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AUTONOMY CORPORATION PLC ANNOUNCES RESULTS FOR THE YEAR ENDED DECEMBER 31, 2010
Record Full Year results in line with consensus with full year revenues up 18%; Full Year Diluted EPS (adj. IFRS) up 24%; Highest revenues and profits in Autonomy's history
Cambridge, England – February 1, 2011 – Autonomy Corporation plc (LSE: AU. or AU.L) today reported financial results for the twelve months and fourth quarter ended December 31, 2010. Continuing adoption of Autonomy's industry-leading Meaning Based Computing technology by blue-chip companies is delivering strong revenues, profits and cash flow.
* on the basis that if the share price were to be above £20.63 in February 2015 the convert would generate extra shares giving diluted EPS (adj.) at $1.11. See note 6.
Adjusted income statements are included on page 8, which reconcile IFRS to the adjusted measures above.
Chief Executive's Review
Commenting on the results, Dr Mike Lynch, Group CEO of Autonomy, provided the following overview of the year:
"2010 was a year of transition for us. During the year Autonomy's technology and its ability to extract meaning from human friendly information has spearheaded the Meaning Based Computing movement forward with new applications of the technology and mission critical usages by our customers. Human friendly information and the need to process it has continued to grow rapidly with applications in customer interaction, legal, regulatory and, as a result of new smart phone technology, mobile leading the way.
This year we have seen Autonomy become one of the leading players in cloud computing as our customers, who can choose to take up our core functionality by traditional licence, IDOL OEM or IDOL Cloud offering, have transitioned to the private cloud model faster than expected. This trend can be seen in the unexpected rise in our 'commit' metric (contracts entered into by the customer with an expected minimum spend). The IDOL OEM and IDOL Cloud routes are highly attractive to us as they turn one-off sales into multi-year committed annuity streams, and these new fast growing routes have become the dominant usage models for our technology. However there is a short-term effect of depressing growth rates as those one-off sales which were recognised immediately are replaced by longer-term but more valuable annuity streams.
Autonomy continues to be chosen to handle the world's most complex legal cases and regulatory issues, for both corporates and regulators, including the largest lawsuits in the world such as BP and as reported by industry analysts has continued to gain market share in areas such as legal and archiving. We are particularly pleased to see the very high growth rates in IDOL OEM, which is now seeing IDOL used by most major software companies across almost all sectors of the software industry.
The year saw strong investment in the future of the business with the opening of new offices in Latin America, increased R&D spend and investment in the infrastructure for this cloud capability with Autonomy now handling over 17 petabytes of critical customer information in the cloud. Whilst we continue to provide our core IDOL technology in whichever model the customer chooses, we are delighted with the transition to the cloud, and expect to reap the benefits of the now cumulative subscription revenues in years to come.
Unlike others in the sector, Autonomy's business thrived during the downturn resulting in Autonomy reporting growth on growth unlike others who are now seeing growth as a return to normal levels. In light of these tougher comparative periods due to our strong growth in 2009, and the transition to longer-term value revenue models, Autonomy continues to perform well.
In 2010 we saw transitions in the business and significant investments for which we expect to reap the rewards in coming years. We also saw in Q3 2010 volatility in customer assessment of the macro environment, which now seems to have reduced.
During the course of 2010 we saw the balance of our business shift towards IDOL Cloud and IDOL OEM being the key drivers of our business. We believe the growth rates seen across our business lines in Q4 2010 projected forward provide a solid baseline on top of which our current record pipeline and 'commit' imply that current market expectations are conservative."
Progress Towards Strategic Goals. During 2010 we made significant progress on our strategic goals, including in the following areas:
Sales and Customers. As expected, the adoption of our technology for "Protect" usages continued strongly throughout the year driven by a whole series of new regulations coming into effect which is driving our business. We are still seeing very large deals in this area and expect this to continue for the foreseeable future across most industry sectors. We have also seen strong take-up of our technology for "Promote" usages, with customers such as Allstate, AT&T, Belgacom, Blackrock, BNP Paribas, Canadian Broadcasting Corporation, Euronews, Health Care Services Corporation, Safeway and Verizon during the year. Our multi-channel offerings including optimisation and real-time analytics have proven extremely attractive, leading to the company's largest ever deal in this area. At the close of the year, Autonomy was pleased to count virtually the entire Fortune 1000 group of companies as customers.
