Some investors are beginning to ask one of Orange County’s largest software makers, FileNet Corp., the same question: Nice job beefing up profits,now, could you spend some of that extra cash?
The Costa Mesa company, which sells large-scale software packages to organize data and documents for businesses, saw its wad of cash increase by nearly 50% in the third quarter to almost $181 million from the year-ago period.
That’s quite a bit for a company on pace to post about $400 million in revenue this year.
During the quarterly call, the first analyst to quiz executives, Edward Maguire of Merrill Lynch & Co., asked about the company’s “usage of cash” and whether there might be some kind of buyback of shares.
At that point, Chief Financial Officer Sam Auriemma said there are discussions with the board and that “we’ll continue to evaluate that as we go forward.”
But another analyst wasn’t so sure this meant some kind of action,be it share buybacks or acquisitions,was imminent.
“Management indicated the company still has no plans for actuations or share buyback,” wrote Andrey Glukhov, an analyst with Southwest Securities Inc. in Dallas.
He said the company prefers “small product-driven acquisitions” that don’t cost much.
In October the company skimmed about $11 million from its coffers for Canada’s Yaletown Technology Group. Yaletown makes software that helps companies comply with the Sarbanes-Oxley Act and other regulations.
Yaletown’s software includes Records Crawler, which searches computer networks and desktop computers for documents that fall under compliance rules.
FileNet sees its piles of cash as a tool in competing against its huge competitors, such as IBM Corp. and Hopkinton, Mass.-based EMC Corp., Glukhov said.
But that might be too conservative.
“We believe the cash balance is more than sufficient to ensure the company’s viability and would prefer the company returns the cash to shareholders,” he said.
FileNet is indicative of a larger frustration shared by some investors.
Although the economy has been humming along for some time, businesses have been slow to spend their cash.
This past summer, cash levels at companies in the Standard & Poor’s 500 index reached an all-time high,a direct result of the huge earnings of the past year or so.
FileNet has done well the past year as well.
In July, it reported second-quarter sales were $105 million, up 11% from a year before.
The big gain came in profits, which were up 303% to $8.7 million, thanks in part to cost cutting.
In the September quarter, the company said sales were up 5% to $101.6 million from the year-ago period.
The company pulled in net income of $8.55 million, up 34% from the year-ago period and better than estimates of $8.12 million.
But the company warned that sales in the fourth quarter would be $110 million, below Wall Street expectations.
Glukhov lowered sales expectations for next year by nearly $10 million to $433 million. The company is on track to post revenue of about $417 million this year.
Given the softer outlook, the analyst said spending some of that cash couldn’t hurt.
Dispensing with the Old
An OC technology company recently got some new digs.
DispenseSource Inc., which sells large cabinets and software packages that help manufacturers manage inventory, recently moved from a 13,000-square-foot site in Rancho Santa Margarita to a 25,000-square-foot facility in Irvine.
The 6-year-old company has seen growth in the past year since it landed a contract to supply manufacturing sites for Germany’s DaimlerChrysler AG.
In the past year it has tripled the number of unit shipments.
“The primary purpose of the move was to increase our manufacturing space,” said Bill Keyworth, executive vice president of marketing.
The company ships parts from Asia before final assembly in Irvine, he said. The new DispenseSource headquarters are at 43 Tesla Drive.
The company’s products don’t manage all inventory, but what’s called “indirect goods”,items that aren’t the primary parts of a product, but are used in the manufacturing process.
They include safety equipment, fasteners and tooling (which are used to stamp out metal parts).
Securing Funding
Costa Mesa-based Espion International Inc. has rung up some funding.
The e-mail security software company recently announced it had received $607,000 in funding from several investors, including Houston-based Bellwether Venture Capital Fund I Inc.
The company also has secured a commitment of more than $500,000 more in the next few months.
Ryan Smith, Bellwether Venture Capital Fund president, has joined Espion as acting president and will serve on the board of directors.
“Initial capital funds will be used to expand the marketing effort and allow us to continue to develop applications for Espion’s proprietary artificial intelligence engine,” Smith said.
