BEAS Boosts Bottom Line

It beats the Street's first-quarter estimates by 2 cents on strong license revenue.
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Updated from May 17

Shares of

BEA Systems

(BEAS)

surged Thursday on the strength of a solid first quarter that featured an EPS upside surprise and the fourth quarter in a row of year-over-year license revenue growth.

Total revenue grew 15% year over year to $323.2 million, while GAAP net income increased year over year to $35.3 million, or 9 cents a share, from $34.1 million, or 8 cents a share, the company reported after Wednesday's close.

Excluding the cost of employee stock options and other items, BEA earned $46.7 million, or 12 cents a share. Analysts polled by Thomson First Call were looking for an EPS of 10 cents on sales of $322.28 million.

In recent trading on Thursday shares were up $1.50, or 12.7%, to $13.36, reversing a month-long retreat.

BEA, which spent some time in Wall Street's doghouse because of weak license revenue, continues to improve in that area, growing the indicator of new business by 14% year over year to $132.4 million compared with the informal First Call consensus of $129 million.

It was the fourth quarter in a row of year-over-year improvement.

However, a significant portion of the latest quarter's increase could be attributed to license revenue contributed by two acquired companies,

Plumtree

and

Fuego

, says WR Hambrecht analyst Robert Stimson.

According to Stimson, Plumtree was on a run rate of about $8 million a quarter, Fuego about $1 million. Backing those numbers out reduces year-over-year license growth on an organic basis to about 6%.

Stimson, who has a buy on the stock, said he was nevertheless generally pleased with the report and plans to take his earnings estimate for the next fiscal year up to about 62 cents a share, well above consensus.

Another analyst, Richard Williams of ICAP, said that on a sequential, four-quarter rolling basis, license growth was about 1.3%. "Acquired growth is still growth, but it comes at a different (and lower) multiple," he said in an interview. (Neither Hambrecht nor ICAP has an investment banking relationship with BEA.)

CEO Alfred Chuang said the comparison may not be accurate because products from the acquired companies are sometimes sold as part of larger software bundles.

BEA, which has long had a strong position in the telecom market, saw sales to that sector grow to 32% of revenue from 27% a year ago.

Much of the growth came in emerging markets, including China. Sales in the U.K. were also strong, Chuang said in an interview.

Chuang said the company expects to grow operating margins, now around 19%, to the mid-20% range over the next six to eight quarters.

BEA does not give earnings guidance, but the company did say that it expects revenue in the second quarter to range from $330 million $340 million. Analysts were looking for revenue of about $329 million.

Along with other software vendors, BEA has been on the receiving end of a moderate selloff, declining 10% in the last four weeks.

But since the beginning of the year, the stock is up a solid 27%, while the Goldman Sachs Software index is off 5%, and the rest of the

Nasdaq

has dipped into negative territory.