Phoenix Technologies Ltd. Reports Fiscal First Quarter 2005 Financial

    Business Editors

    MILPITAS, Calif.--(BUSINESS WIRE)--Jan. 27, 2005--Phoenix Technologies Ltd. (Nasdaq:PTEC) today reported its fiscal first quarter 2005 financial results.
    For the fiscal quarter ended December 31, 2004, the Company announced revenue of $26.2 million, operating income of $4.2 million, and net income of $2.2 million, or $0.09 per diluted share. These figures compare to revenue of $24.5 million, operating income of $3.0 million, and net income of $2.6 million, or $0.10 per diluted share in the quarter ended September 30, 2004. Revenue from new businesses, including PC applications and non-PC devices, increased 24% from the previous quarter and 71% year-over-year.
    "We are pleased with the Company's continued growth and profitability," said Albert E. Sisto, Chairman, President and CEO. "The progress made over the past four quarters is evidence of Phoenix's strategy being validated by the marketplace. We continue to experience increased market acceptance for our application products and momentum in the market for non-PC devices that are x86-based. Phoenix is also continuing to make excellent progress with our system builder, channel and OEM partners, and this is helping create stability in the unit prices for our core system software products."
    The Company's cash and short-term investments as of December 31, 2004, were $62.6 million, an increase of $2.8 million from the quarter ended September 30, 2004. Operating expenses were $17.7 million, compared to $17.6 million in the quarter ended September 30, 2004 and $17.0 million for the year-earlier quarter ended December 31, 2003.
    The Company will conduct its regularly scheduled financial announcement conference call on Thursday, January 27, 2005, at 1:30 p.m. PST. Investors are invited to listen to a live audio web cast of Phoenix's quarterly conference call on the investor relations section of the Company's website at www.phoenix.com. A replay of the web cast will be available approximately 30 minutes after the conclusion of the call. The replay will remain available for 15 calendar days following the conference call. An audio replay of the conference call will also be available approximately two hours after the conclusion of the call. The audio replay will be available until Tuesday, February 1, 2005 at 9:00 p.m. PST and can be accessed by dialing 800-642-1687 or 706-645-9291 and entering conference number 3282359.

    About Phoenix

    Phoenix Technologies develops a complete product suite of Core System Software, tools and applications to deliver trusted, seamless computing to digital devices for an Internet-connected world. Phoenix Technologies helped launch the PC industry nearly 25 years ago. Today we are extending our leadership and knowledge at the core of machines, beyond the PC to a wide range of platforms and devices.
    Phoenix Core System Software has set the standard for the world's leading branded PC OEMs and their global network of supply chain and software partners. Today, Phoenix solutions enable, secure, connect, and recover the world's best-known systems. These solutions are built into the device core, where they are protected from viruses, user errors, hackers, and corruption. Phoenix is headquartered in Milpitas, Calif. (Silicon Valley), with offices in global business and technology centers. For more information, visit www.phoenix.com.

    Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995:

    With the exception of historical information, the statements set forth above include forward-looking statements that involve risk and uncertainties. All forward-looking statements included in this document are based upon information available to the Company as of the date hereof, and the Company assumes no obligation to update any such forward looking statement. Factors that could cause actual results to differ materially from those in the forward looking statements are discussed in the Company's filings with the Securities and Exchange Commission, including its recent filings on Form 10-K, filed December 27, 2004.

    Phoenix and Phoenix Technologies are registered trademarks of Phoenix Technologies Ltd.

PHOENIX TECHNOLOGIES LTD. CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands) (unaudited)

December 31, September 30, 2004 2004 ------------- -------------- Assets Current assets: Cash and short-term investments $ 62,591 $ 59,823 Accounts receivable, net 23,509 23,871 Other current assets 5,068 6,268 ------------- -------------- Total current assets 91,168 89,962

Property and equipment, net 4,493 4,519 Computer software costs, net 7,083 7,922 Goodwill, net 13,433 13,433 Intangible assets, net 420 437 Other assets 4,255 4,612 ------------- -------------- Total assets $120,852 $120,885 ============= ==============