R&D. We continued to invest heavily in R&D during the year resulting in the launch of a major new initiative targeted at Healthcare during 2010 and another major launch imminent. The net impact of R&D capitalisation on the operating margin was in the order of 2%, the same as in 2009.
Market Position and Penetration. Autonomy's market leadership position strengthened during 2010. We saw a continuation of the "chaining" effect as customers deploy IDOL across functional areas that have traditionally been isolated and served by different software vendors. Ultimately this leads to a growing number of enterprise-wide standardisation customers. Competition during the year also became slightly more benign with major players pulling out of our market.
Amongst industry analysts we elevated our positions, being rated number one across multiple industry analyst reports and segments, including IDC's Worldwide Search and Discovery Software 2010-2014 forecast, and the Forrester Wave 2010 for Online Testing. Other accolades included:
Operations. During the year we increased management breadth with the appointment and promotion of senior management across all areas of the business, including a new head of Latin American sales. We also massively expanded our data centre capacity and opened new offices in emerging markets such as Brazil.
During 2010 we welcomed two new highly-skilled individuals to the Board as Non-Executive Directors. Jonathan Bloomer, our new permanent chair of the Audit Committee, brings extensive financial and management expertise. Professor Frank Kelly brings an academic background to contribute to the extension of Autonomy's world-leading technology.
In 2010 Autonomy commenced providing supplemental metrics as part of its financial results to assist in the understanding and analysis of Autonomy's business.
2010 can be characterised as another year of significant progress for Autonomy. Revenues for 2010 totalled $870 million, up 18% from $740 million for 2009, as enterprises deployed Autonomy's technology to extract maximum value from rapidly expanding quantities of unstructured information. This result was achieved due to a strong performance in all of our markets.
During 2010 Autonomy completed 94 deals over $1.0 million (2009: 66). In 2010 Americas revenues of $592 million represented 68% of total revenues, and Rest of World revenues of $278 million represented 32% of total revenues.
Autonomy's strategy to deepen the penetration of IDOL across all areas of the enterprise is proving successful, as the high level of repeat business demonstrates, with 57% of 2010 revenues from existing customers (2009: 48%). As customers return for additional technology, the scale of projects increases, with greater levels of functionality and connectivity.
Delivery of Autonomy's core technology is via a number of methods, depending on the demands of the customers. Comparative data for prior years is not available for the analysis of each line item as the information required to present the information in this manner was only captured with effect from January 1, 2010. The analysis below includes all available information.
Sales during 2010 and Q4 2010 were as follows, with the trends as discussed above:
IDOL Product. IDOL Product is normally delivered as licensed software paid for up-front with an ongoing support and maintenance stream. This model is becoming less significant with the rise of cloud computing. In 2010, IDOL Product revenue totalled $251 million. In Q4 2010 IDOL Product revenue totalled $84 million, representing 34% of revenues.
IDOL Cloud. IDOL Cloud delivers Autonomy's IDOL on a Software-as-a-Service (SaaS) model, which is generally invoiced monthly in arrears and does not generate deferred revenue. There are two key drivers of cloud revenues for Autonomy: the first and most significant relates to complex processing of information delivered as a service, the second relates to the quantity of data under management. In 2010 IDOL Cloud revenue totalled $190 million and the "commit" number rose to approximately $370 million, up from $347 million in Q3 2010. In Q4 2010 IDOL Cloud revenue totalled $51 million, representing 21% of revenues.
IDOL OEM. IDOL OEM is where Autonomy's IDOL is embedded inside other software companies' products. IDOL is now embedded in most major software companies' products addressing most software vertical markets. This is a particularly important revenue stream as it generates ongoing business across the broadest product set possible, in addition to up-front development licences. In 2010 IDOL OEM revenue totalled $132 million, up 32% from 2009. In Q4 2010 IDOL OEM revenue totalled $34 million (Q4 2009: $27 million) representing 14% of revenues. 42 new agreements were signed during 2010 with 10 new agreements signed during Q4 2010, including deals with Nuance, HP and Vericept.
