Veritas Numbers Add Up
In a low-energy conference call after the bell on Monday, Veritas Software Corp. (Nasdaq: VRTS - message board) reported third-quarter earnings that beat Wall Street's estimates by a penny. The results explain in part why CEO Gary Bloom wasn't too worried about giving CFO Ken Lonchar the boot earlier this month (see Veritas Boosts Q3 Net Profit and Veritas Fires Veteran CFO).
The issue of Lonchar lying on his resume -- he claimed to have received an MBA from Stanford University -- temporarily unnerved investors and prompted a sell-off of the stock, causing Veritas's shares to plummet to a low of $11.73 on Oct. 3. After that rather embarrassing fiasco, Bloom told analysts that Veritas has completed background checks on all its key executives, "to be sure we don't get caught twice."
Remarkably, the company appears to have come out of the incident unscathed [ed. note: unlike Mr. Lonchar].
Veritas reported net income of $36.2 million, or 9 cents per share, for the quarter ended September 30, 2002, on sales of $365.7 million. That compares with $26 million, or 6 cents per share, in the prior quarter and a net loss of $162 million, or 40 cents a share, in the same period a year earlier.
For the fourth quarter, Veritas sees the current consensus estimate for revenues of $377 million as a "reasonable target" and estimates earnings to range from 12 cents to 14 cents a share.
Still, Veritas's stock price was trading at $14.76, down 7.6 percent, in early trading. This morning, U.S. Bancorp Piper Jaffray downgraded the stock to Underperform from Market Perform based on "macro doldrums, increased competition, smaller deal sizes, and generally limited visibility."
Analysts voiced concerns over Veritas's deferred revenue, down about $20 million from last quarter. Bloom attributed this to the company signing more small deals that tend to close faster. He added that Veritas generally closes more maintenance contracts in the fourth quarter, which will boost deferred revenues.
"For the September quarter, Veritas recorded only nine transactions valued over $1 million -- versus 18 in the prior quarter and the peak of more than 30 at the end of last year -- as we continue to see a 'buy as you need' mentality resonate throughout the IT spending environment," writes Shebly Seyrafi, an analyst with A.G. Edwards, in a note today.
Pressed for comment on layoffs after EMC Corp.'s (NYSE: EMC - message board) latest cuts, Bloom said Veritas was down about 50 people from the prior quarter to roughly 5,620 employees. Should the economy pick up, he said, Veritas "will grow headcount again in the second half of 2003, but we are not counting on that." (See EMC Stagnates.)
The company also announced a worldwide facilities restructuring that will consolidate operations in key geographic regions in order to deal with excess office capacity. The company will take a cash charge in the fourth quarter of $90 million to $100 million for this restructuring. Veritas says it expects the consolidation to save $13 million to $15 million annually, starting in the third quarter of 2003.
Veritas closed the quarter with $2.1 billion in cash, which prompted analysts to ask whether the company plans to make any acquisitions in the near future. "As well as growing organically, we will make strategic transactions to fill out our product line and product brief," said Jay Jones, Veritas's chief administrative officer, who is filling in for Lonchar until a replacement CFO is found [ed. note: Jones claims to have a master's degree in environmental design from Berkeley].
Jones was unable to provide details on what gaps Veritas might be looking to fill, but it's clear the company needs to get its skates on as its stronghold in storage software is increasingly under attack from hardware players like EMC, Hewlett-Packard Co. (NYSE: HPQ - message board), Sun Microsystems Inc. (Nasdaq: SUNW - message board), and Hitachi Data Systems (HDS), which are looking to cash in on this growing sector.
— Jo Maitland, Senior Editor, Byte and Switch
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