Updated from 5:12 p.m. EDT
on Thursday announced second-quarter earnings and revenue. And the company told investors to expect a solid third quarter that should be somewhat better than Wall Street's expectations.
PeopleSoft reported net income of $36.5 million, an 11-cent profit, calculated according to generally accepted accounting principles, well above its initial guidance of 8 cents to 9 cents a share. Total revenue was $497 million, a 3% year-over-year increase. License revenue, a key measure that sank PeopleSoft's first quarter, was $112 million, compared to earlier guidance of $85 million to $95 million, but down 15% year over year.
PeopleSoft CFO Kevin Parker, who like the rest of the management team has strongly opposed
hostile takeover bid, said his company's defense cost stockholders 3 cents a share, or $14 million, in the June quarter. It will probably cost them another 2 cents in the September quarter, he said.
Looking to the third quarter, the company said it expects pro forma EPS of 13 cents to 14 cents a share on revenue ranging from $470 million to $480 million. The consensus of analysts polled by Thomson First Call was for earnings of 12 cents on revenue of $476.25 million.
Thursday's results were no surprise because in early July PeopleSoft revised its EPS guidance upward, to 10 cents to 11 cents a share. That surprised many analysts who had expected a warning that the company would report below expectations because of the turmoil caused by Oracle's takeover effort.
The upside surprise announced July 2 hasn't done much for the company's stock. It's been trading in very narrow range all month, and in regular trading on Thursday was up a penny to $17.90, well below Oracle's current offer of $19.50 a share. The stock picked up a bit after hours, gaining 8 cents to $17.97.
During the early July conference call, PeopleSoft CEO Craig Conway and CFO Kevin Parker attributed the turnaround to a number of factors, including a customer and industry backlash against Oracle. But the most significant factor appeared to be the success of PeopleSoft's "money-back guarantee," essentially an offer to refund license fees to new customers if Oracle takes over the company. Parker said that more than half of the quarter's license revenue was derived from customers covered by the offer.
There was some feeling earlier on Wall Street that PeopleSoft had somehow manipulated its second-quarter results, perhaps by pulling an unusual amount of revenue in from later in the year or by offering unusual discounts, charges that the company denied.
On Thursday, though, analyst Eric Upin of Wells Fargo Securities called the quarter a clean one. "The Oracle tender offer galvanized the company and really galvanized the customers," he said. (Wells Fargo does not have an investment banking relationship with PeopleSoft.)
Also impressed with the company's story was Trip Chowdhry of Midwest Research. Chowdhry raised his revenue estimate 3.5% to $479 million, saying that his market research shows an uptick in customer activity, including more upgrades to PeopleSoft 8 and more fresh implementations. Midwest does not have a merchant banking business.
The unexpectedly strong quarter wasn't the only good news that PeopleSoft management has had this month. On Monday, the Justice Department said that it will not delay the company's friendly, $1.8 billion (the value went up this week) acquisition of
The J.D. Edwards deal is likely to close Friday. Although it's a major problem for Oracle, the company has never said what it would do if PeopleSoft succeeds in acquiring JDEC. When asked that question earlier Thursday, Oracle Executive Vice President Charles Phillips said only, "We're in for the long haul."
Similarly, Phillips and CEO Larry Ellison were asked that question at a meeting with analysts last week, and neither gave a clear answer.