Deferred Revenue Release. Deferred revenue release stems principally from support and maintenance contracts recognized in arrears. In 2010 deferred revenue release totalled $255 million (2009: $212 million), up 20%. In Q4 2010 deferred revenue release totalled $66 million (Q4 2009: $61 million), up 8%. As discussed during the company's Q3 2010 results conference call, Q4 2010 saw the expected positive seasonal effect as the calendarisation of Interwoven support and maintenance contracts unwound.
Services. Services revenues relate to third party and internal implementation consultants and training. Services revenues remained flat in 2010 at approximately 5% of revenues (or $10 million to $11 million per quarter) (2009: $9 million to $11 million per quarter). Autonomy operates a rare "pure software" model under which our goal is that most implementation work is carried out by approved partners. This optimises Autonomy's ability to address its horizontal technology to multiple vertical markets and regions in the most efficient way.
During Q4 we saw deals with new and existing customers including: Ahold, Allstate, Amazon, Amgen, AT&T, Bank of America, Belgacom, Blackrock, BNP Paribas, CIGNA, Dexia, Euronews, Goodyear, Health Care Services Corporation, Qualcomm, Repsol, Safeway, Sunlife Insurance and Verizon. As expected we saw no change to the demand backdrop among our key government clients, resulting in new and extended agreements in Australia, Canada, Italy, Kuwait, Singapore, Slovakia, the U.K. and the U.S.A.
In analysing organic growth Autonomy considers organic IDOL growth to be the most meaningful performance metric for understanding the momentum within the business. This excludes the contribution from acquisitions, foreign exchange impact, services revenue (not a goal of the business) and deferred revenue release (primarily maintenance income).
|Table 1: Core Business Organic Revenue Growth Calculation1|
|Revenue ($ millions)||2010||2009||Q4'10||Q4'09|
|Core IDOL reported revenues2||574||491||169||153|
|IWOV stub revenues3||—||4||—||—|
|Microlink/CA non-service revenue4||—||—||—||—|
1 Autonomy's Core Business above excludes services and deferred revenue.
2 Core IDOL is made up of IDOL Product, IDOL Cloud and IDOL OEM categories, discussed above.
3 Interwoven stub revenues are for licence for the period January 1, 2009 through to March 16, 2009.
4 Microlink did not have its own product lines but only services. CA unit original product not sold by Autonomy.
Gross Profits and Gross Margins
Gross profits (adj.) for 2010 were $759 million, up 16% from $652 million for 2009. Gross margins (adj.) for 2010 were 87%, compared to 88% for 2009, with the effects in 2010 of the slightly lower margin IDOL Cloud business being balanced by the higher margin IDOL OEM royalties. Gross profits (IFRS) for 2010 were $702 million, up 16% from $602 million for 2009. Gross margins (IFRS) for 2010 were 81%, compared to 81% for 2009. During the year Autonomy has seen success in addressing the urgent needs of a small number of customers with package solutions, constructed of services, hardware and software, such as Arcpliance. The gross margin in these cases is lower than the normal business.
Gross profits (adj.) for Q4 2010 were $211 million, up 6% from $199 million for Q4 2009. Gross margins (adj.) for Q4 2010 were 86%, compared to 89% for Q4 2009. Gross profits (IFRS) for Q4 2010 were $197 million, up 7% from $185 million for Q4 2009. Gross margins (IFRS) for Q4 2010 were 81%, compared to 83% for Q4 2009.
Management took the opportunity during this year of transition to invest in personnel, the indirect channel, discretionary marketing activities, new product launches and new offices such as Brazil to ensure the company is in an ideal position to benefit from any upturn in the global macro-economic environment.
Total operating costs in 2010 rose 17% year-on-year to $385 million (2009: $330 million). Adjusting in 2010 for acquisition restructuring costs of $3.5 million, and the effects of foreign exchange, underlying operating costs increased by 18% in 2010. This is primarily because of new marketing campaigns undertaken by Autonomy during the year, the acquisitions of Microlink and CA's Information Governance assets, as well as the additional commission expense associated with a higher level of sales.
