Autonomy Corporation plc Announces Quarterly Results for the Third Quarter Ended September 30, 2010

Third Quarter Results In-Line With Company Estimates, EPS (adj.) up 25%; PBT (adj.) up 34%

Oct 19, 2010, 03:41 ET from Autonomy Corporation plc

CAMBRIDGE, England, October 19, 2010 /PRNewswire-FirstCall/ -- Autonomy Corporation plc (LSE: AU. or AU.L), a global leader in infrastructure software, today reported financial results for the third quarter ended September 30, 2010.

    Financial Highlights

    - Third quarter revenues of $211 million up 10% from Q3 2009,
      the highest Q3 revenues in the company's history
    - IDOL business grew organically at 19% during the first nine
      months of 2010
    - IDOL business grew organically at 10% during Q3 2010 against
      an exceptionally strong Q3'09 comparable
    - Increased gross margin (adj.) to 88%, up from 86% in Q3 2009
    - Increased operating margin (adj.) to 40% (Q3 2009: 34%)
    - Increased Q3 profit before tax (adj.) to $86.3 million, up
      34% from Q3 2009
    - Autonomy was recognised as the leader in Gartner's 2010
      Magic Quadrant for Web Content Management, and achieved the highest
      score in the Forrester Wave 2010 for Online Testing; Autonomy also
      gained the top spot in E-mail Archiving in terms of market share and
      growth
    - Increased Q3 fully diluted EPS (adj.) to $0.25, up 25%
      versus Q3 2009 (IFRS: $0.18, up 21%)
    - R&D capitalization down from $11.7 million in Q3 2009 to
      $9.5 million
    - IDOL OEM revenue growth rate of 30% year-on-year

Commenting on the results, Dr Mike Lynch, Group CEO of Autonomy said today: "During the third quarter of 2010 we delivered revenues at the top end of the range discussed at Q2 2010, with profit before tax, gross margin, operating margin, average selling price (ASP) and EPS all showing a material increase over the prior year, despite the traditional seasonal softness. The continued strong growth in our IDOL OEM revenues is both a further endorsement of the unique capabilities of IDOL and reflects a growing network effect as more software companies choose to design their products with Autonomy inside. We saw a continued trend towards bigger deals, with a series of multimillion dollar contracts signed. The gross margin has returned to usual levels from Q2 2010, and increased year on year. We are particularly pleased with our DSO performance, down to 90 days from 97 days in Q3 2009 and underlying cash conversion remains strong at 93% after taking into account the exceptional payment of sponsorship fees amounting to $15.9 million."

Dr Lynch continued: "In addition to the usual third quarter seasonality and the usual issues around the holiday months, as previously disclosed we witnessed unexpected volatility in customers' purchasing behaviour as their views on macroeconomic conditions oscillated with each inconclusive set of economic indicators. Some expected deals did not close on time but these were balanced by some unexpected ones that did. Our full year expectations were adjusted in our Q3 2010 trading statement to reflect this observation. To be clear, we have not seen a softening of demand, which has continued to increase since the quarter end despite the unpredictability, and indeed some of the outstanding deals have now closed. Given this update it may seem very conservative to have previously changed our outlook for Q4 2010, but we felt it was safer to allow leeway should volatility continue. This 'volatility versus demand' point may seem a subtle distinction, but it is important in understanding the macro environment effects."

Dr Lynch concluded: "We have seen no change to the fundamental demand for the business and note that recently published industry analyst reports in our markets are predicting growth of 16% for the coming year as well as lauding Autonomy's leading position and market share gains in these markets. In this tricky environment we have delivered profit growth well ahead of industry peers, set against tough comparisons including markedly higher-than-trend growth in Q3 and Q4 2009 - bearing in mind that, unlike the majority of other software companies, we saw no contraction in our business during the downturn. Given all this data, our new product launches and the ability of our IDOL OEM business to capture any macro improvement, we are confident in maintaining our view of the outlook for demand and expect to continue to deliver good EPS growth in 2011, with upside to current market consensus."

    Third Quarter 2010 Highlights

    - Average selling price for meaning-based technologies at
      $831,000
    - Increased repeat sales to existing customers to 65% of total
      revenues, compared to 45% in Q3 2009
    - Blue chip third quarter wins include Bank of America, Bank
      of Thailand, Barclays Capital, Citadel, Colgate Palmolive, Deloitte,
      Forrester Research, H&R Block, Herbert-Smith, Hilton Hotels, Louis
      Vuitton, Nationwide, Play.com, Powwownow.com, Robert Bosch and Xcel
      Energy, as well as significant deals with multiple government, defence
      and intelligence agencies around the globe including in Canada,
      Singapore, the UK, US and the European Commission.
    - 12 IDOL OEM deals signed including new deals and extensions
      with GE, Iron Mountain and Symantec
    - Q3 DSOs at 90 days down from 97 days in Q3 2009

Scheduling of Conference Call

Autonomy's results conference call will be available live at http://www.autonomy.com on October 19, 2010, at 9:00 a.m. BST/4:00 a.m. EDT/1:00 a.m. PDT.

