PLM software vendor Agile Software Corp. saw revenues for its second fiscal quarter ending October 31 languish, leading to a $4 million net loss for the quarter.
The second-quarter results, which Agile President and Chief Operating Officer Jay Fulcher called disappointing, ran contrary to strong financial results reported recently by PLM software competitors such as UGS, PTC, and Dassault Systemes (click here to see recent coverage of these companies' financial results).
For the quarter, Agile saw $31.5 million in total revenues. While that figure was up 11.6% over the revenue figure posted in the like period last year, it was 8.4% lower than Agile's revenues reported last quarter.
Most of the drop came in software license sales, which, in the most recent quarter, were 10% lower than the same period last year and were 24.8% below license revenues reported in the first quarter of this year.
Agile's service revenues, on the other hand, grew. Service revenues in the most recent quarter were 25.8% higher than those of the year-earlier quarter and 2% higher than in the immediately-preceding quarter.
The lower-than-expected revenues pushed Agile further into the red. The $4 million loss for the quarter compared to a $92,000 loss reported in the year-earlier period and a $3.3 million loss in the first quarter of this year.
Agile CEO Bryan D. Stolle blamed the San Jose, CA company's disappointing second quarter revenues on what he called a challenging enterprise software market and several potential deals that failed to close during the quarter. Fulcher said he expects most of those deals to be finalized in the second half of the company's fiscal 2006.
Many potential customers, Stolle said, are taking a very short-term approach to planning enterprise software purchases, in some cases reacting to temporary downturns in their businesses by postponing purchases of Agile's PLM software products.
"Customers are losing sight of the long-term nature of enterprise software investments and the consequences of being penny wise and pound foolish," Stolle told Wall Street investors in a conference call.
According to Fulcher, some potential customers also deferred purchase or upgrade decisions in anticipation of the 9.2 version of Agile's PLM suite. That release, which includes significant new environmental compliance and analytics features, will begin to ship "in the next several weeks," Stolle said.
Despite the revenue shortfall, Stolle said Agile's management is still upbeat about prospects for the business. Based on projections that the PLM market will continue to grow at double-digit rates for the foreseeable future, Stolle said, "We are as confident in our outlook of the business as we have been at any time over the last three years, indeed more confident."
Although Stolle said he will not overreact to the most recent quarterly results, he said the company will continue to keep a lid on operating costs and to seek to improve operations, particularly in Asia. There, he said, the company has recently hired new company managers in Japan and China and is making significant organizational changes.
Stolle also said that to mitigate future impact on the company's quarterly financial results from the failure to close larger deals, Agile will focus on increasing the size of its order backlog. In the past, Stolle said, the company's backlog at any given time has been as low as one to one-and-a-half times quarterly license sales. Agile is attempting to build that to between four and five times license sales, he said.
Agile's exposure to longer and unpredictable selling cycles has grown as the company has increasingly targeted larger PLM customers, said Ed Miller, president of PLM consulting company CIMdata Inc. (Ann Arbor, MI). "Competitors like UGS are bigger, so they don't take quite so bit a hit when orders fall through," Miller said. "Building up the pipeline is exactly what Agile needs to do."
The disappointing second-quarter results led to questions from analysts on the company's conference call about what Agile can do to increase its stock price, which has languished in the $6-per-share range, well below its historic highs. Asked if Agile's board is actively pursuing a merger or would consider a takeover offer in the $16-per-share range, Stolle said, "If somebody knocked on our door with an offer of $16 per share, we would give it very due consideration."
Stolle, however, was careful to indicate that Agile is not shopping itself to potential buyers.
"We certainly agree that the stock is undervalued, but one of the ways to keep it undervalued is to put a 'for sale' sign up on the company," Stolle said.