Blaming longer-than-expected selling cycles and what President and CEO Chip Drapeau characterized as a "tricky" transition to the company's new enterprise asset management (EAM) product, MRO Software Inc. reported a 3% drop in revenues and a 57% decline in net income in the fiscal second quarter ended March 31.
Drapeau, however, said MRO is not backing away from its publicly-stated guidance to Wall Street that the company will see a 10% to 20% increase in sales for fiscal 2005 and a 15% to 25% increase in earnings for the year. That expected recovery is based on the continued rollout of MRO's new Maximo Enterprise Suite EAM product which the company released in February. Drapeau said sales of Maximo Enterprise Suite are expected to accelerate through the rest of the company's fiscal year, particularly in the fourth quarter.
MRO (Bedford, MA) becomes the latest technology provider to blame disappointing results on lengthening selling cycles. Earlier this week, IBM said longer cycles caused orders to slip beyond its first quarter, dragging down results. And, last week, Siebel Systems Inc. blamed the same trend for disappointing first quarter results which ended up costing CEO J. Michael Lawrie his job.
MRO's revenues for the second quarter were $43.2 million, down 3% from the like period last year. The company's net income for the quarter (reported on a GAAP basis) was $600,000, down 57% from the corresponding quarter of 2004.
MRO's software license revenue for the quarter fell 11% to $10.2 million. Support and services revenue was off 1% to $33 million.
Drapeau said the company's focus for the rest of the year will be on improving its concentration on customer requirements and on pushing the sales force to take advantage of Maximo Enterprise Suite's opportunity to expand MRO's market coverage. The product, he noted, includes new service asset management and IT asset management features that, MRO expects, will be attractive to new as well as existing Maximo users.
Drapeau also said the new functionality will allow MRO to "challenge ERP players on their own turf" by allowing the company to sell to enterprises intent on consolidating operations.
That's critical for MRO which, like other best-of-breed EAM software vendors, faces increasing competition from enterprise resource planning suite vendors such as SAP, Oracle and IFS. According to a recent report from AMR Research Inc. (Boston), ERP vendors' share of the EAM market increased from 45% in 2000 to 51% in 2004. MRO is the largest of the EAM suite vendors that saw their share of the market decline from 55% to 49% of the market during the same period, AMR reported.
"ERP-based products are rapidly achieving parity with EAM suites, and are displacing EAM suites where basic EAM functionality is sufficient," said report author Alison Smith. "Market erosion by ERP vendors will accelerate during the next 12 to 18 months, driving EAM suite vendors to broaden their scope or find alternative markets."