PeopleSoft tops revenue expectations

Fueled by its acquisition of J.D. Edwards, PeopleSoft on Thursday reported fourth-quarter revenue of $685 million, a 34 percent increase over the same quarter a year prior. The Pleasanton, Calif.-based company surpassed analysts' expectations, compiled by Thompson First Call, for $654 million in revenue for the quarter, which ended Dec. 31.

Fourth-quarter earnings per share were 20 cents on a pro forma basis, which was in line with First Call's estimate, and license revenue was $185 million, hitting the company's own previous targets. Under generally accepted accounting principles, earnings per share were 5 cents. Executives noted it was the first quarter in which PeopleSoft reported its earnings in full combination with J.D. Edwards, a rival the company acquired last fall.

PeopleSoft Chief Executive Craig Conway called the financial results "very strong" and said the company enters a new year on solid footing. "I feel very optimistic as I look out over all of 2004," Conway said.

He also said that rival Oracle was losing ground in the business applications market. "I think the win rate for Oracle has eroded for the past three years now," Conway said. "They've gotten weaker and weaker."

In the software industry, win rates refer to the number of deals a company signs in relation to the number for which they compete.

Oracle, on the other hand, claims PeopleSoft is losing market share. "PeopleSoft's business continues to shrink; Oracle's continues to grow," Oracle spokeswoman Jennifer Glass said in response to Conway's comments.

The sniping goes both ways. Conway said PeopleSoft would have had a better year had it not been for the distractions and market uncertainty created by the Oracle bid. The company's public sector sales have been cut in half, he said, citing a $60 million deal with the city of Los Angeles that was put on hold after Oracle launched its buyout offer.

"That's a very painful consequence of the Oracle situation," Conway said.

In a teleconference, PeopleSoft Chief Financial Officer Kevin Parker railed against Oracle's "hostile takeover attempt" as an effort to buy PeopleSoft "on the cheap." He said PeopleSoft has fully cooperated with antitrust authorities reviewing the Oracle bid and lambasted Oracle's choice of replacement directors for its board.

PeopleSoft has pulled some deft maneuvers in its efforts to block Oracle. One of them is a money-back guarantee program for PeopleSoft customers that would make Oracle--or anyone else that might acquire PeopleSoft--liable for refund payments. Parker said that the liability had grown to $1.55 billion in the fourth quarter, up $740 million since the end of the third quarter.

Looking ahead
Parker said that while the company was already realizing financial benefits from merging with J.D. Edwards, many of the cost-saving "synergies" are yet to come. That and a number of other factors, including improving economic conditions, led the company to raise its projections for this year's earnings per share on a pro forma basis. PeopleSoft expects to post full-year earnings per share of 92 cents to 95 cents on revenue of $2.8 billion to $2.9 billion. First Call estimates called for 89 cents per share on $2.8 billion in revenue.

Yet PeopleSoft expects a 25 percent to 30 percent decline in revenue for the current quarter, which ends March 31, due to seasonal shifts in business spending, Parker said. The company expects to earn 17 cents to 18 cents per share on a pro forma basis on $625 million to $635 million in revenue, with license revenue of $130 million to $140 million. The company also expects to spend $12 million to $15 million in its fight against Oracle, Parker said.

The company is nearing the end of staff cuts planned as a result of the merger, Parker said. PeopleSoft cut in the range of 750 and 1,000 jobs as projected, eliminating 575 positions in the fourth-quarter, he said. "We're almost complete with that process and anticipate no further reductions."

Conway and Parker said they were encouraged by several trends in their business over the quarter. One was a rise in sales of customer relationship management (CRM) and supply chain management software. The company, whose mainstay has been its expertise in human resources systems, has sought to expand its market share in those other niches against rivals SAP, Oracle and Siebel Systems.

Of its five largest deals during the quarter--each more than $1 million--none involved the sale of human resources software, Conway said. PeopleSoft's largest CRM software deal during the quarter was to IBM, which is also one of Siebel's biggest accounts, Conway said.