BEA Systems Comes in Ahead of Lowered Expectations

The software shop was soft on top-line revenue but beat earnings estimates by a penny.
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Updated from 4:38 p.m. EST

BEA Systems

(BEAS)

, the Silicon Valley software shop that put out a sales and profit warning earlier this month, reported fiscal third-quarter earnings Tuesday slightly better than analysts' lowered expectations, but the firm came in soft on the top line.

The company said that excluding certain items, it earned $24.2 million, or 6 cents per share, on $219.6 million in revenue, including $126.6 million in software license fees. Updated Wall Street consensus estimates saw BEA earning 5 cents per share on $220 million in revenue, according to Multex.com. Prior to the company's warning Nov. 1, analysts had expected the company to earn 8 cents per share on revenue of $253.5 million.

During the same period last year, BEA earned 7 cents per share on a pro forma basis with $224 million in total revenue, which means current sales slumped by about 2%.

"Our performance in the quarter was impacted by a very challenging economic environment. Still, we are encouraged by the 2,838 deals we completed in the quarter, roughly the same number as we did in Q2. Customers continued to invest in new applications, and continued to choose our platform," CEO Alfred Chuang said in a statement. "But, obviously, in this environment they are being more cautious and investing more slowly."

During a conference call with Wall Street analysts, Chuang said the fallout from the Sept. 11 attacks was palpable during the quarter, and weighed heavily on the minds of customers.

"BEA has suffered greatly in Q3," Chuang said. "This was probably the most psychological and emotional quarter that we've seen as far as our customers being affected is concerned." He said several large deals didn't close in the third quarter due to that stress, but that a seven-figure deal and an eight-figure deal had already been wrapped up in the fourth.

Taking all charges into account, including a $110 million charge related to impaired assets, BEA reported a loss of 23 cents per share. On that basis, during the same period last year, the company earned 2 cents per share.

The company said it expects to take a $15 million to $20 million pretax charge in its fourth quarter, and reiterating its previous guidance for the fourth quarter, saying it expects to earn 6 to 7 cents with annualized revenue growth in the low, single digits for the period. Chuang said that guidance included the two large deals he had already closed. However, the company declined to give any guidance for 2002, citing uncertain conditions.

Michael Beckwith, an analyst at Robertson Stephens who has a buy rating on BEA, said he can't fault the company on that score more than any other firm.

"The company made clear on Nov. 1 that they weren't going to provide guidance, and by and large, not a lot of companies have provided any guidance. Quite frankly, I don't think they felt compelled to do it," Beckwith said. (His firm has done underwriting for BEA Systems.)

And while BEA's results were nothing to write home about, Beckwith says that along with other software firms, BEA may have seen the worst at this point.

"The overarching view is that this is still a very challenging environment, but on the margin, do I think BEA has seen a pick-up in business in the last several weeks? Yes. But do all software companies need to fight for business at this time? Definitely."

The company, like many of Silicon Valley's hypergrowth stories of the late 1990s, has struggled of late in the slower business climate. In October, the company named co-founder Chuang

to succeed Bill Coleman as CEO. Coleman bullishly touted the company's prospects despite the dour economic outlook earlier this year, which eventually caught up with BEA's shares, down 80% from their 52-week high.

And when the company told Wall Street it wouldn't sell as much or have the profits it previously forecast Nov. 1, it also announced that it would cut 9% to 10% of its 3,300 employees by the end of the year, adding to the Valley's ranks of unemployed. It reiterated its plans to do so this afternoon.

Tuesday, before results were released, shares of BEA gained 77 cents, or 4.8%, to finish at $16.99. In after-hours trading, though, they slumped to $16.85, according to Instinet.