MKS Recovering Nicely From the Economic Storm

March 1, 2010 Timothy Prickett Morgan

A year ago, at the peak of the economic meltdown, application lifecycle and software change management software maker MKS was doing comparatively well financially as gauged by its peers in the software biz. But no company can outrun the economy for long, and MKS had its share of revenue declines in fiscal 2010. But as MKS finished up its third quarter of fiscal 2010 ended January 31, the numbers were all pointing northward.

In the quarter, MKS said that its software license sales were up an astounding 34.1 percent, to just under $5 million. (Although MKS is based in Waterloo, Ontario, it reports its financial results in U.S. dollars.) Maintenance revenues for the company in fiscal Q3 came to $7.75 million, up 11 percent, while services fees were up a more modest 3.1 percent to $2.6 million. Overall revenues came in at $15.3 million, up 16 percent.

Costs rose a bit in the quarter, putting pressure on MKS’ profits, but revenues were so much larger than in the year-ago quarter that MKS could nearly triple net earnings to $1.1 million. The company generated $3.1 million in cash and equivalents, boosting its hoard to $22.1 million, and the board of directors paid out a 15 cent per share cash dividend.

There are surely worse financial places to be.

“We continue to see steady improvement in financial measures across the board,” explained Philip Deck, executive chairman at MKS. “Along with rebounding licensing, we saw steady improvements in services and maintenance, contributing to strong year-to-date profitability.”

MKS says that it “is committed to profitable, organic growth” in its primary product segment, its ALM products, and says that it has balanced the needs of nurturing this business with the desire of shareholders to see profits and dividends. The company said it is preparing to make investments in its field sales and support personnel to meet what it anticipates will be an increase in demand for ALM products, and warned that it expects a 10 percent annual decline in its Toolkit and X Server interoperability software lines for the foreseeable future.

Speaking of the ALM products, MKS said that Integrity ALM product sales in fiscal Q3 were up 15 percent to $13.3 million, and that for the nine months of the fiscal year, ALM sales were up 4 percent to $40.7 million.

“We were pleased to see strong growth in our ALM licensing this quarter,” said Michael Harris, president and chief executive officer at MKS, in a statement accompanying the financial results. “As the need for comprehensive management of software engineering and quality processes for advanced manufacturing customers becomes more and more evident, and as capital budgets are restored from the depths of the recession we continue to increase our investment in field operations as the driver to license revenue growth.”

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