Autonomy positive on Verity integration

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Autonomy confirmed its acquisition of Verity had reaped bigger than expected savings as it reported in-line results for its first full quarter since buying its larger US-based competitor in the business search software market.

In February the company signalled that savings from the acquisition, originally forecast for $20m, could go as high as $30m, a figure which Mike Lynch, chief executive, confirmed on Monday and said “may get better”.

Autonomy, which is based in Cambridge, bought Verity for $500m (£840m) in cash in December and said the integration had been completed during the first quarter to March 31 “without any real market or internal disruptions”.

Mr Lynch said the first quarter had been positive and “that good environment’s continuing at the moment.”

Revenues were $56.1m, compared with $18.6m for Autonomy alone in the first quarter of 2005. The company has not broken out earnings from Autonomy and Verity separately, and analysts said direct year-on-year comparisons were difficult because Autonomy has discontinued Verity’s product and services that were lower-margin or duplicated Autonomy products.

Organic growth for Autonomy’s products was about 15 per cent year-on-year for the quarter, compared to 18 per cent for 2005, but David Toms, an analyst at Numis Securities, said first quarter sales tended to be volatile for software companies.

Mr Lynch said cross-selling of Autonomy’s more expensive and sophisticated products to Verity customers, a key rationale for the acquisition, accounted for the majority of revenue growth in the first quarter.

Pre-tax profits of $7.09m compared to $3.12m for the same period in 2005, underlining the fall in margins which Mr Lynch said was due to Verity’s lower-margin business and would improve during the remainder of the year. Earnings per share were $0.03 compared with $0.02 in 2005.

R&D spending more than tripled to $13.4m as the company develops technology for searching the contents of internet-based television and phone calls.

Merril Lynch in a note to investors said the revenue was “an excellent starting figure for future quarters, as the risk was that Verity revenue would collapse”.

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