Liabilities and stockholders' equity

Current liabilities: Accounts payable $ 1,276 $ 2,188 Accrued compensation and related liabilities 5,552 5,535 Deferred revenue 6,724 9,642 Income taxes payable 2,254 3,136 Other accrued liabilities 4,204 3,765 ------------- -------------- Total current liabilities 20,010 24,266

Long-term obligations 3,380 3,590 ------------- -------------- Total liabilities 23,390 27,856

Stockholders' equity: Preferred stock -- -- Common stock 32 32 Additional paid-in capital 181,653 180,525 Retained earnings 7,035 4,793 Accumulated other comprehensive loss (815) (1,878) Less: Cost of treasury stock (90,443) (90,443) ------------- -------------- Total stockholders' equity 97,462 93,029

------------- -------------- Total liabilities and stockholders' equity $120,852 $120,885 ============= ==============

PHOENIX TECHNOLOGIES, LTD. CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share amounts) (unaudited)

Three months ended December 31, -------------------------------- 2004 2003 --------------- ----------------

Revenues $26,176 $18,500 Cost of revenues 4,236 3,614 --------------- ---------------- Gross Margin 21,940 14,886

Operating expenses: Research and development 4,730 5,540 Sales and marketing 9,310 8,344 General and administrative 3,578 3,082 Amortization of acquired intangible assets 17 17 Stock-based compensation 72 52 --------------- ---------------- Total operating expenses 17,707 17,035 --------------- ----------------

Income (loss) from operations 4,233 (2,149)

Interest and other income (expense), net (697) 161 --------------- ---------------- Income (loss) before income taxes 3,536 (1,988)

Income tax expense 1,294 450 --------------- ---------------- Net income (loss) $ 2,242 $(2,438) =============== ================

Income (loss) per share: Basic $ 0.09 $ (0.10) Diluted $ 0.09 $ (0.10) Shares used in income (loss) per share calculation: Basic 24,599 24,333 Diluted 25,219 24,333

Phoenix Technologies Ltd. Consolidated Statements of Cash Flows (In thousands) (unaudited)

Three months ended December 31, --------------------- 2004 2003 --------- --------- Cash flows from operating activities: Net income (loss) $ 2,242 $(2,438) Reconciliation to net cash provided by operating activities: Depreciation and amortization 1,714 1,995 Stock-based compensation 72 52 Loss from disposal of fixed assets -- 268 Deferred income tax 370 (7)

Change in operating assets and liabilities: Accounts receivable 362 (8,154) Prepaid royalties and maintenance 574 619 Other assets 613 151 Accounts payable (912) 161 Accrued compensation and related liabilities 17 (2,272) Deferred revenue (2,918) 9,120 Income taxes (882) 79 Accrued restructuring charges (344) (271) Other accrued liabilities 574 980 --------- --------- Net cash provided by (used in) operating activities 1,482 283 --------- ---------

Cash flows from investing activities: Proceeds from sale of investments 42,629 47,285 Purchases of investments (45,130) (45,024) Proceeds from the sale of fixed assets -- 38 Purchases of property and equipment (832) (365) --------- --------- Net cash (used in) provided by investing activities (3,333) 1,934 --------- ---------

Cash flows from financing activities: Proceeds from stock purchases under stock option and stock purchase plans 1,055 620 --------- --------- Net cash provided by (used in) financing activities 1,055 620 --------- ---------

Effect of exchange rate changes on cash and cash equivalents 1,063 (358) --------- --------- Net increase in cash and cash equivalents 267 2,479 Cash and cash equivalents at beginning of period 38,898 26,601 --------- --------- Cash and cash equivalents at end of period $39,165 $29,080 ========= =========

--30--AM/sf*

CONTACT: Phoenix Technologies Ltd. Randall Bolten, 408-570-1000 SVP & CFO Investor_Relations@phoenix.com or Sapphire Investor Relations, LLC Maria Riley, 408-570-1319 Investor_Relations@phoenix.com

KEYWORD: CALIFORNIA INDUSTRY KEYWORD: HARDWARE SOFTWARE INTERNET E-COMMERCE EARNINGS CONFERENCE CALLS SOURCE: Phoenix Technologies Ltd.

Copyright Business Wire 2005