Revenues

Revenues for the three months ended September 30, 2010 totalled $210.6 million, up 10% from $191.6 million for the third quarter of 2009 due to strong organic IDOL growth. During the third quarter of 2010 there were 20 deals over $1.0 million. Several large deals which failed to close immediately prior to quarter end have now been concluded with extended scope.

Deferred Revenue Balance

As flagged in Q2 2010, deferred revenue balance decreased to $167.7 million (Q2 2010: $175.5 million) principally due to the delivery of outstanding inventory of cost approximately $6 million and its associated revenue. Adjusting for this one-off effect, deferred revenues were up, which is better than the expected seasonality that arises as a function of renewals for Interwoven support and maintenance contracts, which are largely calendarised.

Gross Profits and Gross Margins

Gross profits (adj.) for the third quarter of 2010 were $184.4 million, up 12% from $164.0 million for the third quarter of 2009. Gross margins (adj.) for the third quarter of 2010 were 88%, compared to 86% for the third quarter of 2009 due largely to changes in the sales mix. Gross profits (IFRS) for the third quarter of 2010 were $170.4 million, up 14% from $149.4 million for the third quarter of 2009.

Profit from Operations and Operating Margins

Profit from operations (adj.) for the third quarter of 2010 was $85.0 million, up 29% from $66.1 million for the third quarter of 2009. Operating margins (adj.) were 40% in the third quarter of 2010, compared to 34% in the third quarter of 2009 due to the operational gearing of the company. Profit from operations (IFRS) for the third quarter of 2010 was $67.6 million, up 33% from $50.6 million for the third quarter of 2009.

Interest payable

Interest payable for the third quarter ended September 30, 2010 was $12.4 million, up from $2.0 million for the third quarter of 2009. The increase is a result of a charge of $11.0 million in relation to the convertible loan notes issued in March 2010. The convertible loan notes pay a cash interest rate of 3.25%. However, the income statement charge is based on a market rate of interest for corporate loan notes of similar term without a convertible element in accordance with IFRS.

Taxation

The full year projected effective tax rate for 2010 is 24%, down from 28% for the full year in 2009. The decrease is the result in changes in the forecast profit mix between UK and overseas, as well as the completion of tax studies resulting in the recognition of additional tax losses. The effective tax rate for the third quarter is at 22% as a result of the change in the forecasted full year rate. The effective tax rate for 2011 will likely be in the range of 28% - 30% as the one-off benefit from recognising additional tax losses will not be repeated.

Foreign Exchange Impact

The effect on revenue in the third quarter of 2010 of movements in foreign exchange rates was a decrease of approximately $1.2 million compared to the third quarter of 2009. The U.S. Dollar strengthened versus Sterling to an average of $1.55 versus $1.64 when comparing the third quarter of 2010 to the third quarter of 2009.

Net Profits

Net profit (adj.) for the third quarter of 2010 was $67.2 million, or $0.25 per diluted share, compared to net profit (adj.) of $48.6 million, or $0.20 per diluted share, for the third quarter of 2009. Net profit (IFRS) for the third quarter of 2010 was $44.8 million, or $0.18 per diluted share, compared to net profit (IFRS) of $36.8 million, or $0.15 per diluted share, for the third quarter of 2009.

IAS 38 Charges and Capitalization

Under IAS 38 the company is required to capitalize certain aspects of its research and development activities. R&D capitalization in the third quarter of 2010 was $9.5 million (Q3 2009: $11.7 million). R&D capitalization for the third quarter of 2010 is offset by amortization charges of $4.6 million (Q3 2009: $2.2 million) arising from historical R&D capitalization. The capitalization and offsetting charges resulted in a net credit (before tax) in the period of $4.9 million (Q3 2009: $9.5 million), and a net margin impact of 2% (Q3 2009: 5%).

Balance Sheet and Cash Flow

Cash balances were $1,027.7 million at September 30, 2010, an increase of $65.7 million from $962.0 million at June 30, 2010. Movements in cash flow during the third quarter of 2010 of note included:

    - Positive cash flow from operations of $72.8 million, resulting in LTM
      cash conversion (cash generated by operations divided by adj EBITDA)
      of 80% and adjusting for one-off items, underlying LTM cash conversion
      was 83%;
    - Tax payments of $12.1 million (Q3 2009: $13.0 million);
    - R&D capitalised in the quarter of $9.5 million, down 19% from $11.7m on
      Q3 2009;
    - Purchases of property, plant and equipment of $9.8 million, down
      significantly from the $19.0 million in the same period last year;
    - First cash payment of $12.5 million being the coupon interest on the
      convertible loan notes;
    - Foreign exchange gain of $36.7 million due to the appreciation of
      Sterling against the Dollar. The proceeds from the issuance of the
      convertible loan note are retained in Sterling and subject to exchange
      rate fluctuations.