Profit from Operations and Operating Margins
Profit from operations (adj.) for 2010 was $377 million, up 14% from $329 million for 2009. Operating margins (adj.) were 43% in 2010, down from 44% in 2009, and returned to the company's target range during Q4. Profit from operations (IFRS) for 2010 was $316 million, up 16% from $272 million for 2009. Operating margins (IFRS) were 36% in 2010 down from 37% in 2009.
During the year we did significant work on one specific acquisition target and during the fourth quarter we expensed the costs relating to this work. The transaction was delayed due to changes in the targeted asset; this asset has not transacted with any other party.
Profit from operations (adj.) for Q4 2010 was $109 million, down 3% from $113 million for Q4 2009. Operating margins (adj.) were 45% in Q4 2010, down from 50% in Q4 2009, affected by discretionary spend discussed above but within the company's target range. Profit from operations (IFRS) for Q4 2010 was $99 million, up 2% from $97 million for Q4 2009. Operating margins (IFRS) were 40% in Q4 2010 compared to 43% in Q4 2009.
Interest payable for 2010 totalled $41.3 million, up 486% from $7.0 million in 2009. The increase is a result of a charge of $35.2 million in relation to the convertible loan notes issued in March 2010. The convertible loan notes pay a cash coupon of 3.25%. The income statement charge is notional and is based on a market rate of interest for corporate loan notes of similar term without a convertible element in accordance with IFRS. The remainder of the interest payable relates to the company's bank loan incurred in connection with the Interwoven acquisition in 2009, which have decreased during the year due to scheduled repayments.
The effective tax rate for 2010 was as forecast at 23%, down from 28% for 2009. The decrease from 2009 is the result of changes in the profit mix between the UK and overseas, as well as the completion of tax studies resulting in the recognition of additional tax losses. The effective tax rate for 2011 will likely be in the range of 27-29% as the one-off benefit in 2010 in relation to the utilisation of tax losses will not be repeated.
Foreign Exchange Impact on Revenues
The effect on revenue of movements in foreign exchange rates in 2010 was a decrease of $4 million compared to 2009 (i.e. if revenues were reported for each quarter using the same exchange rates as those prevailing in the previous year, revenues in 2010 would have been $4 million higher, or $874 million). In 2010 the U.S. Dollar strengthened slightly versus Sterling to an average of $1.55 versus $1.57 in 2009.
The effect on revenue in Q4 2010 of movements in foreign exchange rates was a decrease of $3 million compared to Q4 2009. In Q4 2010 the U.S. Dollar strengthened slightly versus Sterling to an average of $1.58 versus $1.63 in Q4 2009.
Net profit (adj.) in 2010 was $292 million compared to net profit (adj.) of $233 million for 2009. Net profit (adj.) in Q4 2010 was $88 million compared to net profit (adj.) of $80 million for Q4 2009.
Net profit (IFRS) in 2010 was $217 million compared to net profit (IFRS) of $192 million for 2009. Net profit (IFRS) in Q4 2010 was $70 million compared to net profit (IFRS) of $69 million for Q4 2009.
IAS 38 Charges and Capitalization
In 2010, Autonomy expensed $115 million (2009: $99 million) on R&D relating to new products including the development of Meaning Based Healthcare technology, new core IDOL functionality and other ongoing development projects. Under IAS 38 the company is required to capitalize certain aspects of its research and development activities. R&D capitalization in 2010 was $39 million (2009: $25 million) and in Q4 2010 was $13 million (Q4 2009: $6 million). R&D capitalization for 2010 is offset by amortization charges of $17 million (2009: $9 million) and for Q4 2010 by $5 million (Q4 2009: $3 million) arising from historical R&D capitalization.
The capitalization and offsetting charges resulted in a net credit (before tax) in the year of $21 million (2009: $16 million), and a net margin impact of 2% (2009: 2%).
EPS (adj.) for 2010 was $1.20 (2009: $0.97), which represents 24% growth over the year, and in Q4 2010 was $0.36 (Q4 2009: $0.33). If one was to assume that the convertible loan notes had already converted then EPS (adj.) for 2010 would have been $1.11 (2009: $0.97), and in Q4 2010 was $0.33 (Q4 2009: $0.33). EPS (IFRS) for 2010 was $0.89 (2009: $0.80), which represents 12% growth over the year, and in Q4 2010 was $0.29 (Q4 2009: $0.29).
