WEBM ( $19-17) EPS -$3 Q1 loss in line with estimates
By Siobhan Kennedy
NEW YORK, July 25 (Reuters) - WebMethods Inc. (NasdaqNM:WEBM - news), which makes software to help corporate computer systems talk to each other, on Wednesday posted a fiscal first-quarter loss, in line with its lowered expectations and said it could return to profitability by the second half of fiscal 2002.
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The company, which has struggled to contain costs amid the slowing U.S economy, also said it would take a one-time restructuring charge of $7 million to $7.5 million in the fiscal second quarter to cover a previously announced 15 percent cut in its work force, or about 160 jobs.
For the quarter ended June 31, webMethods reported a loss of $4.4 million, or 9 cents a share, compared with a loss of $4.1 million, or 9 cents a share, in the prior-year quarter. The results exclude the amortization of deferred stock compensation, goodwill and warrant charges.
Including those charges, webMethods' net loss for the quarter was $19.9 million, or 41 cents a share, compared with a net loss of $20.9 million, or 46 cents a share, a year ago.
``My personal sense is that things are not getting any worse but they're certainly not getting any better as far we we can tell right now,'' Phillip Merrick, webMethods' chairman and chief executive told Reuters in a telephone interview.
Earlier this month, the Fairfax, Virginia-based company warned it would miss Wall Street estimates and forecast a loss of 9 cents to 10 cents a share, excluding charges, on revenues of $55 million.
Prior to its warning, analysts, on average, expected a loss of 2 cents a share, according to Thomson Financial/First Call.
For the quarter, it posted revenues of $55.4 million, up 58 percent from $35.1 million in the year-ago quarter.
Shares of webMethods slipped slightly in after hours trading to $16.05 on the Instinet brokerage system from a close of $16.54 on the Nasdaq stock exchange.
NO ALARMS AND NO SURPRISES
``I didn't expect much surprise, I figured they would meet the numbers,'' Jordan Klein, an analyst with brokerage firm UBS Warburg said.
``I think momentum slowed for webMethods as it did for many others in the space,'' Michael Marzolf, an analyst with U.S Bancorp Piper Jaffray said. 'Nothing stood out for webMethods more than it did for anyone else."
WebMethods said it expects to post a fiscal second quarter per share loss slightly smaller than Wall Street expectations and said it would reach breakeven, or a small profitability, in the second half of its financial year, which ends March 31 2002.
The company said it expects to post a loss, excluding charges, of between 4 cents a share and 6 cents in its fiscal second quarter which ends September 30, on revenues in the range of $50 million to $53 million. In addition, the company said it expects full year 2002 revenues in the range of $210 million to $220 million.
Analysts, on average, were expecting webMethods to report a loss of 7 cents a share, with a range of between a loss of 11 cents a share to break even, on revenues of $50.8 million. For the full year 2002, analysts' revenue consensus was $239.37 million.
``I think the guidance is conservative but realistic in the current environment,'' UBS Warburg's Klein said. ``I don't think people really expected to see things up sequentially in the next quarter anyway.''
CUSTOMERS DELAYED SPENDING DECISIONS
In what is now becoming an all too familiar tale in the battered software sector, Merrick said the problem wasn't that customers were canceling orders, but that they were postponing decisions until the next quarter.
``Sales cycles have lengthened as customers continue to defer information technology spending decisions and impose more extensive internal approval processes,'' Merrick told analysts on a conference call.
``It's fair to say that this impacted our first quarter more greatly than we had foreseen just three months ago ... and we also saw Europe exhibit signs of weakness,'' Merrick said.
Still, the company managed to add 60 new customers in the quarter including signing deals with Bank of America Corp. (NYSE:BAC - news), Lucent Technologies Inc. (NYSE:LU - news) and Covisint, the online exchange for the automotive industry. In addition, Merrick said webMethods forged greater links with its consultant partners, such as Accenture Ltd. (NYSE:ACN - news), the former Andersen Consulting. Those partners, plus webMethods' alliances with software partners such as i2 Technologies Inc. , helped generate about 50 percent of webMethods' revenues for the quarter, Merrick said.
When spending starts to pick up, webMethods will emerge as a key players in the software integration market, analysts said.
``They're still in a very good competitive position, with very good partnerships, a good balance sheet and good brand recognition,'' Klein said.
``Despite the stock's poor performance we've stuck with a strong buy,'' Klein added.
Since the beginning of the year, shares of webMethods have lost 81 percent of their value, underperforming its closest competitor, SeeBeyond Technology Corp. (NasdaqNM:SBYN - news), by 75 percent. SeeBeyond's shares have lost 23 percent of their value over the same period.
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