Veritas CEO touts strong business
By Mike Tarsala, CBS.MarketWatch.com
Last Update: 3:01 AM ET May 12, 2001
MOUNTAIN VIEW, Calif. (CBS.MW) -- Gary Bloom, Veritas CEO and the former No. 2 at Oracle, is vying to lead his storage-software business, the fifth-most-valuable software maker on the market, to $5 billion in sales from about $1 billion.
He's working to meet his goals with the efficiency of his former boss, Oracle's Larry Ellison, while he throws off a touch of Ellison's oft-cited swagger.
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Although Veritas (VRTS: news, msgs, alerts) reduced its full-year earnings targets blaming difficulty in closing deals and the stock is down 45 percent since when he took the job, Bloom remains bullish about the future of his business. He even makes a case for a possible software-led technology stock turnaround later in the year.
In a far-ranging interview with CBS.MarketWatch.com, Bloom talks about his transition from Oracle, the progress he's made since becoming the top brass at Veritas in November 2000, and the future of the software market.
CBS.MW: Gary, you're out talking to the press again. Should that be a hint to investors that you're feeling more confident about business going into the second half of the year?
Bloom: Really, we've been doing press on an ongoing basis. We're bullish, but I wouldn't take that as a sign that we're more bullish. The way I see it, we continue to be one of the success stories of the year, considering the number of technology failures. We have a $1.6 billion run rate, a growth rate projection of 35 percent out there, and we continue to be a leader in managing data -- a key corporate asset. Our visibility doesn't really match our market position.
CBS.MW: The storage market, both software and hardware, had been considered a sacred cow until first-quarter warnings started hitting. In the midst of warnings from a list of bellwether technology companies, why did executives and analysts continue to keep the earnings prognostications for Veritas and others so high?
Bloom: Executives and analysts thought that storage could be immune to a slowdown simply because of the volumes of data being stored by customers, and the view that data is a valuable corporate asset that can be leveraged to gain business value during a downturn. The projections got ahead of themselves, but the economy declined faster than everyone expected, as well. There wasn't any intentional misguidance.
Look at our initial guidance range, at 45 percent to 50 percent, and we brought it in to a range of 35 to 50 percent. The market sentiment is very difficult to judge. There is plenty of business in our pipeline to see 45 percent growth, but there is enough uncertainty that we can't guarantee that on Wall Street.
Overall, the storage industry continues to be the sector that's the growth leader for the year. EMC is still at 20 percent growth, and we're at 35 percent growth. You look at the chip companies and what the networking companies like Cisco are doing, and they're not keeping that pace.
CBS.MW: The stock price has suffered since you came on board Veritas, along with other stocks in the industry. What does that do for your morale, and the morale of employees?
Bloom: The stock's been in a kind of funny trading pattern since I joined. It's been as low as 38 and as high as 130. It's a pretty broad swing.
As far as employees, go, I can't say there's been no effect. It clearly affects your psyche to see your own personal fortune go down. With that said, I think my employees look at Veritas as a strong company with great long-term potential. We have a very high level of commitment to the company.
For my personal psyche, it hasn't had a dramatic effect. I didn't come here for money: I pretty much wanted to run my own show, and Veritas is a leading company. My bet is that we can take this business to $5 billion, it's safe to assume the stock price will be two or three times what it is today.
I feel very confident. I don't pay much attention to the stock price. If you deliver results, the market will reward you.
CBS.MW: You haven't announced layoffs. Is that something you'll be able to avoid?
Bloom: It's true that we haven't had any layoffs, although we did say in April that we'd be much more diligent in managing the low performers within the company. That's pretty much what we've been doing. We're stirring the pot. But that's generally what happens when you get a new executive taking a look at a company in a new way.
It's worth noting that we continue to hire employees. We still have growth potential of 35 percent to 50 percent. We need to hire the supporting staff to build the business. During 2001, we expect we'll add about 1,500 employees to our 5,400 right now.
CBS.MW: You've already scaled back second-quarter estimates, but is there any reason the earnings or sales targets could change again?
Bloom: I wouldn't say I feel more bullish, but I don't see us being more bearish, either. Our views for what we're doing are stable. We have pretty good visibility into what's happening out there. But the negative market sentiment out there has kept our sales reps from committing that they could close sales in the quarter. Their confidence to commit the numbers they will bring in has stabilized since the first quarter, though. People are feeling a little more optimistic.
CBS.MW: Do you need to kick in free software and extra services to close business, or is Veritas keeping its pricing power?
During this economic decline in the U.S., we see overachievement in the Asia-Pacific, Japan, and Europe.
Gary Bloom, Veritas CEO
Bloom: I would never tell you we don't do anything special, but we're not doing anything out of the ordinary to get business.
CBS.MW: Other software companies are complaining about possible slowing business overseas. What do you see?
Bloom: Our international revenue is lighter than some other companies. We get about 72 percent of our sales domestically, and 28 percent from international.
We have what we call a 3-D expansion strategy. One is expanding the product portfolio, and another is computer platform expansion. Most of the revenue we generate is from the Microsoft Windows and Sun Solaris operating systems, but last year, we added the H-P platform. Last year, we did $100 million on the H-P platform alone. Now we want to deliver on the IBM platform and continue to build out software for Linux.
To your point, our third area is geographic expansion. It's my belief that we have an untapped opportunity in many parts of the world, especially in Japan and Korea. During this economic decline in the U.S., we see overachievement in the Asia-Pacific, Japan, and Europe. Japan is 2.5 to 3 percent of our revenue, and it easily could be 10 percent if we invest more there.
CBS.MW: You're interested also in expanding your product offerings. I understand that you're interest in adding Internet-based delivery software, similar to the kind made by Akamai and Digital Island. Of note is that those stocks are down more than 80 percent from their all-time highs.
Bloom: We're talking about software for providing management and delivery of information. We believe the Internet will continue to develop, even though the dot-com bubble has burst. We see our very traditional clients continue to move down the path toward the Web. They continue to use the Internet as another means to get more efficient use of their technology. Part of that data management and data ability platform is moving the information closer to users, and making the information readily available. The Internet continues to be a good sector for us.
CBS.MW: What's your software industry outlook for the remainder of the year?
Bloom: Overall in the market, we're in a unique time that software may be a leader in the growth. Looking out at hardware market, there's a secondary market that's very flush with technology out there. We were talking about a project for our own internal use, and we were talking about going to the secondary market. Software, on the other hand, is licensed, and it doesn't go to that secondary market. That's one of the reasons why software could lead the comeback of the technology sector when you look out six-to-12 months.
CBS.MW: When will Veritas be able to turn a net profit?
Bloom: We have not put a timetable out on that. We're predominantly focused on our operating results. The market cares more about what you're doing from an operating basis than what you're doing on an accounting basis. We're generating somewhere around $100 million-plus in cash per quarter. Our days sales outstanding is sitting under 40 days, or almost 50 percent of what most software companies run. Our margins are very good. We have large write-offs from acquisitions, but those don't affect the results of the company |
