Veritas Sees Profits Slip

Blaming an uncertain political environment and a prolonged economic downturn, storage software giant Veritas Software Corp. (Nasdaq: VRTS) said today that its first-quarter 2003 earnings had slipped slightly compared with the same quarter last year.

Veritas posted net income of $43 million, or 10 cents a share, for the quarter. That's compared with earnings of $44 million, or 11 cents a share, a year ago. Excluding charges related to items including acquisitions, Veritas would have posted a profit of 17 cents a share, compared with a 16 cent profit excluding items last year.

In January, Veritas said it expected to post a profit of 13 cents a share for the first quarter, before charges. Analysts polled by Thomson First Call had expected the company to post earnings of 14 cents a share (see Veritas Posts Q4 Loss on Charge).

Veritas said it saw a 6 percent hike in its revenues over the year-ago quarter, to $394 million. While this was well above the companys guidance of $370 million, some observers question whether Veritas had intentionally set the bar a little low.

"I think people are pleased with the revenue number," says Punk Ziegel & Co. analyst Steve Berg. "But you have to wonder if they were giving you a weak number so they can beat it, or if they actually saw some weakness in the market." Another possibility, he adds, is that Veritas's new CFO, Ed Gillis, is playing it safe during his first months on the job (see Veritas Appoints CFO).Most surprising, perhaps, is the fact that Veritas is actually forecasting lower revenues for its second quarter. While sales tend to decline from the fourth to first quarters, they're usually flat from first to second, Berg says. For the current quarter, ending June 30, the company said it expects to report revenues of between $370 million and $380 million. Veritas forecasts earnings of 9 to 10 cents a share including charges, or 13 to 14 cents a share before charges.

On a conference call today, Veritas president and CEO Gary Bloom said the ongoing economic environment, as well as concerns in the Asia/Pacific region over Severe Acute Respiratory Syndrome (SARS), could have a negative impact on the company's earnings in the second quarter.

Veritas said it wrapped up the quarter with a record $2.4 billion in cash on its balance sheet, after increasing its cash level by $153 million during the quarter. CFO Gillis said Veritas expects to raise an additional $70 million to $90 million during its second quarter. The company said it had 12 deals worth more than $1 million over the quarter.

The charges anticipated for the June quarter do not include the effect of the company’s pending acquisition of Precise Software Solutions (Nasdaq: PRSE), the company said (see Veritas Gets Precise).

As for competition going forward, Bloom said Veritas remains well-positioned. "The competitive landscape has not changed. But we’ve obviously been very effectively dealing with that competition."According to a Gartner Inc. report released last week, he’s right (at least so far): The research firm says Veritas was No. 1 in the $3.2 billion non-array-based storage software market with 27.6 percent share (see Gartner: Veritas Leads in SMS).

Before today’s earnings release, Veritas traded up nearly 3 percent, closing at $20.36 -- having lost more than $10 off the price since the company announced its first-quarter earnings for 2002. Still, the company’s stock has started gradually climbing back from its 52-week low of $10.30 per share in October.

"It’s at least valued fairly, probably more than fairly," says Berg. "Veritas has always been an investor darling, and with good reason."

Meanwhile, Gillis said the company currently employs 5,616 people, and expects nominal growth in headcount over the next quarter.

— Eugénie Larson, Reporter, Byte and Switch