Buoyed by growing customer acceptance of its new enterprise asset software suite, MRO Software Inc. recently reported fiscal fourth-quarter and year-end results that company officials said confirm its resurgent course.
Fourth-quarter sales were up 11% to $55.4 million, the largest quarterly revenue total in company history, MRO officials said. Net profits on a GAAP (Generally Accepted Accounting Principles) basis reached $5.8 million, a 29% jump from the year-earlier period. The strong quarter ended September 30 helped punctuate a fiscal year in which MRO generated $199.2 million in revenues -- a 7% increase from fiscal 2004 -- as net profits on a GAAP basis rose 24% to $13.6 million.
Fourth-quarter profits were assisted by a $3.4 million tax benefit from the resolution of an Internal Revenue Service examination, the Bedford, MA company said. However, greater than expected sales commissions and heavy marketing expenditures tied to the launch of MXES, as well as accelerated vesting of employee stock options and costs associated with Sarbanes-Oxley Act controls negatively impacted MRO Software's bottom line during the quarter, according to Peter Rice, the company's chief financial officer.
Overall, the fourth quarter is providing a good start to "revitalizing the company's growth prospects" for fiscal 2006, Rice said.
The upbeat results continue a resurgence that began last period following a disappointing second quarter, which MRO attributed to a "tricky" transition to its Maximo Enterprise Software (MXES) suite.
The blending of IT and service management with physical asset management in a single software suite is critical, as SAP and Oracle push into MRO's historical enterprise asset management (EAM) turf, noted Alison Smith, an analyst with AMR Research Inc. (Boston). "MRO is on the right path," she said, noting that MXES' enhanced user interface is a real distinguishing feature in its battle with ERP vendors.
Moreover, by constructing MXES in a modular fashion, MRO can preach "peaceful co-existence" with SAP, which is leveraging its recent acquisition of Lighthammer to increase its appeal to customers seeking more tightly integrated enterprise IT and factory automation systems, Smith said. This positioning should click with MRO customers who have invested heavily in the company's products and would prefer to keep the software rather than switch, she added.
Moving forward, Smith said, MRO will need to position MXES as an environment that helps manufacturers to generate better "multi-plant inventory visibility," which is something in which SAP excels. This is a market segment "where product matters more than assets," Smith said. "That's not EAM's strong point."
In discussing its financial results with analysts during a conference call late last week, MRO CEO Chip Drapeau said that the company's fortunes had turned since the release almost six months ago of MXES. The enterprise software suite, he said, has fortified MRO's competitiveness against traditional EAM rivals and helped it thwart advances made by ERP vendors.
Entering 2006, Drapeau declared that MRO is the only software company with a single product capable of managing all business processes related to critical assets, noting that competitors such as Hewlett-Packard Co.'s Peregrine, BMC Software's Remedy as well as industry giants Oracle and SAP can't make a similar claim.
"[The software suite] enables us to do more for our customers by enhancing operational performance and helping them lower IT costs," Drapeau said.
That message appears to be resonating with accounts across the globe. For example, fourth-quarter software license revenues reached $20.9 million, up 31% from the corresponding period last year. MRO said 265 software licenses were sold during the quarter, including 30-plus MXES licenses, a subset of which included its entire suite of functionality.
Customers in the period included: BP Oil International Ltd., China National Offshore Oil Co., Chiron Corp., Getronics, Guangzhou Hengyun Power Generation, Honeywell International, Kellogg Brown & Root, Kuwait Drilling Co. and Shanghai Zhabei Power Plant.
Software license revenues for fiscal 2005, meanwhile, reached $65.1 million, up 24% from the previous year, the company said.
Support and services revenues were one problem spot for the company. MRO's support and services business generated $34.5 million in revenue during the fourth quarter, a 2% increase from the like period last year. Support and services revenues for the year were $134.1 million, up only 1% from fiscal 2004.
The slump in service-related revenue was due to the expiration of a single unidentified contract that accounted for $1 million to $2 million in quarterly sales over the last couple of years, Rice told financial analysts during a question and answer session.
Even though sales and marketing expenses "ran hotter in some areas" than expected in the fourth quarter, Drapeau said that this was a "one-time trade-off" that would not be repeated in the current fiscal year. He indicated that the sales commission expense issue -- which emerged because of a preponderance of MXES deals that were signed in North America during the fourth quarter -- had already been resolved.
Rice reiterated previously stated guidance that fiscal 2006 revenues would be 5% to 10% higher than fiscal 2005 results. Software revenue growth is expected in the 10% to 20% range in the new fiscal year, with sales reaching between $28 million and $32 million in the first half of the fiscal year, the company said.
Accelerated growth is also expected from services, Rice said, jumping from 4% in the first fiscal quarter of 2006 and hitting the "lower teens moving forward." To boost services profitability the company is investing in offshore operations, he added.
GAAP earnings per share are expected to jump 15% to 25% over fiscal 2005, the company noted.
MRO, meanwhile, entered fiscal 2006 with a markedly improved balance sheet, fueled in part by increased cash generated from operations (the company's 90% customer renewal rate was one factor). The company reported that it has $133.2 million in cash and marketable securities, up 32% from year-end fiscal 2004, and no long-term debt.
With MXES taking hold in the marketplace, MRO now must turn its attention to fine-tuning its product messaging and delivery strategy (particularly in Europe) to help meet loftier growth expectations, Drapeau said. MRO entered fiscal 2006 with a fertile installed base from which to pitch larger-ticket MXES deals and a burgeoning pipeline of new opportunities in which to sell its enterprise software, he added.
"The risk of our new initiative is behind us," Drapeau said. "We are at the beginning of [a] new product cycle that is showing early momentum and success."