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Marketplace software maker bullish on outlook

Shareholders of WebMethods could well be asking, "What economic slowdown?" as the company raises expectations for the fourth quarter and fiscal year.

    Shareholders of WebMethods could well be asking: What economic slowdown?

    "The general market environment seems solid," CEO Phillip Merrick said Wednesday night. "And we've not seen anything in our business that suggests we're going to be impacted."

    Merrick was speaking to analysts during a conference call after the release of third-quarter results for the Fairfax, Va.-based company. The vendor of software for connecting business applications and building online exchanges raised expectations for the fourth quarter and fiscal year.

    After the conference call, shares of WebMethods traded at $90 in after-hours activity on the Island ECN. The stock had fallen $5.50 to $85.88 in Wednesday's regular trading ahead of the report.

    WebMethods now sees fiscal 2001 revenue of $205 million, which would require fourth-quarter sales of $65.8 million, 16 percent more than the $56.9 million predicted by First Call's analyst survey. The company expects to earn up to 6 cents per share in the fourth quarter, CFO Mary Drudi told analysts.

    First Call consensus predicted a fourth-quarter profit of a penny per share.

    Revenue in fiscal 2002 should be in the range of $320 million to $330 million, Drudi said. First Call called for 2002 revenue of $306.05 million.

    "The fact that guidance went up as much as it did in this challenging environment is good," said Robert Fontana, an analyst with Wachovia Securities. "It's kind of a pleasure to not have to go through and figure out where the problems are. WebMethods seems to be hitting on all cylinders."

    WebMethods easily topped analyst estimates in the third quarter. The company reported fiscal third-quarter net income of $2.7 million, or 5 cents per share, excluding special charges. First Call was predicting a third-quarter profit of a penny per share.

    Third-quarter revenue increased 237 percent year over year to $59.4 million, surpassing First Call's consensus expectation of $51.29 million. License revenue rose 220 percent to $43.4 million.

    "Our financial strength is becoming increasingly important as customers become more selective," Merrick said.

    The company added 85 customers during the quarter, to finish December with a total of 550 clients.

    WebMethods looks especially good compared with other companies that specialize in tying together different applications for large corporations, Fontana said.

    "There were four to six companies in this space who preannounced negative results in the fourth quarter," he said. "WebMethods continues to distinguish itself with its results."