Autonomy H1 results beat expectations

Second Quarter 2008 Highlights

• Record quarterly revenue, up 72% from Q2 2007 driven by strong organic growth and contribution from acquisitions
• Strong organic IDOL growth of 28%
• Licence revenue up 40% from organic growth
• Operational gearing sees operating margins (adj.) at record 40%, up from 35% in Q2 2007
• Record profit before tax (IFRS), up 81% from Q2 2007
• 21st consecutive quarter of year-on-year growth
• Gross margins (adjusted) at 91%
• Average selling price for meaning-based technologies at $397,000 (Q2 2007: $385,000)
• Blue chip second quarter wins include KPMG, Societe Generale, Shanghai Patent Office, Huron, St Jude, Nationwide Insurance, eBay, Fox Media Group, Ernst & Young, McKinsey, Qualcomm, Ford, Toyota, GE Healthcare, Wells Fargo, the British Museum and TNT, as well as significant deals with multiple government, defence and intelligence agencies around the globe including in the U.S., U.K., Greece, the Netherlands, Singapore, Australia, NATO and Brazil
• Eleven OEM deals signed including new deals and extensions with Nortel, Talisma, Verdasys and Yahoo!
• Positive cash flow generated from operations of $36.1 million (2007: $19.0 million)
• 34th consecutive quarter of profitability

Six Month 2008 Highlights

• Record six months revenues, up 66% from 2007 driven by strong organic growth and contribution from acquisitions
• Largest deals in company's history
• Record profit from operations (adjusted) up 85% from 2007
• Record profit before tax (IFRS), up 67% from 2007
• Gross margins (adjusted) at 90%
• Positive cash flow generated from operations of $61.2 million (2007: $39.0 million), up 57%

Commenting on the results, Dr. Mike Lynch, Group CEO of Autonomy said today: 'We are pleased to announce our record breaking second quarter and six month 2008 results which are, as previously stated, significantly ahead of consensus estimates. Our performance during this period has been driven by strong organic growth across all areas of our business, and have been achieved without recognizing significant revenues from our recently announced large banking deals. Once again we have shown the operational gearing in our business model with operating margins hitting a new record of 40%.'

Dr. Lynch concluded: 'Despite our conservative approach due to the current macro uncertainty, the fact that our fundamental market dynamics and our pipeline going into the second half remain strong leads us to be comfortable with a positive upgrade with respect to the outlook for the second half of the year. We will review the situation again at the end of Q3.'

Second Quarter and Six Month Financial Highlights

Revenues for the second quarter of 2008 totalled $125.6 million, up 72% from $73.3 million for the second quarter of 2007 due to strong organic growth and the contribution from acquisitions. In the second quarter of 2008, Americas revenues of $81.5 million represented 65% of total revenues, and Rest of World revenues of $44.1 million represented 35% of total revenues. Revenues for the six months ended June 30, 2008, totalled $230.7 million, up 66% from $138.7 million for the six months ended June 30, 2007.

Gross profits (adjusted) for the second quarter of 2008 were $114.3 million, up 71% from $67.0 million in the second quarter of 2007. Gross margins (adjusted) were 91% in the second quarter of 2008, versus 91% in the second quarter of 2007. Gross profits (IFRS) for the second quarter of 2008 were $109.2 million, up 67% from $65.2 million in the second quarter of 2007. Gross margins (IFRS) for the second quarter of 2008 were 87%, compared to 89% in the second quarter of 2007. Gross profits (adjusted) for the six months ended June 30, 2008 were $207.8 million, up 64% from $127.0 million for the six months ended June 30, 2007. Gross margins (adjusted) were 90% in the six months ended June 30, 2008, versus 92% for the six months ended June 30, 2007. Gross profits (IFRS) for the six months ended June 30, 2008 were $197.4 million, up 60% from $123.3 million for the six months ended June 30, 2007. Gross margins (IFRS) for the six months ended June 30, 2008 were 86%, compared to 89% for the six months ended June 30, 2007.

Net profit (adjusted) for the second quarter of 2008 was $35.4 million, or $0.16 per diluted share, compared to net profit (adjusted) of $18.8 million, or $0.10 per diluted share, for the second quarter of 2007. Net profit (IFRS) for the second quarter of 2008 was $30.5 million, or $0.14 per diluted share, compared to net profit (IFRS) of $16.5 million, or $0.08 per diluted share, for the second quarter of 2007.

Net profit (adjusted) for the six months ended June 30, 2008 was $57.1 million, or $0.26 per diluted share, compared to net profit (adjusted) of $32.1 million, or $0.17 per diluted share, for the six months ended June 30, 2007. Net profit (IFRS) for the six months ended June 30, 2008 was $46.9 million, or $0.22 per diluted share, compared to net profit (IFRS) of $27.5 million, or $0.14 per diluted share, for the six months ended June 30, 2007.

Cash balances were $121.4 million at June 30, 2008, an increase of $28.8 million from $92.6 million at December 31, 2007. Movements in cash flow during the half year reflect a combination of good cash generation from operating activities and exercise of share options, offset by the quarterly repayments of Autonomy's bank loan, capital expenditure and instalment tax payments. Autonomy has no net debt.

