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Updated from May 18

Strong sales and a brisk flow of ongoing service revenue lifted

BEA Systems


to its strongest first quarter in years. The software company also offered better than expected revenue guidance for the second quarter.

The news cheered investors; in recent trading on Thursday shares were up 41 cents, or 5%, to $8.55.

Even so, the company failed for the fifth quarter in a row to show a year-over-year gain in license revenue. And analysts say the company still has a long road back. "We see first quarter results as a sign that BEAS 's business has stabilized but we think the core business remains under significant competitive pressure," Prudential analyst Brent Thill wrote in a note to clients published early Thursday. Prudential is a holder of BEA shares, but does not have an investment banking relationship with the company.

Total revenue in the quarter was $281.7 million, compared with $262.6 million in the April quarter of last year, a gain of 7%. It was, the company said, a record for the first quarter.

Net income was up 35% to $34.1 million, or 8 cents a share. Excluding items, the company earned $35.8 million, or 9 cents a share.

Analysts polled by Thomson First Call were expecting a pro forma profit of 9 cents a share on sales of $275 million.

License revenue, a key indicator of new business, was $116.1 million, down 3.4% year over year. Faced with competition from






and smaller open-source software vendors, BEA has been struggling to redefine itself. Analysts believe that its inability to grow license revenue has been a significant problem. It could have been worse, though. Wall Street had expected license revenue to be even lower than it was. The informal consensus was about $112 million.

More significantly, there are signs that BEA is moving to fix the problem. The company added 20 sales representatives in the three-month period, and BEA's guidance for the next quarter implies that license revenue will be flat year over year, or even up a few points, analysts said.

It's worth noting however, that license revenue comparisons will be easier for the rest of fiscal 2006, since last year was weak, said Thill.

Service revenue in the July quarter was up 16% to $165.7 million, driven largely by continuing dollars generated by customer support.

Fluctuations in the value of the dollar have helped many software companies in the last year, but BEA did not get that break. The net effect of currency changes was a loss of about 0.5%, which means the company's results were actually a bit stronger than they appeared, said Richard Williams of Garban Institutional Equities.

CEO Alfred Chuang said the company expects total revenue in the July quarter to range from $281 million to $291 million, while analysts were forecasting $282.2 million. BEA generally does not give earnings guidance.