Trade receivables at September 30, 2010, were $222.5 million, compared to $211.6 million at June 30, 2010. Accounts receivable days sales outstanding were 90 days at September 30, 2010, compared to 82 days at June 30, 2010 and 97 days at September 30, 2009. Despite the difficult economic climate, bad debt write off in the quarter was less than 1% of revenues. Accrued income at September 30, 2010 was not material, at under 5% of revenues.

Cash Conversion

In the quarter, the company paid one-off sponsorship fees of $15.9 million, including VAT (the cash for the VAT will be recouped in Q4 2010). Because the fees will be amortised to the Income Statement over time while the total cash cost is paid up front, the net effect is to reduce cash conversion in the current period. This item can be seen in the negative payables movement in the cash flow statement.

    - Nine month operating cash conversion on target at 89%, adjusted for
      above exceptional payment at 93%
    - Cash conversion in Q3 2010 was 80%, adjusting for the above one-off
      exceptional payment cash conversion was a more representative 93%

Supplemental Metrics

Autonomy is supplying supplemental metrics to assist in the understanding and analysis of Autonomy's business.

    Three Months Ended September 30                              2010  2009
    ----------------------------------------------------------
    Product including hosted and IDOL OEM*                      $137m $125m
    IDOL Product                                                 $59m   ***
    IDOL Cloud                                                   $47m   ***
    Service revenues*                                            $10m   $9m
    Deferred revenue release (primarily maintenance)*            $64m  $58m
    IDOL OEM derived revenues*                                   $31m  $24m
        IDOL OEM Dev                                              $2m   ***
        IDOL OEM Ongoing                                         $29m   ***
    Deals over $1 million                                          20    13
    Average Selling Price (ASP)                                 $831k   ***
    Tax rate                                                      22%   24%
    LTM revenue with terms >365 days in normal range (<2% of revenues)
    Accrued income in normal range (<5% of revenues)

    --------

    * The above items are provided for background information and may include
      qualitative estimates.

    ** Adj. EBITDA is defined as operating cash flow before movements in
       working capital.

    *** This metric was not tracked in the comparative period and hence is
        not available.

Q3 2010 Corporate Developments

During the third quarter of 2010 Autonomy continued to extend its market leadership with the introduction of key new and upgraded IDOL technologies, including the launches of:

    - Industry's first meaning based risk management platform for law firms;
    - Meaning based coding for eDiscovery;
    - Launch of new Healthcare Division; and
    - IDOL-based version of the acquired CA Message Manager product.

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

    - Being positioned as leader in Gartner's 2010 Magic Quadrant for Web
      Content Management; and
    - Achieving the highest score in the Forrester Wave 2010 for Online
      Testing, based on current offering, product strategy, corporate
      strategy, and market presence.

On March 17, 2010 Autonomy announced the appointment of Mr Jonathan Bloomer to its Board of Directors. Mr Bloomer commenced his role as a Non-Executive Director during the quarter on August 1, 2010. Information required pursuant to LR 9.6.13 was set forth in an RNS announcement on March 17, 2010 and remains unchanged.

Following the commencement of Mr Bloomer's tenure and the addition of Frank Kelly to the Board in May 2010, Messrs. Richard Perle and Barry Ariko retired from their positions as Non-Executive Directors of Autonomy.

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, Deloitte, Deutsche Bank, DLA Piper, Ericsson, FedEx, Ford, GlaxoSmithKline, Lloyds Bank, NASA, Nestle, 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 OEM Autonomy IDOL technology, including Symantec, Citrix, HP, Novell, Oracle, Sybase and TIBCO. The company has offices worldwide. Please visit http://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.

                             AUTONOMY CORPORATION plc
                       CONDENSED CONSOLIDATED INCOME STATEMENT
                      (in thousands, except per share amounts)



                                                               Three Months
                                                                      Ended
                                                                 (unaudited)

                                                           Sept 30,  Sept 30,
                                                              2010      2009
    Continuing operations                                    $'000     $'000
    Revenues (see note 3)                                  210,556   191,606
    Cost of revenues (excl. amortization)                  (26,130)  (27,644)
    Amortization of purchased intangibles                  (14,055)  (14,590)
    Total cost of revenues                                 (40,185)  (42,234)
    Gross profit                                           170,371   149,372
    Operating expenses:
    Research and development                               (29,453)  (23,853)
    Sales and marketing                                    (53,824)  (59,306)
    General and administrative                             (17,269)  (16,785)
    Other costs
    Post-acquisition restructuring costs                    (1,557)        -
    (Loss) profit on foreign exchange                         (705)    1,217
    Total operating expenses                              (102,808)  (98,727)
    Profit from operations                                  67,563    50,645
    Share of loss of
    associate                                                 (254)     (204)
    Interest
    receivable                                               2,697       184
    Interest
    payable                                                (12,447)   (1,985)
    Profit before income taxes                              57,559    48,640
    Income taxes (see note 4)                              (12,730)  (11,874)
    Net profit                                              44,829    36,766
    Basic earnings per share (see note 6)                   $ 0.19     $0.15
    Diluted earnings per share (see note 6)                 $ 0.18     $0.15


    Cont.