This result was achieved against the unusually strong performance a year ago, and after the substantial discretionary investment in sales and marketing, research and development and new product launches.
Balance Sheet and Cash Flows
Cash Balance. Autonomy closed 2010 with a gross cash balance of $1.1 billion, bank debt of $145 million (2009: $198 million), the convertible loan note of $682 million and no net debt.
Movements. Movements of note in cash flow during 2010 included:
Cash Conversion. On a twelve month basis, which accounts for the seasonality of the business, cash conversion improved to 87% (2009: 80%). Given the growth profile of the Company 87% approximates to the theoretical maximum that should be achievable. Cash conversion was 84% in Q4 (Q4 2009: 58%), and within the company's target range.
Receivables. In Q4 2010 DSOs were 94 days (Q4 2009: 88 days), just above the top end of the company's target 80-90 day range but in line with normal historic fluctuations The bad debt write off was below 1% of sales and accrued income remained below 5% of revenue.
Deferred Revenue. Deferred revenue increased to $178 million at the end of Q4 2010 (Q4 2009: $174 million). This increase has been achieved despite the trend towards pay-as-you-go cloud models. It is worth noting that our IDOL Cloud and IDOL OEM revenue streams do not generate deferred revenue in the same way as the traditional models.
Five Year Financial Summary
|Table 2: Five Year Financial Summary|
|Profit before tax (adj.)*||379||323||209||113||69|
|Net cash generation||363||287||179||83||47|
|Operating margin (adj.)*||43%||44%||41%||32%||27%|
|Diluted EPS (adj. IFRS)**||$1.20||$0.97||$0.68||$0.38||$0.26|
* See adjusted measures as calculated on page 8
** Diluted EPS (adj.) at $1.11, see note 6
Scheduling of Conference Call and Further Information
Autonomy's results conference call will be available live at www.autonomy.com on February 1, 2011, at 9:00 a.m. GMT/4:00 a.m. EST/1:00 a.m. PST.
From time to time the Company answers investors' questions on its website which may include information supplemental to that set forth above. Questions and answers can be found at: www.autonomy.com/investors/questions.
The company publishes on its website the expected calendar for full and half year results, and interim trading updates, and associated conference calls. Please visit www.autonomy.com/content/Investors/calendar/index.en.html for the current expected calendar.
About Autonomy Corporation plc
Autonomy Corporation plc (LSE: AU. or AU.L), a global leader in infrastructure software for the enterprise, spearheads the Meaning Based Computing movement. IDC recently recognized Autonomy as having the largest market share and fastest growth in the worldwide search and discovery market. Autonomy's technology allows computers to harness the full richness of human information, forming a conceptual and contextual understanding of any piece of electronic data, including unstructured information, such as text, email, web pages, voice, or video. Autonomy's software powers the full spectrum of mission-critical enterprise applications including pan-enterprise search, customer interaction solutions, information governance, end-to-end eDiscovery, records management, archiving, business process management, web content management, web optimization, rich media management and video and audio analysis.
Autonomy's customer base is comprised of more than 20,000 global companies, law firms and federal agencies including: AOL, BAE Systems, BBC, Bloomberg, Boeing, Citigroup, Coca Cola, Daimler AG, Deutsche Bank, DLA Piper, Ericsson, FedEx, Ford, GlaxoSmithKline, Lloyds Banking Group, NASA, Nestlé, the New York Stock Exchange, Reuters, Shell, Tesco, T-Mobile, the U.S. Department of Energy, the U.S. Department of Homeland Security and the U.S. Securities and Exchange Commission. More than 400 companies IDOL OEM Autonomy technology, including Symantec, Citrix, HP, Novell, Oracle, Sybase and TIBCO. The Company has offices worldwide. Please visit www.autonomy.com to find out more.
Autonomy and the Autonomy logo are registered trademarks or trademarks of Autonomy Corporation plc. All other trademarks are the property of their respective owners.
|Financial Media Contacts:||Analyst and Investor Contacts:|
Edward Bridges / Haya Herbert-Burns
+44 (0)20 7831 3113
Derek Brown, Head of Investor Relations
Autonomy Corporation plc
+44 (0)20 7104 5700
Download the full PDF version of the Q4 2010 Report (PDF)