October 21, 2002 4:36 PM PDT

Veritas beats expectations, screens execs

Storage software maker Veritas edged ahead of analyst expectations for its most recent quarter and moved closer to closing a review to ensure there would be no repeat incidents of top executives lying about their backgrounds.

The Mountain View, Calif.-based company reported net income of $36 million, or 9 cents per share, on revenue of $366 million for its fiscal third quarter, which ended Sept. 30. That compared with a loss of $162 million for the year-ago quarter, but a direct comparison between the two quarters is complicated by a reduction of $204 million this year in noncash charges related to goodwill accounting.

Excluding nonrecurring charges and tax adjustments, the company reported earnings of 14 cents per share, a penny ahead of the 13 cents expected by analysts surveyed by First Call.

The $365 million in revenue was a 7 percent increase from $340 million for the year-ago quarter. First Call analysts had predicted revenue of $359 million for the most recent quarter.

Veritas still is trying to regain its balance after the resignation of Chief Financial Officer Kenneth E. Lonchar earlier this month after the discovery that he had lied about receiving a business degree from Stanford University. The company has found no problems with Lonchar's financial responsibilities, Chief Executive Gary Bloom said during a conference call Monday, but the event spurred Veritas to check its other executives.

"We are in the process with our key executives of certifying and checking their backgrounds. That's almost completed. We don't expect any additional issues there," Bloom said. "We want to make sure we don't get caught twice."

Lonchar's resignation has cast a pall over the company. "We believe the resignation has and will continue to generate an additional level of uncertainty that will be a cloud over the stock for the next couple of quarters," Soundview Technology Group analysts James Mendelson and Kristen Campbell wrote in a report Monday. And Salomon Smith Barney's Clint Vaughn wrote that the resignation could make it harder for the company to execute its plans.

Veritas plans to hire a new CFO by the end of the year, Bloom said.

Veritas sells software for backing up data, storing files on computers, and joining several computers together in a "cluster" in which one computer can take over if a comrade crashes. The company has long had a strong partnership with Sun Microsystems, which makes servers that commonly run Veritas' software, but it's been expanding to include IBM's Unix servers and Linux servers.

Veritas' diversification is in part an attempt to shield itself from declines at Sun Microsystems, which announced its second major layoff last week and whose quarterly revenue has declined from a dot-com-era peak of $5 billion to its most recent $2.7 billion.

"Sun's been kind of a declining story for a bit of time here," Bloom said Monday. Sun also is starting to sell its own file system software that competes with Veritas products, but Veritas "is dealing very effectively with that," he added.

"The relationship with Sun that continues today is predominantly cooperative," Bloom said in an interview. Some Sun sales people push Sun's competing software, but it's not common, and Veritas' more mature products usually win out, Bloom said.

Veritas expects to take a charge of $90 million to $100 million in the current quarter to consolidate its real estate holdings. The move will result in a savings of about $13 million to $15 million annually beginning in the third quarter of 2003, a representative said.

Sales are doing well for Veritas "disaster recovery" software that replicates the contents of one storage system on a separate system far away, Bloom said. In discussions with financial institutions, "a lot are talking about replication 1,000 or 2,000 miles away, out of the same weather zone," so such regional problems won't cripple a company. "They're going to much higher levels of resiliency."

The company had about 5,620 employees at the end of the third quarter, down about 50 from the end of the second quarter, Bloom said. "In the second half of 2003, we'll start seeing some head-count growth, probably," he said.

 

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