                                                           Nine Months Ended
                                                                  (unaudited)

                                                           Sept 30,  Sept 30,
                                                              2010      2009
    Continuing operations                                    $'000     $'000

    Revenues (see note 3)                                  625,861   516,577
    Cost of revenues (excl. amortization)                  (77,995)  (64,061)
    Amortization of purchased intangibles                  (43,487)  (35,049)
    Total cost of revenues                                (121,482)  (99,110)
    Gross profit                                           504,379   417,467
    Operating expenses:
    Research and development                               (84,976)  (72,644)
    Sales and marketing                                   (147,281) (125,176)
    General and administrative                             (51,788)  (43,581)
    Other costs
    Post-acquisition restructuring costs                    (2,115)     (846)
    (Loss) profit on foreign exchange                         (521)       90
    Total operating expenses                              (286,681) (242,157)
    Profit from operations                                 217,698   175,310
    Share of loss of associate                                (925)     (730)
    Interest receivable                                      5,682       975
    Interest payable                                       (28,616)   (5,246)
    Profit before income taxes                             193,839   170,309
    Income taxes (see note 4)                              (46,945)  (48,152)
    Net profit                                             146,894   122,157
    Basic earnings per share (see note 6)                   $ 0.61     $0.52
    Diluted earnings per share (see note
    6)                                                      $ 0.60     $0.51


    Reconciliation of Adjusted Financial Measures

                                                Three Months      Nine Months
                                                       Ended            Ended
                                                (unaudited)       (unaudited)
                                           Sept 30, Sept 30, Sept 30, Sept 30,
                                              2010     2009     2010     2009

                                             $'000    $'000    $'000    $'000
    Gross profit                           170,371  149,372  504,379  417,467
    Amortization of purchased
    intangibles                             14,055   14,590   43,487   35,049
    Gross profit (adjusted)                184,426  163,962  547,866  452,516

    Profit before income taxes              57,559   48,640  193,839  170,309
    Amortization of purchased
    intangibles                             14,055   14,590   43,487   35,049
    Share-based compensation (see note 5)    1,168    2,048    3,935    5,179
    Post-acquisition restructuring costs     1,557        -    2,115      846
    Loss (profit) on foreign exchange          705  (1,217)      521     (90)
    Interest charge on convertible
    loan notes                              11,020        -   24,158        -
    Share of loss of associate                 254      204      925      730
    Profit before income taxes (adjusted)   86,318   64,265  268,980  212,023
    Income taxes (adjusted)               (19,090) (15,688) (64,583) (59,697)
    Net profit (adjusted)                   67,228   48,577  204,397  152,326

    Profit from operations                  67,563   50,645  217,698  175,310
    Amortization of purchased intangibles   14,055   14,590   43,487   35,049
    Share-based compensation (see note 5)    1,168    2,048    3,935    5,179
    Post-acquisition restructuring costs     1,557        -    2,115      846

    Loss (profit) on foreign exchange          705  (1,217)      521     (90)
    Profit from operations (adjusted)       85,048   66,066  267,756  216,294


                            AUTONOMY CORPORATION plc

                      CONDENSED CONSOLIDATED BALANCE SHEET

                                          As at
                                        (unaudited)
                                Sept 30, 2010 Dec. 31, 2009
                                $'000         $'000
    ASSETS
    Non-current assets:
    Goodwill                        1,361,400     1,287,042
    Other intangible assets           397,360       399,277
    Property and equipment, net        40,588        33,886
    Equity and other
    investments                        62,501        16,608
    Deferred tax asset                 17,377        24,015
    Total non-current assets        1,879,226     1,760,828
    Current assets:
    Trade receivables, net            222,493       230,219
    Other receivables                  56,449        45,231
    Total trade and other
    receivables                       278,942       275,450
    Inventory                             206           486
    Cash and cash equivalents       1,027,739       242,791
    Total current assets            1,306,887       518,727
    TOTAL ASSETS                    3,186,113     2,279,555

    CURRENT LIABILITIES
    Trade payable                    (22,691)      (14,926)
    Other payables                   (32,568)      (54,517)
    Total trade and other
    payables                         (55,259)      (69,443)
    Bank loan                        (78,551)      (52,375)
    Tax liabilities                  (31,047)      (43,338)
    Deferred revenue                (163,785)     (164,931)
    Provisions                        (1,894)       (2,731)
    Total current liabilities       (330,536)     (332,818)
    Net current assets                976,351       185,909

    NON-CURRENT LIABILITIES
    Bank loan                        (66,245)     (145,152)
    Convertible loan notes          (685,490)             -
    Deferred tax liabilities         (86,824)      (85,087)
    Deferred revenue                  (3,898)       (8,576)
    Other payables                      (919)       (1,020)
    Provisions                        (4,022)       (5,123)
    Total non-current
    liabilities                     (847,398)     (244,958)
    Total liabilities           (1,177,934)       (577,776)
    NET ASSETS                      2,008,179     1,701,779

    Shareholders' equity:
    Ordinary shares (1)                 1,342         1,333
    Share premium account           1,245,142     1,130,767
    Capital redemption reserve            135           135
    Own shares                          (788)         (845)
    Merger reserve                     27,589        27,589
    Stock compensation reserve         25,837        21,959
    Revaluation reserve                47,117         4,499
    Translation reserve              (14,829)      (12,032)
    Retained earnings                 676,634       528,374
    TOTAL EQUITY                    2,008,179     1,701,779

------------

(1) At September 30, 2010, 600,000,000 ordinary shares of nominal value 1/3 pence each authorized, 242,235,961 issued and outstanding; as of December 31, 2009, 600,000,000 ordinary shares of nominal value 1/3 pence each authorized, 240,574,304 issued and outstanding.

