It’s a good time to be selling business software.
Stepped up spending by businesses made for a strong second quarter at Orange County software makers.
Irvine-based Epicor Software Corp. recently reported what it called the best second quarter in the history of the company, which makes software for accessing business data.
For the quarter, Epicor reported sales of $71 million, up 46% from a year earlier. Operating profit doubled to $10.6 million, minus a onetime $18.6 million tax gain.
Epicor also upped its forecast for sales and profits for the rest of the year. The company said it now expects 2005 profit of about $48 million, up from an earlier forecast of $46.6 million. Sales could come in at $284 million, up from a prior projection of $276 million.
Costa Mesa-based FileNet Corp., a maker of file management software, also logged a strong 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.
Next up: Irvine-based Quest Software Inc., which is set to report second-quarter results on Thursday. Analysts expect a 16% rise in sales and a 33% increase in profits at the maker of database monitoring software.
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Klaus: overseen turnaround, big acquisition at Epicor |
“Technology spending is not falling over,” said Andrey Glukhov, a software analyst with Dallas-based Southwest Securities Inc. “If you look at this year, the comparisons with last year are a little easier. Companies have grown nicely, and they’ve executed pretty well.”
Take FileNet.
Last year, the company issued two warnings in August, which sent the company’s stock reeling 40% in the month. Before that, FileNet missed projections for the June quarter.
“They missed pretty badly,” Glukhov said.
FileNet makes software that keeps track of the endless digital paper trail inside companies. FileNet has seen a benefit from the Sarbanes-Oxley Act of 2002, which requires better controls of records inside companies.
The gains are showing in the stocks of software makers.
FileNet shares are up 52% in the past year, giving it a recent market value of $1.2 billion. Epicor’s are up 23% in the past year with a market value of $770 million. Quest is up 26% to $1.4 billion in market value.
“Last June, there was a huge meltdown in software,” said Mark Schappel, an analyst with Keybanc Capital Markets, part of Cleveland-based KeyCorp. “It affected everybody to a certain extent. Now spending is stable. There’s been consolidation and that’s lessened customer confusion.”
That’s been the case with Epicor’s segment, according to Schappel.
Epicor’s software culls data from factory floors, warehouses and accounting for use in sales, marketing and customer support. The company sells software to small and midsize businesses.
Several companies in Epicor’s “enterprise resource planning” software segment combined in the past year. That’s made picking a software supplier easier for customers, simply because there are fewer companies out there.
Epicor has been a part of the trend, buying Netherlands-based Scala Business Solutions NV for $88 million last summer. That added customers and it buoyed second-quarter results.
“We are delighted to report solid results and growth rates exceeding our goals and representing the strongest second quarter revenues in our history,” said George Klaus, chief executive of Epicor.
Stepping Down
Klaus, who has overseen a makeover of Epicor since 1996, said last week that he plans to stay through 2007. The company promoted Mark Duffell to president and chief operating officer. Duffel has been with Epicor since 1996.
Quest, which is in the process of moving from Irvine to Aliso Viejo, has made some buys this year.
In May, the company acquired privately held Imceda Software Inc. for about $60 million. The buy stands to expand Quest’s products that help manage SQL server databases. Quest’s main focus is to develop software for systems based on Oracle Corp. databases. But it has been developing products for other database software, such as SQL.
Last month, Quest bought Vintela Inc. of Lindon, Utah, for $56.5 million. Vintela makes software that helps products made by Microsoft Corp. work with the Linux operating system.
Quest’s software is designed to make it easier to use databases from Microsoft, Oracle and other companies.
Analysts this week are expecting Quest to report $107 million in sales for the second quarter and $8.7 million in profit.
“Things have been recovering quarter by quarter since June,” Schappel said.
