MKS Profits Bolstered by Increasing ALM Software Sales

February 28, 2011 Timothy Prickett Morgan

Change management software maker MKS has turned in a stellar quarter, dealing with the Great Recession deftly and continuing to grow revenues and boost profits through the downturn.

While the Waterloo, Ontario, company has, like other Canadian firms, benefitted from the fact that the Canadian economy did not take a financial hit, MKS sells a lot of its software in the United States and Europe so the fact that it was able to power through shows there is plenty of demand for application lifecycle management tools.

In the third quarter of fiscal 2011 ended January 31, MKS reported total revenues of $18 million, up 17 percent from the year-ago period. Significantly, MKS was able to grow revenues and swing from a loss to increasing profits in the past three Q3s that it has turned in, which is quite a feat considering how many software companies took it on the chin in the same periods in calendar 2008 and 2009. The company said that software license revenues rose by 25 percent, to $6.2 million, with services sales up a whopping 35 percent, to $3.5 million, and maintenance fees up 7 percent, to $8.3 million. MKS brought $2 million of that to the bottom line, an increase of 83 percent versus the black ink in Q3 of fiscal 2010. (MKS is a public company whose stock is traded on the Toronto Stock Exchange, but it reports its financials in U.S. dollars.)

“We were pleased to see another quarter of growth driven by licensing activity,” explained Philip Deck, executive chairman at MKS, in a statement accompanying the financial results. “While the implementation of our investment strategy in sales and engineering held back profit growth this quarter, we have now largely completed the majority of the plan. We continue to be confident that fiscal 2011 results will show significant growth in revenue and profits driven by licensing.”

MKS ended the quarter with $23.7 million in cash after paying $2.1 million in dividends, and announced it will be paying another dividend of 20 cents per share in April. The share price of MKS took a big jump in July 2009 and has been climbing steadily since then, and ended at $16.70 a share (that is Canadian dollars) on the TSE on Friday, giving it a market capitalization of $171.9 million. The amazing thing to me is that some private equity firm didn’t come in and try to snap up MKS when its stock was trading at just over $1 Canadian a share in late 2008. About $7 of that change in stock price came from a 5-to-1 share consolidation that went into effect in July 2009. (Which had no effect on market capitalization, obviously.) But from that point onward, MKS has shown steadily improving numbers and now Wall Street expects to the stock to go to somewhere between $19 and $20–that’s Canadian dollars again.