                            AUTONOMY CORPORATION plc

                   CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS


                                      Three Months       Nine Months Ended
                                       Ended
                                       (unaudited)        (unaudited)
                                       Sept 30,  Sept 30, Sept 30,  Sept 30,
                                       2010      2009     2010      2009
                                      $'000     $'000    $'000     $'000
    Cash flows from operating
    activities:
    Profit from operations           67,563   50,645   217,698   175,310
    Adjustments for:
    Depreciation and amortization    21,784   22,969    74,853    55,593
    Share based compensation          1,168    2,048     3,935     5,179
    Foreign currency movements          705  (1,217)       521      (90)
    Post-acquisition restructuring
    costs                               341        -       698       596
    Other non-cash items                  -        1         -       127
    Operating cash flows before
    movements in working capital     91,561   74,446   297,705   236,715
    Changes in operating assets
    and liabilities (net of impact
    of acquisitions):
        Receivables                (13,828) (20,534)   (6,976)  (65,375)
        Inventories                   5,705       98       280       268
        Payables                   (10,641)   43,834  (27,447)    42,770
    Cash generated by operations     72,797   97,844   263,562   214,378
    Income taxes paid              (12,098) (13,032)  (48,917)  (26,183)
    Net cash provided by
    operating activities             60,699   84,812   214,645   188,195

    Cash flows from investment activities:
    Interest received                 2,697      184     5,013       975
    Purchase of fixed assets        (9,780) (19,034)  (40,363)  (23,398)
    Purchase of investments               -        -   (2,500)   (2,152)
    Expenditure on product
    development                     (9,552) (11,749)  (25,846)  (19,148)
    Acquisition of subsidiaries,
    net of cash acquired              (873)  (7,607)  (78,802) (628,530)
    Net cash used in
    investing activities           (17,508) (38,206) (142,498) (672,253)

    Cash flows from
    financing activities:
    Proceeds from issuance
    of shares, net of issuance costs  3,523    4,335    16,353    17,196
    Proceeds from share
    placing, net of issuance costs        -        -         -   308,512
    Proceeds from convertible
    loan notes, net of issuance
    costs                           (4,131)        -   761,781         -
    Interest on convertible
    loan notes                     (12,527)        -  (12,527)         -
    Interest on bank loan           (1,045)  (1,462)   (3,297)   (3,960)
    Repayment of bank loan                -        -  (53,906)  (37,450)
    Drawdown of bank loan                 -        -         -   200,000
    Payment of arrangement fee            -        -         -   (3,846)
    Net cash (used in) provided
    by financing activities        (14,180)    2,873   708,404   480,452

    Net increase (decrease)
    in cash and cash equivalents     29,011   49,479   780,551   (3,606)
    Beginning cash and cash
    equivalents                     961,992  152,549   242,791   199,218
    Effect of foreign exchange
    on cash and cash equivalents     36,736  (1,296)     4,397     5,120
    Ending cash and
    cash equivalents              1,027,739  200,732 1,027,739   200,732


                        AUTONOMY CORPORATION plc

        CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

                             Three Months Ended        Nine Months Ended
                               (unaudited)               (unaudited)
                             Sept 30,     Sept 30,     Sept 30,   Sept 30,
                             2010         2009         2010       2009
                             $'000        $'000        $'000      $'000
    Net profit                     44,829       36,766    146,894    122,157

    Revaluation of equity          30,516        1,895     42,618      2,479
    investment
    Translation of overseas        12,514      (4,110)    (2,797)     10,224
    operations
    Other comprehensive            43,030      (2,215)     39,821     12,703
    income
    Total comprehensive            87,859       34,551    186,715    134,860
    income



                           AUTONOMY CORPORATION plc

            CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

                                            Capital
                        Ordinary   Share   redemption  Own   Merger
                         shares   premium   reserve   shares reserve Sub-total
                        $'000    $'000     $'000      $'000  $'000   $'000
    At January 1, 2010     1,333 1,130,767        135  (845)  27,589 1,158,979
    Retained profit            -         - -               -       -         -
    Other comprehensive        -         -          -      -       -         -
    income
    Stock compensation         -         -          -      -       -         -
    Share options
    exercised                  9    16,560          -      -       -    16,569
    EBT options                -         -          -
    exercised                  -         -          -     57       -       57
    Equity element of
    convertible loan notes     -    97,815          -      -       -    97,815
    Deferred tax on
    stock options.....         -         -          -      -       -         -
    At September 30,
    2010                   1,342 1,245,142        135  (788)  27,589 1,273,420



