Three months ago, when officials at MRO Software announced the company's fiscal first quarter results, they predicted that a robust pipeline in the second quarter would overcome a slight shortfall in quarter-one revenue. Thursday, on a conference call to announce second-quarter results, MRO CEO Chip Drapeau and CFO Peter Rice delivered on that prediction.
For the second quarter ended March 31, MRO reported revenue of $57.2 million, besting a previous record for quarterly sales set in the final three months of last fiscal year. Software licensing, which had displayed some weakness recently, showed a marked rebound, notching $17.6 million, up 73% from last year's second-quarter total of $10.1 million and nearly 38% ahead of the first quarter's $12.8 million.
"At the half year point we're ... exactly where we predicted we would be," said Drapeau in an interview with Managing Automation. "Q1 was a little lighter because of timing that didn't alarm us, and Q2 was a little stronger."
Revenue from MRO's support and services business also logged gains, though at a slower pace. In the most recent quarter, that business accounted for $39.5 million, up from $33 million in the year-prior period and $36.3 million last quarter.
The strength of the top line drove MRO's increase in net income -- $6.9 million in the second quarter compared to $4.2 million a year ago -- but a $2.8 million jump in marketing expenses in the quarter, including increased commissions payouts and costs associated with the annual sales meeting in January, kept profits from an even better showing.
Rice singled out the company's success in selling support contracts in conjunction with software licenses, and renewal of existing support agreements, for boosting the top line. Earning per diluted share rose to $26 cents, from 2 cents in second quarter of 2005 and 16 cents in the first quarter of 2006.
Critical to the quarter's results, officials said, was the Maximo Enterprise Suite (MXES), the mainstay of MRO's EAM business. Fifty percent of sales in the quarter were attributable to MXES, and in its first year of release, the product has established itself in several vertical markets, among them oil & gas, utilities, pharmaceuticals, and transportation, officials said. MXES, Drapeau noted, "has catalyzed our growth in nearly every operating segment." The suite enables a plethora of business functions, from procurement management to service management to management of core assets.
MRO is also building out its other business line -- IT services management, or ITSM -- and hoping to land a partnership with IBM for integration of both MRO product lines with IBM's software offerings. "We continue to take the initiative to try and engage in development and marketing and sales initiatives that we think position us as a logical choice for IBM to partner with" in both EAM and ITSM, Drapeau explained on the conference call with financial analysts. He said MRO is "making investments in infrastructure like WebSphere and making sure we're a good citizen in the IBM infrastructure stack, and those are things we'll continue to invest in."
At the end of the first quarter, Drapeau reported: "It will take some time for MRO to benefit from [the IBM] opportunity, but "a major door has been opened; it's now our job to walk through it."
MRO's recent success in garnering profits has brought the company plenty of disposable income; cash on hand at the end of quarter two totaled more than $130 million, and the company has no bank debt. That stash has inevitably led to speculation about possible acquisitions.
In an interview today, Drapeau explained that MRO's strategy "is to make adjacency moves, let them percolate and start to show value; and then we have the recipe and we have the playbook for another adjacency move." He emphasized that any such moves would dovetail with MRO's core competencies in asset and service management. "We're not going to get very far afield from those disciplines, but there's a lot of space in and around there" in which to look for acquisitions, he said.
In light of the strong quarter, the company has upped its guidance for 2006 earnings per share, while leaving untouched the forecasts for overall revenue and software sales. Earnings per share, officials said, should fall in the range of 85 to 90 cents, a nod toward what Drapeau said was the company's success at "improving the efficiency of all functional operations..." The previous forecast was for EPS of 60 to 65 cents. The company maintained growth projections of 5% to 10% for revenue, and 10% to 20% for software sales for 2006.
"We're obviously enthusiastic about the product cycle that we're in," Drapeau told Managing Automation. "It's fun to have a new product that's differentiated and doing well."