PeopleSoft Enjoys A Record Quarter

PeopleSoft bucked industry trends to post an increase in revenue and profits as well as record license revenues in Q4 of last year. The ERP vendors said it is buying back a controversial subsidiary.

PeopleSoft Inc. continued to buck industry trends and the economic downturn in the fourth quarter of 2001, posting an increase in revenue and profits from the same period a year ago as well as record license revenue.

The Pleasanton, Calif.-based enterprise software company late Thursday also announced that it was reacquiring the research and development company it formed more than three years ago, Momentum Business Associates Inc.

In the quarter ended Dec. 31, 2001, PeopleSoft booked revenues of $528.2 million, up from $497.8 million in the same period a year ago. License revenues climbed to what company officials said was a record $174.1 million, up from $164.5 million last year. Net income was also up, to $57.8 million from $44.2 million.

President and CEO Craig Conway boasted that his company was the only one among its competitors to stick by its forecast laid out at the beginning of the year, rather than lower expectations as the year went on as most software vendors did.

"Theres no question it was a tough year, but it was also a year of great theater," Conway said, taking potshots at executives who bragged about meeting lowered expectations.

PeopleSoft added 147 new customers during the quarter with an average deal size of $700,000, Conway said, in a conference call with press and analysts. He expects 2002 to be even better.

"Well have a full year to sell the products we released in 2001, not just part of the year," Conway said.

Conway said he sees a lot of "hope, anticipation and optimism," among customers that the economy will improve but most will spend cautiously until they see clear signs of a recovery.

Although some PeopleSoft competitors have derided Momentum spin-off as little more than a profit-inflation device, Conway vigorously defended the deal. PeopleSoft started Momentum in November 1998 as a separate R&D company to accelerate development. Conway credited Momentum with developing the technology behind PeopleSofts Web-based applications.

PeopleSoft funded Momentum with $300 million. In the wake of the Enron scandal, the Momentum arrangement has recently come under scrutiny. Tom Siebel, CEO of PeopleSoft competitor Siebel Systems Inc., got into the act during his companys earnings call Wednesday, ridiculing PeopleSoft for creating little more than a shell company to hide R&D expenses and pad its bottom line. Momentum was started under Conways predecessor David Duffield.

"It was created exactly according to the rules of [the Financial Accounting Standards Board] and the [U.S. Securities and Exchange Commission]," Conway said. "We took a $175 million charge, we reported all costs. If I had been here at the time [it was started] we would have done exactly the same thing. It was [a rule] known and available to all companies and hundreds of them took advantage of it."

With the original development funds exhausted, PeopleSoft must either pay royalties to Momentum or exercise an option to acquire the company and PeopleSoft has chosen to do the latter, Conway said. It will pay $90 million to acquire Momentum and amortize the cost of the transaction over the next five years. The deal will close this quarter.

"Well continue to plow as much as we can into R&D," Conway said. "Its been a big part of our success and were going to make that a part of our strategy."