                 Sub-total  Stock  Revaluation
                           comp'n              Translation Retained
                 Forwarded reserve   reserve     reserve   earnings   Total
                 $'000     $'000   $'000       $'000       $'000    $'000
    At January
    1, 2010      1,158,979  21,959       4,499    (12,032)  528,374 1,701,779
    Retained             -       -           -           -  146,894   146,894
    profit
    Other
    comprehensive
    income               -       -      42,618     (2,797)        -    39,821
    Stock
    compensation         -   3,935           -           -        -     3,935
    Share options
    exercised       16,569       -           -           -        -    16,569
    EBT options
    exercised           57    (57)           -           -        -         -
    Equity
    element of
    convertible     97,815       -           -           -        -    97,815
    loan notes
    Deferred tax
    on stock
    options.....         -       -           -           -    1,366     1,366
    At September
    30, 2010     1,273,420  25,837      47,117    (14,829)  676,634 2,008,179


                                            Capital
                       Ordinary   Share   redemption  Own   Merger
                        shares   premium   reserve   shares reserve Sub-total
                        $'000     $'000     $'000    $'000   $'000    $'000
    At January 1, 2009    1,214   798,279        135  (905)  27,589   826,312
    Retained profit           -         -          -      -       -         -
    Other comprehensive
    income                    -         -          -      -       -         -
    Stock compensation        -         -          -      -       -         -
    Issuance of shares      115   325,511          -      -       -   325,626
    EBT options
    exercised                 -         -          -      2       -         2
    Deferred tax
    movement                  -         -          -      -       -         -
    At September 30,
    2009                  1,329 1,123,790        135  (903)  27,589 1,151,940


                 Sub-total  Stock  Revaluation
                            comp'n              Translation Retained
                 Forwarded reserve   reserve     reserve   earnings   Total
                   $'000    $'000     $'000       $'000     $'000     $'000
    At January 1,
    2009           826,312  14,846       2,987    (18,261)  294,016 1,119,900
    Retained
    profit               -       -           -           -  122,157   122,157
    Other
    comprehensive
    income               -       -       2,479      10,224        -    12,703
    Stock
    compensation         -   5,179           -           -        -     5,179
    Issuance of
    shares         325,626       -           -           -        -   325,626
    EBT options
    exercised            2     (2)           -           -        -         -
    Deferred tax
    movement             -       -           -           -   34,725    34,725
    At September 1,151,940
    30, 2009                20,023       5,466     (8,037)  450,898 1,620,290

AUTONOMY CORPORATION plc

NOTES TO THE CONDENSED SET OF CONSOLIDATED FINANCIAL STATEMENTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2010 - UNAUDITED

1. General information

Quarterly information is unaudited, but reflects all normal adjustments which are, in the opinion of management, necessary to provide a fair statement of results and the company's financial position for and as at the periods presented. The results of operations for the three and nine months ended September 30, 2010 are not necessarily indicative of the operating results for future operating periods. The quarterly financial statements should be read in connection with the company's audited Consolidated Financial Statements and the notes thereto for the year ended December 31, 2009. The information for the year ended December 31, 2009 does not constitute statutory accounts as defined in section 435 of the Companies Act 2006. A copy of the statutory accounts for that year has been delivered to the Registrar of Companies. The auditors reported on those accounts; their report was unqualified, did not draw attention to any matters by way of emphasis and did not contain a statement under section 498(2) or (3) of the Companies Act 2006.

2. Accounting policies

Whilst the financial information included in this quarterly announcement has been computed in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union, this announcement does not itself contain all of the disclosures required by IFRSs.

Basis of preparation

The same accounting policies, presentation and methods of computation are followed in the condensed set of consolidated financial statements as applied in the Group's 2009 Annual Report, except for certain reclassifications between cost categories to ensure consistency across the Group, and as described below.

Adoption of new and current standards

The accounting policies adopted in the preparation of the interim condensed consolidated financial statements are consistent with those followed in the preparation of the Group's financial statements for the year ended 31 December 2009, except for the adoption of new standards and interpretations. In the current financial year, the Group has adopted International Financial Reporting Standard 3 (Revised 2008) "Business Combinations" and International Accounting Standard 27 (Revised 2008) "Consolidated and Separate Financial Statements" as required, and will apply these principles throughout the year. Adoption of these standards did not have any significant effect on the financial position or performance of the Group.

Going Concern

The Group has considerable financial resources together with a significant number of customers across different geographic areas and industries. At September 30, 2010 the Group had cash balances of $1,028 million and total debt of $830 million. The Group has no net debt. As a consequence, the directors believe that the Group is well placed to manage business risks successfully despite the current uncertain economic outlook.

After making enquiries and considering the cash flow forecasts of the Group the directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing the nine month and quarterly consolidated financial statements

Adjusted Results

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

See reconciliations on page 6.

