Autonomy Q1 revenues, profits soar; talk of Google threat to high end search market scotched
Strong organic growth and acquisitions powered unstructured data specialists Autonomy Corporation (AU.L) to triple revenues in the first quarter of 2006 and more than double pre-tax profits, compared with the same period last year.
Revenues jumped 203% to $56.1m, two thirds of which were from America, as anticipated following the acquisition of Verity [for $500m in November] and etalk [for $70m last April], the company said in a statement accompanying the release of its1Q 2006 results.
Net profit reached a record $7.0m, or 4 cents a share, compared to of $3.1m and 3 cents a share for 1Q 2005.
CEO and founder Dr. Mike Lynch (pictured) said "This success was achieved whilst completing the integration of the Verity acquisition, which is consistent with our history of rapid acquisition integration together with sales and operations success without any real internal or market disruptions.
"This integration success is also demonstrated by the 90% gross margin, which reflects the termination of non-going forward and lower margin businesses, as planned."
Autonomy provides infrastructure software that powers applications dependent upon unstructured information including call centre, customer relationship management, knowledge management, enterprise portals, enterprise resource planning, online publishing and security applications. It has more than 16,000 global companies in its customer base.
The share price gained marginally on the news that was in line with expectations before dropping back but it was already trading close to year highs around 470p, up from around 200p a year ago. It is one of the largest quoted companies in the Cambridge high tech Cluster, with a market capitalisation around £840m.
The group had no net debt and $90.9m in the bank at the end of March, an increase of $22.4m from the prior quarter, thanks to record cash generation from operations and proceeds from exercise of share options, offset by the first quarterly repayment of bank loan and payments associated with the Verity acquisition such as advisors’ fees.
Research and development spending increased by 329% to $13m compared to Q1 2005 and from $7.6m in the previous quarter. That R&D is the group's largest department augurs well for future competitiveness.
Cross selling boost
Dr Lynch said the cross selling of Autonomy products to Verity's 16,000 customer base had gone better than expected and he anticipates this continuing for a while, though Verity has been fully integrated and does not operate as a separate entity within the group.
During the first quarter, major new customers won over to its infrastructure technology included: Ticketmaster; KPMG; Dublin Airport; Jane’s; and AMD. Repeat business from existing customers accounted for around 40% of revenue, and included: GE; BBC; Xerox; Caterpillar; Cadence; Peugeot; DirecTV; Linklaters; Metropolitan Police, GSK; Bell South; Sprint and Telus Mobility. Q1 2006 business also included new and repeat licenses with several government, defence and intelligence agencies around the world including in the U.S. and the U.K.
Its OEM Program grew with agreements were signed with 13 customers, compared to the previous average of four a quarter, as cross selling benefits kicked in.
On the group's prospects, Dr. Lynch said: "With record results and strong core business growth, and the completed development of the next generation of Verity’s K2 (IDOL K2 7), Autonomy has laid a strong foundation for our continued growth into 2006.
"We remain confident in our long-term outlook," he said, describing market consensus forecasts of revenue at between $240m and $250m for the year as reasonable.
Low end firm search seen as free
In a conference call with analysts Dr Lynch effectively scotched talk in some parts of the market that Google - who has said it is entering the corporate search market - would emerge as a serious competitor on Autonomy's patch - the high end enterprise search market - though he steered clear of saying so explicitly.
He said that in 80% of sales in Q1 Autonomy faced no competitors, and in the rest there was some competition from key word search providers, but they did not see Google in any deal. They did see IBM once.
He predicted that low end enterprise search, which is by key word only without any of the understanding of meaning or provision for security that characterises the top end, would be provided for free by the end of the year. He did not expect this would have any effect on the top end of the market.
He said Autonomy was leading meaning-based computing.
24th April 2006
