Enterprise Software Maintenance Revenue Streams Growing for Certain Companies: Returns Will Benefit Investors in These Winners

67 WALL STREET, New York - August 26, 2009 - The Wall Street Transcript has just published its Application Software Report offering a timely review of the sector to serious investors and industry executives. This 111 page feature contains expert industry commentary through in-depth interviews with public company CEOs, Equity Analysts and Money Managers. The full issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.

Topics covered: Upgrade Cycle for Application Software -- Software as a Service -- Cloud Computing -- Virtualization Software -- Government Software Sales Cycle -- Demise of Unix -- Installed Base of Microsoft Software -- Installed Base of Oracle Software -- Economic Projections for Software Industry -- Stock Winners and Losers

Companies include: Microsoft (MSFT); VMware (VMW); Oracle (ORCL); RedHat (RHAT); Sybase (SY); Google (GOOG); Symantec (SYMC); Avocent (AVCT); Novell (NOVL); SolarWinds (SWI);CommVault (CVLT); Data Domain (DDUP); IBM (IBM); SPSS Inc. (SPSS); Steel Vault (SVUL); StrikeForce Technologies (SFOR); Jagged Peak (JGPK); Lyris, Inc. (LYRI); Saba Software, Inc. (SABA); TTI Team Telecom International (TTIL); AMICAS, Inc. (AMCS); Sonic Solutions (SNIC); BluePhoenix Solutions Ltd (BPHX); ArcSight, Inc. (ARST); Etelo, Inc. (ETLO); Pansoft Company Limited (PSOF); Exobox Technologies Corp. (EXBX); PROS Holdings, Inc. (PRO); Proginet Corporation (PFGF); Versant (VSNT); Wyndstorm Corp. (WYND); China Digital TV Holding Co. (STV); QAD Inc. (QADI); Magic Software Enterprises, Inc. (MGIC); Wizzard Software Corp. (WZE); SXC Health Solutions Corp. (SXCI); Telvent (TLVT).

In the following brief excerpt from just one of the 31 interviews in the 111 page report, an industry expert discusses the outlook for the sector and for investors.

David Bayer is a Senior Research Analyst covering enterprise and Web-enabled software for Cantor Fitzgerald. Prior to joining Cantor, he was Director of Research at Northland Securities, a small-cap oriented research boutique. Mr. Bayer has extensive experience in both long-only and market-neutral hedge fund research, managing mutual funds and institutional accounts, and he has covered the software industry for many years. He received an MBA from the Wharton School at the University of Pennsylvania, a master's degree in Civil Engineering and a bachelor's in Biological Sciences from Stanford University.

TWST: Where are you focusing your attention these days?

Mr. Bayer: I focus on three areas. One is the field of enterprise computing, including enterprise resource planning, human capital management, manufacturing-oriented software, supply chain management, project and product management, and customer relationship management. There are clearly a number of substations within enterprise computing. Currently, we cover Lawson Software (LWSN) and Deltek (PROJ) within enterprise resource planning. The second area that we cover can loosely be thought of as system software, which also includes the cloud computing space. These are companies that support the infrastructure for the enterprise and access to the cloud. We cover two companies in that area: Red Hat (RHT) and CommVault (CVLT). And then there is vertical market software - companies that take some of the concepts we just described and apply them to any individual industry segments. We cover athenahealth (ATHN), which is a combination of specialized software for the medical industry that takes advantage of enterprise and cloud-based computing industries. We also cover DemandTec (DMAN). DemandTec is a very interesting company that has specialized software and services for helping retailers optimize their product mix, helping the producers of products for retailers, which are basically consumer product companies, optimize their pricing and product offerings for the retailers, since the retailers have thousands and thousands of products on the shelves, supermarkets, after superstores of that nature. It's a very interesting company. This space is a lot of fun actually because there's some interesting companies doing some very unique things.

TWST: Generally speaking, how are people faring in this economic situation? The conventional wisdom seems to be that software companies are doing reasonably well and hardware companies are being laid low.

Mr. Bayer: There is a two-part answer. In terms of new license sales, the industry's growth has definitely slowed. The software industry in general has been doing somewhat better than the hardware industry. In general, many software companies have had growth in the range of 20% to 40% in the last few years. That growth has gone down to anywhere from single digits to negative, but not hugely negative - not down 40%. But some of the companies may be down 15%. So the growth has clearly slowed, I would say, on average about 20% from what it had been, depending on the industry segment. That's on the license side. But what I think has been very interesting to the institutional investor is that the maintenance space has been very stable for these companies. And many of these stocks are trading in large part at the moment on multiples of revenues from maintenance streams. So the good news is that there is protection on cash flows for these companies because the maintenance revenues are highly predictable and recurring. And until such time as the license work begins to accelerate, you have a base level of cash flow to these companies that I think can over time be supplemented by renewed license growth and renewed demand for services associated with installing new software packages.

TWST: Has the maintenance made them recession-resistant to a point?

Mr. Bayer: Correct. In general, the majority of the companies that I cover have renewal rates for the maintenance anywhere from 85% to over 100%. The latter happens when companies add additional maintenance for new products they bought in the previous year. For some companies, maintenance revenues are actually growing even when license revenues slow.

The Wall Street Transcript is a unique service for investors and industry researchers - providing fresh commentary and insight through verbatim interviews with CEOs and research analysts. This 111 page special issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online .

The Wall Street Transcript does not endorse the views of any interviewees nor does it make stock recommendations.

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