Endace books profit for September half-year

Higher-margin maintenance and support revenues rise in latest results

Lucrative maintenance and support revenue is becoming a bigger part of Endace’s revenues, according to the network management vendor’s April-September results, released earlier this week.

Group revenue for the six months to September 30 was US$18.6 million, up from $13.6 million for the same period last year. The result was tipped in a statement from the company last month.

This resulted in a pre-tax profit of $200,000, adjusted for share options, compared with a $1.3 million loss last year.

Systems sales, including software, comprised 42.2 percent of revenue, compared with 32.2 percent last year; the converse was true for sales of the company’s DAG cards, which was down from 40.6 percent or revenue last year to 32.8 percent this year.

The shift towards higher-margin, value-added revenue is also seen in recurring support revenue, which represented 17.3 percent of income this year, an 84.2 percent hike on last year.

Moves to bigger internet pipes are benefitting Endace; in a commentary on the results, the company notes: “Average selling prices and margins are increasing across the company’s product range due to the movement from 1Gbps to 10Gbps offerings.”

There was also “a reduction in the number of low-margin deals involving third-party accessories”, the commentary notes.

As to whom the high-margin customers buying systems and signing up for ongoing support and maintenance are, “Revenue from the financial services sector represented 38.8 percent of group invoiced revenue, while business from the telco and government sectors represented 24.3 percent and 12.7 percent respectively.”

New customers signed during the six months to September include a triple-A rated customer in the European banking sector and a government client in Canada.

Sales to OEMs and resellers represented 21.7 percent of revenue and the reseller side of the business saw agreements signed with Axial, a European reseller of network monitoring and security systems, and Ymon, a reseller in the Nordic countries.

Dealings with a US reseller which had caused Endace to set up a bad debt provision of $1.2 million last year continued.

“At 31 March 2010 a provision of $1,200,000 was made against an amount owed by a reseller and systems integrator supplying the US Government that was predominantly overdue.

“We have continued to work closely with this customer to reduce the debt and build revenue, reducing their inventory holdings to enable new orders for Endace business to be placed through them without increasing account exposure.”

Another financial tangle, this time involving funds not passed to the US authorities by Endace’s former US-based tax and accounting consultants, is also addressed in the results.

“In FY11 a doubtful debt provision of $0.4 million was made to cover monies owed by our former US-based accounting and tax consultants.

“In the six months ended September 2011, we have released $0.1 million due to receipt of funds in accordance with an agreed-upon payment plan.”

The benefits of Endace’s two government grants, totalling NZ$10.6 million over three years, are recognised in the results; according to the company, “The two grants combined have contributed US$0.8 million of other income and US1.0 million of cash benefit in the six months to September 2011.” The grants were earmarked for research and development projects.

On the R&D front, “we made good progress in the development of our 100Gbps probe, which we expect to ship for revenue in the second half of the year.”

The first half of the year “Saw significant investment in the continued development of a complete end-to-end network visibility capability which will allow organisations to unlock the latent potential in their networks.

“This moves us further along the path from a specialised technology company, to a vendor of systems and ultimately a supplier of compete, integrated solutions.”

Endace hired 23 new staff during the six months, bringing its headcount up to 172. Among the hires was former Juniper Networks product management vice president Spencer Greene, who joined Endace’s US operation as senior vice president for product management and marketing.

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