MKS Sees Software Licensing Downturn in Q4, Gears Up for Rebound

Published: June 11, 2007

by Timothy Prickett Morgan

Midrange application lifecycle management software provider MKS closed out is fiscal 2007 on April 30, and while the company had what it called sluggish license sales for its biggest accounts in the fiscal year, MKS is expecting that customers will embrace its newest products and buy services as they roll out application lifecycle management tools in the coming fiscal year, getting it back on track again.

While MKS is based in the Canadian city of Waterloo, Ontario, and is listed on the Toronto Stock Exchange, it reports its financial results in U.S. dollars. For the fourth quarter, total sales at MKS came to $12.6 million, flat from the year-ago quarter. ALM product revenues in the quarter were $10.3 million, up 3 percent from a year ago. MKS posted a net loss of $500,000 during the quarter, compared to $6 million profit a year ago, but most of that profit came from an income tax recovery. For the fiscal 2007 year, MKS had sales of $48.3 million, the same as the prior year, but booked a loss of $2.8 million, or 6 cents a share, compared to a $9.1 million profit in fiscal 2006, which worked out to 20 cents per share.

"While we experienced sluggish license orders from our largest accounts this year, we did realize increased services revenue with the same, laying the groundwork for increasingly ambitious implementations of MKS software," explained Michael Harris, president and chief operating officer at MKS, in a statement accompanying the financials. "We are confident that the pace of licensing will rebound and increase as these customers roll out additional capabilities of MKS' unified lifecycle management platform."

MKS exited the fiscal 2007 year with $15.3 million in cash and equivalents, and boosted its maintenance and services businesses significantly in the year. While software license sales in the year fell by 18 percent, maintenance fees rose by 18 percent to $22.1 million and services sales were up by 23 percent to just under $6 million. Those increases perfectly balanced the declines in license revenue, and if you are going to manage a transition from SCM to ALM tools, there surely are less elegant ways that it could have been done. MKS has had to shoulder increased sales and marketing costs as it makes this transition, and its employee headcount has risen from 278 a year ago to 316 at the end of April.

MKS said that it expected ALM license revenues would improve in fiscal 2008, rising above 2007's levels, and that it expected maintenance services revenues would also grow, offsetting expected and modest declines in the sales of its interoperability products. The company says that it will be managing costs and that it will be profitable for all of fiscal 2008.

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