3. Segmental information

The Company is organized internally along Group function lines with each line reporting to the Group's chief operating decision maker, the Chief Executive Officer. The primary Group function lines include: finance; operations, including legal, HR and operations; marketing; sales; and technology. Each of these functions supports the overall business activities, however they do not engage in activities from which they earn revenues or incur expenditure in their operations with each other. No discrete financial information is produced for these function lines. The company integrates acquired businesses and products into the Autonomy model such that separate financial data on these entities is not maintained post acquisition.

The Group has operations in various geographic locations however no discrete financial information is maintained on a regional basis. Decisions around the allocation of resources are not determined on a regional basis and the chief operating decision maker does not assess the Group's performance on a geographic basis.

The Group is a software business that utilises its single technology in a set of standard products to address unique business problems associated with unstructured data. The Group offers over 500 different functions and connectors to over 400 different data repositories as part of its product suite. Each customer selects from a list of options, but underneath from a single unit of the proprietary core technology platform. As a result, no analysis of revenues by product type can be provided.

Each of the Group's virtual brands is founded on the Group's unique Intelligent Data Operating Layer (IDOL), the Group's core infrastructure for automating the handling of all forms of unstructured information. Separate financial information is not prepared for each virtual brand to assess its performance for the purpose of resource allocation decisions. The pervasive nature of the Group's technology across each brand requires decisions to be taken at the Group level and financial information is prepared on that basis.

A significant proportion of the Group's cost base is fixed and represents payroll and property costs which relate to the multiple function lines of the Group. As a result the business model drives enhanced performance though growing sales and accordingly Group wide revenue generation is the key performance metric that is monitored by the chief operating decision maker. The revenue financial data used to monitor performance is prepared and compiled on a Group wide basis. No separate revenue financial analysis is maintained on revenues from any of the virtual brands.

The Company's chief operating decision maker is the Group's Chief Executive Officer, who evaluates the performance of the Company on a Group wide basis and any elements within it on the basis of information from junior executives and Group financial information and is ultimately responsible for entity-wide resource allocation decisions.

As a consequence of the above factors the Group has one operating segment in accordance with IFRS 8 "Operating Segments". IFRS 8 also requires information on a geographic basis and that information is shown below. The Group's operations are located primarily in the United Kingdom, the US and Canada. The company also has a significant presence in a number of other European countries as well as China, Japan, Singapore and Australia. The following tables provide an analysis of the Group's sales by geographical market based upon the location of the Group's customers.

    3. Segmental information (continued)

                     Three Months Ended        Nine Months Ended
                     (unaudited)               (unaudited)
                     Sept 30,     Sept 30,2009 Sept 30,     Sept 30,
                     2010                      2010         2009
    Revenue by       $'000        $'000        $'000        $'000
    region:
    Americas              141,446      135,733      423,915      354,844
    Rest of World          69,110       55,873      201,946      161,733
        Total             210,556      191,606      625,861      516,577

    Information about these geographical regions is presented below:

                                     Three Months Ended
                                         (unaudited)
                              Sept 30, 2010
                        Americas  ROW    Total
                        $'000    $'000  $'000
    Result by region      51,238 18,587   69,825
    Post-acq'n restr.
    costs.                               (1,557)
    (Loss) profit on
    foreign exch                           (705)
    Operating profit                      67,563
    Share of loss of
    associate                              (254)
    Interest receivable                    2,697
    Interest payable                    (12,447)
    Profit before tax                     57,559
    Tax                                 (12,730)
    Profit for the
    period                                44,829


    Cont.

                                Sept 30, 2009
                            Americas     ROW      Total
                              $'000    $'000      $'000
    Result by  region        39,767    9,661     49,428
    Post-acq'n
    restr. costs.                                     -
    (Loss) profit on foreign
    exch                                          1,217
    Operating
    profit                                       50,645
    Share of loss
    of associate                                  (204)
    Interest receivable                             184
    Interest
    payable                                     (1,985)
    Profit before tax                            48,640
    Tax                                        (11,874)
    Profit for the period                        36,766


                                       Nine Months Ended
                                     (unaudited)
                                  Sept 30, 2010            Sept 30, 2009
                              Americas    ROW  Total   Americas  ROW    Total
                                 $'000  $'000  $'000    $'000    $'000  $'000
    Result by region        163,460 56,874  220,334  136,226 39,840  176,066
    Post-acq'n restr. costs.                 (2,115)                    (846)
    (Loss) profit on foreign
    exch                                       (521)                      90
    Operating profit                        217,698                  175,310
    Share of loss of associate                 (925)                    (730)
    Interest receivable                       5,682                      975
    Interest payable                        (28,616)                  (5,246)
    Profit before tax                       193,839                  170,309
    Tax                                     (46,945)                 (48,152)
    Profit for the period                   146,894                  122,157


