Strong Results Lift Veritas

Updated from April 21

Veritas Software ( VRTSE) doubled its net income and handily beat Wall Street's expectations for revenue and profit in the first quarter, the Mountain View, Calif., company reported after the closing bell Wednesday.

The stock was recently up 75 cents, or 2.7%, to $28.57.

Net income for the quarter was $103 million, or 23 cents per diluted share, compared to a profit of $42.5 million, or 10 cents a share last year, according to generally accepted accounting principles.

Revenue grew 24% to $487 million, up from $394 million for the period a year ago.

Analysts polled by Thomson First Call were expecting a 21-cent profit on sales of $469.87 million.

The company, which makes software used by large businesses to manage data storage, generated $202 million from operations during the March quarter.

License revenue, a key metric for software companies, was up solidly, rising from $254.6 million a year ago to $303.3 million.

Large deals, which often indicate that customers are confident enough to make a long-term commitment, grew. The company recorded 25 deals greater than $1 million, compared to 12 in the previous quarter and 12 a year ago.

Thomas Mancino of Pacific Growth Equities noted that all product areas grew to expectations during the quarter, including backup -- up 13% -- which is often seen as a somewhat stagnant market. "We are reiterating our overweight rating and continue to believe the company is especially well positioned to leverage the economic/IT spending recoveries as they unfold throughout the remainder of 2004 and into 2005," he wrote. (Pacific Growth does not have a current banking relationship with Veritas.)

In mid-March, Veritas said it would restate three years of financial results because of accounting irregularities. The restatement will cut net income by $15 million to $20 million for the year ended Dec. 31, and slash revenue for that period by $10 million to $15 million.

However, the restatement did not affect the just-completed first quarter. The company last month reiterated its guidance, saying it expects a GAAP profit of 17 cents to 20 cents a share on sales ranging from $455 million to $470 million.

CEO Gary Bloom said during a call with analysts that the company expects to complete its internal review and file its 10-K and 10-Q forms by the end of the June quarter. It will then trade again under its usual symbol -- VRTS -- instead of VRTSE, which indicates that it is not in compliance with all Nasdaq regulations.

In an interview after the call, Bloom said he could not guarantee that the review will not uncover more revelations of accounting problems, but indicated that he was confident there wouldn't be. "We are being extremely diligent," he said.

Unlike the scandal that led to this week's demotion of Sanjay Kumar at Computer Associates ( CA), the problems at Veritas have been contained and the financial team responsible was replaced early on.

Asked about the overall economic outlook for the industry, Bloom, like other high-tech execs, spoke cautiously about a "measured" recovery for information technology spending.

In a note to clients, Piper Jaffray analyst David M. Rudow said: "We feel that once the 10K is filed and worries of a formal SEC investigation subside, investors will be more comfortable with overweighting positions in the stock again. We advise investors with a longer time frame to wade back into the stock at these levels." (Piper Jaffray does not have a current banking relationship with Veritas.)

Explaining the accounting issues some time ago, the company said a forensic audit "identified certain accounting practices not in compliance with generally accepted accounting principles during 2002, 2001 and prior periods under the direction of former financial management."

The company cited the "incorrect deferral of professional services revenue and the unsubstantiated accrual of certain expenses, which had a positive impact in some periods and a negative impact in others."

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