Riding strong demand for its 16-month-old enterprise software suite, asset and service management vendor MRO Software Inc. reported record revenue for its third fiscal quarter, the company's second consecutive record period.
Software revenue reached $21.5 million, a 12% year-over-year increase for the quarter ended June 30, and a 22% spike from the prior quarter, said Peter Rice, MRO executive vice president and CFO, on a conference call with analysts. Year-to-date software license revenues were up 18% compared with the same period last year, with 80% of software sales in the third quarter attributed to the company's enterprise suite, MAXIMO ES (MXES), which was released in February of last year.
Total revenues for the Bedford, MA-based company in the third quarter were $60.3 million, compared with $53.2 million posted in the corresponding quarter last year, which itself represented an increase of 13% from the year-earlier period.
Net income for the third quarter was $7.5 million, or 27 cents per diluted share, compared with $4.1 million, or 16 cents per diluted share, in the like period last year, an increase of 83%.
Year-over-year support and services revenues increased 14% to $38.8 million for the third quarter, compared with $34 million in the comparable quarter last year, but were down from $39.6 million in the prior quarter. The company attributed the year-over-year growth to continuing 90%-plus renewal rates for support contracts.
Strong performance in the U.S. in the third quarter offset "softer-than-expected" results in Europe, which MRO president and CEO Chip Drapeau attributed to the timing of certain deals, as well as seasonal softness during the summer months.
According to Drapeau, MXES continues to drive the company's results. Acknowledging sluggish activity in its IT service management (ITSM) business, Drapeau cited poor timing on several transactions. He also predicted that strength in the company's core markets will bolster efforts to expand ITSM applications by adding it to existing deals or creating opportunities to cross-sell the IT capability after the fact.
Conversely, he continued, ITSM adds to the value proposition of MRO's core enterprise asset management (EAM) offering by expanding the application's functional footprint, and provides an avenue for application consolidation. Finally, Drapeau said that the outlook for ITSM in the fourth quarter looks stronger based on certain upgrade initiatives that will be announced at MRO's user conference next week.
Drapeau outlined continued strength for MRO in key vertical markets including utilities, which saw 42 deals close in the third quarter, including one "multimillion dollar" transaction with a large, unnamed, U.S.-based utility; 15 deals in the pharmaceuticals/life sciences area; and 13 deals in oil & gas, including a large transaction with a multinational oil company. In the two significant deals involving the utility and oil companies, MRO products replaced competitive offerings, Drapeau noted.
MRO's win rates have improved recently due to its architecture, asset coverage, and industry solutions, which have combined to create "a substantial obstacle" to the company's opponents, including both ERP suite vendors and niche vendors, Drapeau said. While the quarter's results were driven largely by EAM-based projects, according to Drapeau, the addition of ITSM in the company's software portfolio makes the selection of MRO more attractive versus competitors that focus solely on either IT or EAM.
MRO reiterated that it expects overall revenues to increase between 10% and 15% in fiscal 2006 compared with fiscal 2005, with software license revenues increasing 10% to 20% from last fiscal year. Looking further out, total fiscal 2007 revenues are expected to be in the range of 5% to 10% above fiscal 2006, with earnings expected to grow between 15% and 25% per diluted share over the current fiscal year's results.
Summing up the company's performance, Drapeau said that whereas some software companies have struggled of late, "We have not noticed much change in the buying environment for the last year or so, [which is] probably enhanced by our product cycle," he noted. "From an operational viewpoint [as well as] an IT viewpoint, we're pretty nicely positioned. ... Our competitors are, at best, distracted in a few of [our market] segments, and I think we're capitalizing on that."