Verity tops estimates again, leaves targets intact

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Verity delivered a double dose of good news to its shareholders after the bell Wednesday, topping analysts' estimates by 2 cents a share in its third quarter and leaving its fourth-quarter and fiscal 2001 sales and earnings targets unchanged.

In the quarter, the software developer earned $9.2 million, or 25 cents a share, on sales of $38 million.

First Call consensus pegged Verity for a profit of 23 cents a share.

Ahead of the earnings report, Verity (Nasdaq: VRTY) shares moved up 63 cents to $22.94. They rallied up to $24.50 in after-hours trading.

"I'm pleased with the results," said Chief Executive Officer Gary Sbona. "I didn't get any chuckles or negative comments from the rest of the management team."

Verity makes software capable of accessing information stored in multiple formats and locations.

The company pocketed $7.8 million, or 22 cents a share, on sales of $29.2 million in the year-ago quarter.

Verity executives reiterated their guidance for the fourth quarter, predicting sales growth of between 8 percent and 12 percent from the third quarter to between $41 million and $42.5 million.

Earnings are expected to come in between 24 cents and 27 cents a share, in line or slightly ahead of the current First Call consensus estimate of 25 cents a share on sales of $42 million.

For the fiscal year, Verity now expects to record sales of between $144.8 million and $146.3 million, up more than 50 percent from fiscal 2000, and earnings of between 91 cents and 94 cents a share.

Analysts were forecasting fiscal 2001 sales of $145.7 million and earnings of 92 cents a share.

In fiscal 2000, Verity raked in $19.5 million, or 56 cents a share, on sales of $96.1 million.

While other software companies have issued profit warnings or lowered estimates for the fiscal year, Verity tops analysts' estimates quarter after quarter.

"It's still a relatively small company that has plenty of opportunities out there," said Ian Brown, an analyst at Wit SoundView. "It's not a completely mature market yet so that lets Verity work around any pockets of weakness."

Ahead of the earnings report, Brown pegged the company for a profit of 23 cents a share on sales of $38.5 million.

Customers and cash
Fifty-seven percent of this quarter's sales were to enterprise and portal customers. E-business companies represented 23 percent of sales while original electronic manufacturers accounted for 20 percent.

By region, 53 percent of sales came from North American customers, while Europe and other international customers chipped in 34 percent and 3 percent respectively.

More than half of the quarter's sales came from new customers and the average deal size was $196,000.

Verity exited the quarter with more than $211 million in cash, or more than $6 a share, opening up the possibility for strategic acquisitions down the road.

"We're sitting on an enormous amount of cash," Sbona said during a conference call. "We'll continue to look at the market for opportunities, but we're not going to buy something just because it's cheap and available. We're going to keep rowing our own boat."

With a projected fiscal 2002 earnings of $1.19 a share, Verity is trading at a relatively cheap price-to-earnings ratio of 19.

"It was a good, solid quarter in a tough environment," said Drew Brousseau, an analyst at SG Cowen. "We've got a strong buy on the stock and think it's attractively priced at this level."

Last quarter, Verity easily topped analysts' estimates when it returned a profit of $8.2 million, or 23 cents a share, on sales of $34.5 million.

Verity shares moved up to a 52-week high of $63.75 last March before falling to a low of $13.13 in December.

All five analysts tracking the stock maintain either a "buy" or "strong buy" recommendation.