BEA Systems Beats Estimates, Gives Guidance a Nudge

Updated from 4:53 p.m. EST

BEA Systems reported fiscal third-quarter results Thursday that were slightly ahead of Wall Street estimates, with revenue rising nearly 7% year over year and earnings coming in a penny better than expectations.

The San Jose, Calif.-based application server software company offered revenue guidance for the fourth quarter that was slightly ahead of Wall Street estimates.

BEA reported income of $24.7 million, calculated according to generally accepted accounting principles, or 6 cents a share, in the third quarter, which ended Oct. 31, compared to a net loss of $90.9 million, or 23 cents a share, in the same period a year earlier. Last year's results were hurt by a drop in business after Sept. 11 and also included a $73.1 million charge for impairment of goodwill.

Excluding charges, BEA said it earned pro forma net income of $29.6 million, or 7 cents a share, in the third quarter, compared to pro forma net income of $24.2 million, or 6 cents a share, a year earlier. Revenue rose 6.6% to $234 million from $219.6 million a year earlier and 3.6% from $225.9 million in the previous quarter.

The Wall Street consensus estimate gathered by Thomson Financial/First Call projected BEA would post third-quarter pro forma earnings of 6 cents a share on $225.4 million in revenue. The company had predicted third-quarter revenue would be flat to slightly up sequentially.

"These were pretty solid results especially in this environment," said Sanford C. Bernstein analyst Charlie Di Bona, who has an outperform rating on BEA. "We're looking at a situation here where the weak IT environment isn't allowing anyone to show spectacular results." His firm doesn't do investment banking business.

In a post-close conference call, BEA executives said they anticipate fourth-quarter revenue to range from $238 million to $241 million -- slightly higher than the $236.8 million projected by Wall Street analysts.

The company did not give specific earnings guidance but said it expects operating expenses to be flat to up slightly in the fourth quarter, leading to an operating profit margin in the range of 18% to 20%. That compares to an operating margin of 17.3% in the third quarter. Wall Street estimates pegged fourth-quarter earnings at 7 cents a share.

Competition from such behemoths as IBM and Oracle in BEA's core application server market has heated up. BEA has countered that competition by developing a platform of products that combines its application server with a portal and integration features and by launching a new data-integration product called Liquid Data.

BEA reported winning 325 deals in which it competed head-to-head against IBM, including 223 deals in which IBM was the incumbent. In addition, BEA said it replaced IBM in 56 accounts, up 75% from 32 replacements last quarter. While Oracle recently reported the number of its application server customers has surpassed those of BEA, BEA Chairman and CEO Alfred Chuang said Thursday that his company has not encountered Oracle in the field. Meanwhile, BEA reported closing 18 $1-million-or-greater deals in the quarter.

"The mega-bear case on BEA is that these guys are going to get run over by IBM, and they will be driven into the ground as a result," Di Bona said. "Well, that's clearly not happening right now." Di Bona said the large number of $1 million deals is evidence of BEA making progress in building out its new platform product.

Shares of BEA rose 41 cents, or 4.8%, to close at $9.04. In after-hours trading, shares climbed to $9.32.