciation
Cost of revenue			$	1,162		$	1,325		$	746				$	3,547		$	2,474
Research and development				307			336			259					966			829
Sales and marketing				387			113			152					621			520
General and administrative				69			80			65					248			227
			$	1,925		$	1,854		$	1,222				$	5,382		$	4,050
Amortization
Cost of revenue			$	503		$	495		$	401					1,493			1,200
Sales and marketing				705			714			526					2,085			1,579
			$	1,208		$	1,209		$	927				$	3,578		$	2,779
Total depreciation and amortization			$	3,133		$	3,063		$	2,149				$	8,960		$	6,829
Capital Expenditures:
Purchases of property and equipment			$	3,068		$	4,518		$	978				$	9,929		$	4,620

RECONCILIATION OF GAAP TO NON-GAAP NET INCOME
(In thousands, except per share data)
(UNAUDITED)
		Three months ended											Nine months ended
		September 30,			June 30,			September 30,					September 30,			September 30,
		2010			2010			2009					2010			2009
Net income GAAP		$	4,173		$	4,174		$	3,963				$	10,406		$	11,557
Amortization of acquired intangibles			1,208			1,209			927					3,578			2,779
Equity-related compensation			2,863			2,502			2,463					7,725			6,820
Tax adjustments			(253)			–			(1,871)					(1,326)			(1,871)
Restructuring charges			–			352			–					352			–
Net income (non-GAAP)		$	7,991		$	8,237		$	5,482				$	20,735		$	19,285
Net income (non-GAAP) per share:
Basic		$	0.05		$	0.05		$	0.04				$	0.13		$	0.15
Diluted		$	0.05		$	0.05		$	0.04				$	0.13		$	0.15
Shares used in per share calculations:
Basic			158,232			157,437			127,224					153,986			126,742
Diluted			164,139			164,618			134,736					161,141			132,409
Reconciliation of Product License Bookings
(In thousands)
(UNAUDITED)
		Three months ended											Nine months ended
		September 30,			June 30,			September 30,					September 30,			September 30,
		2010			2010			2009					2010			2009
Product license bookings		$	14,224		$	18,185		$	10,436				$	46,259		$	39,396
Increase in product license deferred revenue			(3,664)			(5,632)			(4,321)					(14,515)			(16,299)
Product license deferred revenue recognized			3,169			3,798			4,775					11,193			14,299
Product license revenue		$	13,729		$	16,351		$	10,890				$	42,937		$	37,396

Use of Non-GAAP Financial Measures

ATG is providing the non-GAAP historical financial measures presented above as the Company believes that these figures are helpful in allowing individuals to better assess the ongoing nature of ATG’s core operations. A “non-GAAP financial measure” is a numerical measure of a company’s historical or future financial performance that excludes amounts that are included in the most directly comparable measure calculated and presented in the GAAP statement of operations.

Net income (non-GAAP) and net income per share (non-GAAP), as we present them in the financial data included in this press release, have been normalized to exclude the net effects of amortization of acquired intangible assets, equity-related compensation, non-cash tax adjustments and restructuring charges. Management believes that these normalized non-GAAP financial measures excluding these items better reflect the Company’s operating performance as these non-GAAP figures exclude the effects of non-recurring or certain non-cash expenses. Management believes that these charges are not necessarily representative of underlying trends in the Company’s performance and their exclusion provides investors with additional information to compare the Company’s results over multiple periods.

ATG considers “product license bookings,” a non-GAAP financial measure which the company defines as the sale of perpetual software licenses regardless of the timing of revenue recognition under GAAP, to be an important indicator of growth in its software license business, as its business increasingly evolves toward a recurring, ratable revenue model.

The Company uses these non-GAAP financial measures internally to focus management on period-to-period changes in the Company’s core business. Therefore, the Company believes that this information is meaningful in addition to the information contained in the GAAP presentation of financial information. The presentation of this additional non-GAAP financial information is not intended to be considered in isolation or as a substitute for the financial information prepared and presented in accordance with GAAP.

In accordance with the requirements of Regulation G issued by the Securities and Exchange Commission, the tables above present the most directly comparable GAAP financial measure and reconcile non-GAAP net income and product license bookings to the comparable GAAP measures.

ATG Statement Under Private Securities Litigation Reform Act

This press release contains forward-looking statements about the company’s estimated revenue and earnings. These statements involve known and unknown risks and uncertainties that may cause ATG’s actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by such forward-looking statements. These risks include the effect of weakened or weakening economic conditions or perceived conditions on the level of spending by customers and prospective customers for ATG’s software and services; financial and other effects of cost control measures; quarterly fluctuations in ATG’s revenues or other operating results; customization and deployment delays or errors associated with ATG’s products; the risk of longer sales cycles for ATG’s products and ATG’s ability to conclude sales based on purchasing decisions that are delayed; satisfaction levels of customers regarding the implementation and performance of ATG’s products; ATG’s need to maintain, enhance, and leverage business relationships with resellers and other parties who may be affected by changes in the economic climate; ATG’s ability to attract and maintain qualified executives and other personnel and to motivate employees; activities by ATG and others related to the protection of intellectual property; potential adverse financial and other effects of litigation (including intellectual property infringement claims) and the release of competitive products and other activities by competitors. Further details on these risks are set forth in ATG’s filings with the Securities and Exchange Commission (SEC), including the company’s annual report on Form 10-K for the period ended December 31, 2009 and its quarterly report on Form 10-Q for the period ended June 30, 2010. These filings are available free of charge on a website maintained by the SEC at http://www.sec.gov.

Additional Information about the Merger and Where to Find It

In connection with the proposed merger, ATG will file a proxy statement with the SEC. Additionally, ATG and Oracle will file other relevant materials in connection with the proposed acquisition of ATG by Oracle pursuant to the terms of an Agreement and Plan of Merger by and among Oracle, Amsterdam Acquisition Sub Corporation, a wholly-owned subsidiary of Oracle, and ATG. The materials to be filed by ATG with the SEC may be obtained free of charge at the SEC’s web site at www.sec.gov. In addition, investors and security holders may obtain free copies of the documents filed with the SEC by ATG by directing a written request to ATG, One Main Street, Cambridge, MA 02142, Attention: Investor Relations.

Investors and security holders of ATG are urged to read the proxy statement and the other relevant materials when they become available before making any voting or investment decision with respect to the proposed merger because they will contain important information about the merger and the parties to the merger.

Oracle, ATG and their respective directors, executive officers and other members of its management and employees, under SEC rules, may be deemed to be participants in the solicitation of proxies of ATG stockholders in connection with the proposed merger. Information about the executive officers and directors of ATG and their ownership of ATG common stock is set forth in the proxy statement for ATG’s 2010 Annual Meeting of Stockholders, which was filed with the SEC on April 14, 2010, and is supplemented by other public filings made, and to be made, with the SEC by ATG. Information concerning the interests of ATG’s executive officers, directors and other participants in the solicitation, which may, in some cases, be different than those of ATG’s stockholders generally, will be set forth in the proxy statement relating to the merger when it becomes available.

Art Technology Group, Inc.

Kim Maxwell, 617-386-1006

Director, Investor Relations

kmaxwell@atg.com