Volume 16, Number 48 -- December 10, 2007

MKS Swings to a Profit on Revenue Growth in Fiscal 2008 Second Quarter

Published: December 10, 2007

by Dan Burger

In its most recent round of quarterly financial reporting, the application lifecycle management (ALM) software company MKS scored a profitable second quarter for its fiscal year 2008. Revenue and income increased and new customers were added to the company's installed base. For the first six months of its fiscal year, however, the company remains in the red.

The following specific figures provide a comparison to the company's second fiscal quarter of 2007 and begin with a revenue increase of 18 percent that amounted to a record $13.6 million. Net income rose from a $0.7 million loss one year ago to a $0.2 million profit in this report, which works out to negligible per-share earnings.

Application lifecycle management (ALM) software revenues increased 23 percent to $11.9 million. Those revenues were at $9.7 million a year ago. The primary factor there was that ALM license revenue rose 23 percent to $4.2 million. (License revenue in Q2 2007 was $3.4 million.) MKS also booked a 19 percent gain in ALM maintenance revenues. The income there jumped from $4.7 million to $5.6 million. ALM service revenues increased 33 percent to $2.1 million from $1.6 million.

Comparing numbers for the first six months of fiscal 2008 with the same period in 2007 computes to an increase of 13 percent as $27.2 million in revenues topped $24.1 million for one year earlier. However, a six-month net loss of $0.1 million still indicates work to be done, even though it shows improvement from a net loss of $1.2 million for the same period in fiscal 2007.

The closing cash balance on October 31, 2007, was $9.9 million, which was down from $11.9 million on July 31, 2007.

"We are pleased to report another quarter of record revenues as well as a return to overall profitability," said Philip Deck, chief executive officer at MKS. "Solid improvements in ALM licensing, maintenance, and services and focused cost control contributed to our profitability in spite of substantial currency-related cost increases."

"We accomplished our record revenue this quarter based on a series of relatively modest transactions from both long-term accounts and new ones," said Michael Harris, president and chief operating officer at MKS. "We continue to invest substantial field resources on several long-term customer initiatives that are steadily maturing. We believe that the combination bodes well for growth looking forward."

New business was won at Chase Paymentech, ING, Medtronic, Migaro and Professional Data Solutions, and "follow-on" wins were reported with Continental, Fortis Bank, HSBC, IT Frontier, Torstar, Northrop Grumman, TietoEnator and Trading Technologies.

MKS officials predict ALM license revenue will improve throughout the remainder of fiscal 2008 in comparison to fiscal 2007. Increases in maintenance and services revenue are expected to result in higher total revenue for the fiscal year compared to fiscal 2007. This will more than offset the expected declines in interoperability revenue, according to a prepared statement from MKS.

The company is planning to sustain its current sales and marketing staff and budget, but will invest in sales resources "only to the extent that profitability can be expected throughout its planning horizon."

MKS is predicting full-year profitability for fiscal 2008, based on increasing revenue and carefully managing costs. In the first six months of fiscal year 2008 there has been the significant volatility in the currencies where MKS does business, which, company officials say, has presented a substantial planning challenge in gauging future sales and profits.

MKS expects to maintain more than sufficient cash balances through fiscal 2008 through the combination of improvements in net income, reduced capital expenditures over those in fiscal 2007, and an expected continuation of lower overall receivables days net of current dividend policy. The company points to seasonal factors that will boost cash inflow during the second half of the fiscal year as annual maintenance renewals are more heavily weighted to the final two quarters of the fiscal year.


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

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Editor: Timothy Prickett Morgan
Contributing Editors: Dan Burger, Joe Hertvik, Brian Kelly, Shannon O'Donnell,
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