Product Transitions Affect Financials at MKS During Fiscal Q2

Application lifecycle management software vendor MKS has announced preliminary financial results for its second fiscal quarter 2007 ended October 31, and the company warned investors on the Toronto Stock Exchange that sales would be down from the prior year.

MKS, which is based in Waterloo, Ontario, one of the hot-beds of OS/400 software development, said that sales of its Integrity ALM products will be in the range of $3.2 million to $3.5 million (Canadian) in the quarter, “significantly lower than expected,” but said that other components of ALM revenue–maintenance and services–grew at the expected rates. The decline means that ALM software sales in the quarter will be about the same as last year.

Across all of its product lines, MKS said that it expects sales in the second fiscal quarter to be between $11.3 million to $11.6 million, about the same as the company reported a year ago at $11.5 million. But sales are down a bit from the $12.6 million MKS reported in the first fiscal quarter. The company added that operating costs would be in the range of $12.4 million to $12.8 million in the Q2 fiscal 2007, which means the company will book a loss. Because MKS has broadened its ALM products beyond the OS/400 and i5/OS market, it has created a larger addressable market. But selling to larger organizations with more complex systems requires a certain amount of finesse and–as happened in this quarter–requires longer sales cycles. MKS hired new sales reps at the end of its fiscal 2006, who are not fully revved up yet, and has not yet seen fruits bear from its investments in the Asia/Pacific region, according to a company statement. MKS does have $14.7 million in the bank and over 10,000 customers worldwide, both of which are comforting. The cash gives MKS the time to get its people trained and able to close deals.

“With the expansion of capability in our ALM platform, we are making an important transition to much broader enterprise deployments,” explained Philip Deck, chairman and chief executive officer at MKS in a statement accompanying the preliminary results. “While the transition is causing longer sales cycles than we had anticipated, we continue to make adjustments to our sales model and are confident that we will succeed in re-establishing more rapid rates of license growth.”

MKS will report its final financial results for the quarter on November 29.