Workflow is flowering

With competition from new technologies, workflow software developers are holding their own.

It’s hard to know whether the current rash of good numbers is sign of a real recovery in technology companies or not. Many tech firms, including those in the workflow and business process re-engineering sector, are recording steady increases over similar figures from a year ago, which under normal circumstances could only be seen as positive. However, the third quarter of 2001 was heavily influenced by the September 11 terrorist attacks, so using it as a reference point could be misleading.

For instance, Staffware’s third quarter 2002 revenues came in at £8.1 million, compared with £7.9 million for the third quarter of 2001. Similarly, Pegasystems recorded a year-on-year increase for Q3 of US$23.9 million to US$25.6 million, with earnings jumping from US$3.9 million to US$4.8 million. Perhaps significantly, Pegasystems also added US$7.8 million to its cash reserves during the quarter, taking its money on hand to US$52.3 million at the end of September.

Optika’s revenue in the third quarter reached $4.7 million, which the company said was an increase of four percent compared with $4.5 million reported in the second quarter of 2002, and up 20 per cent compared with revenue of $3.9 million in Q3 2001. Perhaps more importantly, Optika scraped back into profitability in the quarter with some big sales of its Acorde Document Imaging, Workflow and Collaboration Suite. Its earnings were only US$45,000, but the psychological impact of getting back in the black can not be underestimated.

So all three of these companies managed growth rates in revenue in single digits compared to year-ago quarterly figures. Was this really good enough? Investors seemed not to think so, although as with many technology sectors, widespread pessimism over economic concerns had dampened any enthusiasm generated within the sector itself. Very few technology industries have been able to escape the gradual downward slope imposed by the NASDAQ index, which has roughly translated into whatever gains that were made in January being slowly eroded over the course of the year.

The workflow industry itself is undergoing significant change. On the process side, it is being changed by the advent of business process reengineering, meaning that consultancies are gaining more of a say in how workflow systems are implemented, rather than vendor partners being able to install technology by themselves. On the technology side, document-based workflow is being supplanted somewhat by enterprise content management, which is adding workflow features to Web-sourced content. As can be seen by the above figures, the workflow specialists are holding their own, which in the current environment is just about the best case scenario.

DECIMATION

The workflow vendors can be thankful that they are not in an industry dominated by huge players, notwithstanding the market leadership position enjoyed by Staffware. Mercator Software brings something of a workflow flavour to the enterprise application integration market dominated by IBM and BEA Systems. Its revenue went from US$35 million last Q3 to just over US$25 million this year, reflecting a long-term malaise that has seen its stock drop from over US$10 (as mentioned in this column in our January/February issue) to a 52-week low in late October of 55 cents. This price put the company at a market capitalisation of around US$20 million, which not coincidentally was the sum total of the company’s cash reserves a the end of the third quarter. Given that the company was debt free, that price seemed to be the absolute minimum the company would trade at if it were to stay afloat. The main problem for Mercator is the company’s “burn rate”, or the speed with which is it using up its cash. The third quarter removed US$7.3 million from its cash pile.