By John Rogers
Systems management company Enlighten Software Solutions Inc is at a stage where it feels ready to make a run at becoming the $50m a year company its business plan calls for. After selling-off its Tandem Computers Inc-based performance monitoring software in 1997 the company started over on Unix and NT products. It’s got a lot of doors to knock on before it can get there, but did manage to convince Silicon Graphics Inc to scrap a three-year old development project for the Enlighten work. The company posted a surprise profit for its third fiscal quarter, showing net income of $70,000, or $0.02 per share. Wall Street analysts had been looking for a loss of $0.03 per share, according to Zack’s Investment Research. Revenues totaled $1.5m, a 22% increase year over year. This marks only the third quarter of profitability since the beginning of 1996 for Enlighten, which recently signed deals with Access Graphics and Integration Alliance for the distribution of the company’s software. It had previously struck a the bundling deal with Silicon Graphics Inc, from which it sees recurring revenue each quarter and will for at least three years. For the third quarter, recurring revenue from SGI amounted to $700,000, while upsell, or incremental revenue from the deal amounted to $600,000. Michael Morgan, Enlighten’s chief financial officer, says that the recurring revenue stream from SGI should remain at the current level going forward, but the upsell will make or break the difference in the overall life of the deal. Morgan admits, however, that given the way things are going, the originally projected $15m in sales over the three years may prove a bit too lofty a goal to maintain, especially given the decline in SGI’s own business. The Access deal, which is still in its infancy, is not a bundling deal, but relies solely on this type of upsell opportunity. The company feels it is as significant as the SGI deal, though. It kicked in too late in the quarter to book any revenue, but should begin making a small contribution in the first quarter of 1999. Recurring revenues now account for about 60% of the total, although management warns that going forward, revenues are not a shoe-in as the company isn’t mature enough yet to count on certain sales levels. At some point in 1999, however, Enlighten estimates that it will start to see increased incremental revenues from upsell, leading to a more predictable, steady top line. This, Morgan says, will lead the company to be pretty solidly profitable for the fiscal year. Current projections are for net income of $0.22 per share for the year. The value proposition Enlighten offers its customers, the company says, is that it has a comprehensive out-of-the-box systems management offering, where the competition either peddles large, monolithic and costly systems, or smaller components that address only specific functions. Enlighten will soon be announcing deals with a few more small players in AS/400 space – private companies with about $25m-$60m in annual revenues but names were not divulged. The company has also been approaching all of the big players, including Sun Microsystems Inc, IBM Corp and Compaq Computer Corp. Morgan tells us that nothing has materialized yet, but that there have been certain levels of interest, in that no one has flat out said they had no use for the software. Deals aren’t expected to bring in a great deal of revenue but they are expected to help validate the technology in the marketplace.
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