    4. Income taxes

                      Three Months Ended     Nine Months Ended
                      (unaudited)            (unaudited)
                    Sept 30,   Sept 30,    Sept 30,   Sept 30,
                       2010       2009        2010       2009
    Tax charge by     $'000      $'000       $'000      $'000
    region:
    UK                8,163      3,507      31,463     23,851
    Foreign           4,567      8,367      15,482     24,301
        Total        12,730     11,874      46,945     48,152

    5. Share based compensation

Share based compensation charges have been charged in the consolidated income statement within the following functional areas:

                                Three Months Ended  Nine Months Ended
                                (unaudited)         (unaudited)
                                Sept 30,  Sept 30,  Sept 30,  Sept 30,
                                2010      2009      2010      2009
                                $'000     $'000     $'000     $'000
    Research and development          313       550     1,056    1,391
    Sales and marketing               573     1,004     1,930    2,539
    General and administrative        282       494       949    1,249
    Total share based               1,168     2,048     3,935    5,179
    compensation charge

    6. Earnings per share
    The calculation of the basic and diluted earnings per share is based on
the following data:

                                Three Months Ended    Nine Months Ended
                                   (unaudited)           (unaudited)
                                   Sept 30, Sept 30, Sept 30,  Sept 30,
                                      2010     2009     2010      2009
                                     $'000    $'000    $'000     $'000
    Earnings for purpose of basic
    and diluted earnings per
    share, being net profit (IFRS)  44,829   36,766   146,894  122,157

    Earnings for the purposes of
    diluted earnings per share
    (adjusted - see page 6)         67,228   48,577   204,397  152,326

    Number of shares (in
    thousands)
    Weighted average number of
    ordinary shares for the
    purposes of basic earnings per
    share                          242,003  239,474   241,497  236,693

    Share options                    2,824    3,607     2,808    3,465

    Weighted average number of
    ordinary shares for the
    purposes of diluted earnings
    per share (IFRS)               244,827  243,081   244,305  240,158

    Convertible loan notes          24,082        -    18,525        -
    Weighted average number of
    ordinary shares for the
    purposes of diluted earnings
    per share
    (adjusted)                     268,909  243,081   262,830  240,158

    IFRS
    Earnings per share - basic      $ 0.19   $ 0.15    $ 0.61   $ 0.52
    Earnings per share - fully
    diluted                         $ 0.18   $ 0.15    $ 0.60   $ 0.51

    Adjusted
    Earnings per share adj. -
    basic (IFRS)                    $ 0.28   $ 0.20    $ 0.85   $ 0.64
    Earnings per share adj.- fully
    diluted (IFRS)                  $ 0.27   $ 0.20    $ 0.84   $ 0.63
    Earnings per share adj. -
    fully diluted (adjusted for
    conversion of loan notes)       $ 0.25   $ 0.20    $ 0.78   $ 0.63

Because in our adjusted measure of profits, we exclude the interest payable on the convertible loan notes, the inclusion of the potential shares for the convertible loan notes does cause dilution. In order to give a fair presentation of our adjusted diluted earnings per share, we have elected to reflect the impact of the convertible shares within our adjusted diluted earnings per share measures.

7. Related Party Transactions

There have been no related party transactions in Q3 2010, or changes in related party transactions described in the latest annual report, that could have a material effect on the financial position or performance of the Group in the financial period.

INDEPENDENT REVIEW REPORT TO AUTONOMY CORPORATION PLC

We have been engaged by the company to review the condensed set of financial statements in the quarterly financial report for the three and nine months ended September 30, 2010, which comprises the condensed consolidated income statement, the condensed consolidated balance sheet, the condensed consolidated statement of changes in equity, the condensed consolidated statement of comprehensive income, the condensed consolidated statement of cash flows and related notes 1 to 7. We have read the other information contained in the quarterly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

This report is made solely to the Company in accordance with International Standard on Review Engagements 2410 "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board. Our work has been undertaken so that we might state to the Company those matters we are required to state to them in an independent review report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company, for our review work, for this report, or for the conclusions we have formed.

Directors' responsibilities

The quarterly financial report is the responsibility of, and has been approved by, the directors.

As disclosed in note 2, the annual financial statements of the Company are prepared in accordance with the recognition and measurement criteria of IFRSs as adopted by the European Union. The condensed set of financial statements included in this quarterly financial report has been prepared in accordance with the accounting policies the group intends to use in preparing its next annual financial statements.

Our responsibility

Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the quarterly financial report based on our review.

Scope of Review

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board for use in the United Kingdom. A review of quarterly financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the accompanying quarterly financial information is not prepared, in all material respects, in accordance with the recognition and measurement criteria of IFRSs as adopted for use in the EU and the basis set out in note 2.

    Deloitte LLP
    Chartered Accountants and Statutory Auditors
    October 19, 2010
    Cambridge, UK


    Financial Media Contacts:
    Edward Bridges / Haya Herbert-Burns
    Financial Dynamics
    +44(0)20-7831-3113

    Analyst and Investor Contacts:
    Derek Brown, Head of Investor Relations
    Autonomy Corporation plc
    +44(0)20-7907-2300

SOURCE Autonomy Corporation plc