Receivables for the second quarter of 2008 were $126.6 million, compared to $110.5 million at December 31, 2007. Accounts receivable days sales outstanding were 86 days for the second quarter of 2008, compared to 83 days at December 31, 2007. Deferred revenues were $104.8 million at June 30, 2008, compared with $97.9 million at December 31, 2007.

Although IFRS disclosure provides investors and management with an overall view of Autonomy's financial performance, Autonomy believes that it is important for investors to also understand the performance of Autonomy's fundamental business without giving effect to certain specific, non-recurring and non-cash charges. Consequently, the non-IFRS (adjusted) results exclude share of loss of associates, post-acquisition restructuring costs and non-cash charges for the amortization of purchased intangibles, share-based compensation, foreign exchange gains and losses and associated tax effects. Management uses the adjusted results to assess the financial performance of Autonomy's operational business activities.

Q2 Product Sales

Autonomy's infrastructure technology has been adopted by enterprises to process information across all internal and external data formats and sources. During the second quarter of 2008, major customer wins included: KPMG, Societe Generale, Shanghai Patent Office, Huron, St Jude, Nationwide Insurance, eBay, Fox Media Group, Ernst & Young, McKinsey, Qualcomm, Ford, Toyota, GE Healthcare, Wells Fargo, the British Museum and TNT. Q2 2008 business also included new and repeat licenses with multiple government, defence and intelligence agencies around the globe including in the U.S., the U.K., the Netherlands, Singapore, Australia, NATO and Brazil. Repeat business from existing customers accounted for approximately 50% of revenue for the quarter.

Strategic Partnerships and OEMs

Autonomy's OEM Program continued to grow during Q2 2008. Agreements were signed with eleven customers during the quarter, including new and extended agreements with Nortel, Talisma, Verdasys and Yahoo!. Autonomy was selected as its preferred global partner for enterprise search and high end information processing by Logica during Q2 2008.

Q2 Corporate Developments

During the second quarter of 2008 Autonomy continued to extend its market leadership with the introduction of key new and upgraded technologies, including:

• The industry's first information governance platform that automates real-time policy management based on forming a conceptual and contextual understanding of all enterprise information;
• The industry's first pan-enterprise search platform for legal eDiscovery and information access, enabling search across all sources of electronically stored information, finding relevant information for litigation with auditable and repeatable results, and applying a litigation hold function to preserve data from normally scheduled or ad hoc deletion.
• Introduction of the industry's most scalable end-to-end hosted eDiscovery solution, with 6,000 servers across five data centers providing hosted eDiscovery solutions for the largest and most complex legal and regulatory matters;
• New and enhanced features for Autonomy Virage's Command and Control, a complete infrastructure platform for security and surveillance operations; and
• Autonomy etalk's Qfiniti interaction recording being certified compliant with key contact center solutions from Avaya.

During the second quarter Autonomy was recognized in multiple ways for its market leadership and unmatched technology, including:

• Being named the leader in the May 2008 Forrester WaveTM: Enterprise Search, Q2 2008 report, receiving the highest score in all three categories, which include current offering, strategy and market presence, as well as the highest scores for its administration and security capabilities, product strategy and financial resources to support strategy;
• Being named the leader in the enterprise information access market by industry analyst Ovum, ranked by its market position and breadth of functional scope and appropriateness for the enterprise;
• Autonomy etalk's Intelligent Contact Center solution was named recipient of the 2008 CRM Excellence Award by Technology Marketing Corporation (TMC)'s Customer Interaction Solutions® magazine;
• Autonomy's Cardiff division was named a 'Cool Vendor' in the recent Gartner report titled 'Cools Vendors in Business Process Management, 2008'; and
• Autonomy's Cardiff division attained Gold Certified Partner status in the Microsoft Partner Program with a competency in Business Process and Integration.

Six Month Important Events

During the first half of 2008 the key events in the company's development have been the implementation of the company's business plan and successful integration of acquisitions completed during 2007. As expected, market drivers of regulatory changes such as the U.S. Federal Rules of Civil Procedure have resulted in a convergence of legal and operational information systems, leading to some of the largest deals in the company's history, and driving growth in the company's OEM business.

Risk Factors

As with all businesses, the Group is affected by certain risks, not wholly within our control, which could have a material impact on the Group's long term performance and could cause actual results to differ materially from forecast and historic results.

The principal risks and uncertainties facing the Group have not changed from those set out in the Annual Report and Accounts 2007. These include: dependence on our core technology; competition; levels of operational spending versus revenues; market conditions; average selling price; economic and market conditions; reliance on value added resellers; continued service of our executive directors; hiring and retention of qualified personnel; product errors or defects; problems encountered in connection with potential acquisitions; and intellectual property claims.

In addition to the foregoing, the primary risk and uncertainty related to the Group's performance for the remainder of the year is the challenging macro economic environment, which could have a material impact on the Group's performance over the remaining six months of the financial year and could cause actual results to differ materially from expected and historical results. This effect has been offset during the first six months of the year to some extent by the legal, regulatory and compliance issues which have arisen for enterprises in connection with the current economic environment.

Read the consolidated income statement here: