Seeking Alpha
Growth at reasonable price, long-term horizon, value
Profile| Send Message|
( followers)  

ClickSoftware (NASDAQ:CKSW) provides mobile workforce management software and solutions to service-oriented businesses. Workforce management applications offer automated solutions to challenges such as shift management, schedule optimization, route recommendations, workload forecasting and performance measurement. Many businesses find outstanding service delivery gives a competitive edge and can be the key differentiator. And, yet, solutions for managing the workforce and optimizing schedules are just recently transitioning from a categorization of "nice to have" to being considered mission-critical.

In 2011, ClickSoftware earned $87 million in revenues which resulted in $0.53 in earnings per share. In 2012, ClickSoftware passed the $100 million annual revenue milestone but only earned $0.31 per share. ClickSoftware is projecting 20% growth in revenues for 2013 but is projecting EPS of only $0.24 to $0.30. It's hardly an optimal signal when revenue grows and earnings decline.

The market for workforce management solutions is both deep and wide. In the world economy, 70% of businesses are service-oriented. Such businesses find the primary resources critical for operational success are people and time. Of the largest service businesses, only 20% use any type of field service management software. The estimated market in 2011 for field service mobile applications was $1.6 billion. ClickSoftware estimates the overall market, including services, is $18 billion.

Workforce mobility is driving the workforce management industry. Many service organizations are realizing it would be prudent for an employee with a smart phone to be able to do more than make a phone call. Especially when in the presence of a customer, it is compelling to enable employees to be productive and efficient to increase the customer's overall satisfaction.

ClickSoftware is flexible and scalable. Its solutions are user-device independent. Compatibility with existing IT enterprise infrastructure is already established making inter-connectivity concerns null. ClickSoftware spent 2012 making significant investment in cloud computing and is well-positioned to capitalize on it. Its ClickAppStore is unique and patent-worthy. It was specifically developed to meet the needs of mobile employees connecting to business operations. It is a repository for ready-to-use mobile apps that will streamline communications and improve productivity.

The reality is that even though ClickSoftware's revenue grew at an impressive pace, operating income margins decreased significantly during the same time. The bottom line took a hit because of heavy investments in research and development. The R&D spend increased 46% from 2011 to 2012. As well, ClickSoftware recognized its processes related to generating leads and locking in sales needed attention. Sales and marketing was addressed and expenses leaped by 36%. Overall, the number of ClickSoftware employees increased 25% between 2011 and 2012.

The following timeline summarizes the pertinent junctures in 2012:

February - ClickSoftware reported year-end 2011 earnings and provided 2012 revenue guidance at $100 - $105 million.

April - ClickSoftware shares fell 16% when it announced first quarter 2012 revenues would come in below expectations. At the same time, it reiterated 2012 revenue guidance at $100 - $105 million.

May - The actual earnings report was published and share price fell another 8% even though revenue came in slightly ahead of the projection in April and full year guidance of $100 - $105 million was reiterated a second time. The actual miss was with earnings per share (NYSEARCA:EPS) which came in at $0.04 instead of the estimated $0.05. The next quarter's estimates were estimated at $24.5 million for revenue and $0.11 for EPS.

July - When the second quarter was reported, revenue for the first six months was $44.3 million which was equal to 44% of the low-end of the full-year projection. Not only was that number in line with ClickSoftware's historical trends but it was in line with industry trends of IT software investments. Even though ClickSoftware was fully confident in delivering another $44 million by year-end, it did conservatively lower full-year revenue guidance to $98 - $103 million. Again, the concerning miss was with earnings which came in at $0.03 instead of the projected $0.11. The share price fell another 14%. Analysts now projected full-year revenue at $101.8 million and EPS at $0.52 and third quarter revenues at $25.4 million for revenue and EPS at $0.07.

October - Third quarter reporting was finally somewhat of a bright spot for ClickSoftware. Revenue came in at $27.3 million and EPS came in at $0.11 beating the estimates of $25.4 million and $0.07. Still, earnings trailed the previous year's same quarter by 36%. Estimates for the final 2012 quarter were now at $29 million for revenue and $0.12 for EPS. Full year revenue estimates from analysts fell to $98.8 million and EPS estimates were cut almost in half to $0.27. ClickSoftware reiterated revenue estimates at $98 - $103 million.

February, 2013 - The conclusion of a challenging 2012 was summarized. Year-end revenue finished at $100 million and EPS finished at $0.31. Meeting the $100 million revenue milestone was the intentional target of ClickSoftware's multi-year plan just as much as the decrease in earnings per share was. ClickSoftware purposely augmented and matured its products to meet industry needs, enhanced its marketing engine to generate leads and enlarged its sales force to drive revenues. The expenses of such are projected to continue through the first half of 2013. But, the benefits of higher profit margins are expected to begin to accelerate in late 2013 and continue improving in 2014.

ClickSoftware's latest focus is on:

  • new territories and industries,
  • enterprise mobility as a starting point rather than traditional optimization points enabling expansion to other products and
  • cloud computing offerings of all products.

It has global reseller agreements with SAP AG (NYSE:SAP), Infor, and Amdocs (NASDAQ:DOX). In 2011, SAP, the largest enterprise resource planning (ERP) company and market leader awarded ClickSoftware with its Pinnacle Award for "Software Solution Innovator of the Year". Infor is the third largest ERP applications company in the world behind SAP AG and Oracle (NYSE:ORCL).

Without the full story, if one were just looking at numbers, ClickSoftware appears to have clacked and clucked through 2012 from a record year in 2011 to a convoluted state. But, knowing the story means knowing when to start the clock on a new cycle in its history. Analysts' estimates for 2013 average $118.9 million for revenue and $0.35 for EPS. The company's estimates are $120 - $125 million for revenues but only $0.24 to $0.30 for EPS. Both the company's and industry's history show cyclic buying from customers of 45% of annual revenues in the first two quarters and 55% in the last two. As stated above, expenses for the transformation will continue through the first half of 2013. Another pertinent factor concerns ClickSoftware's tax status which will be a costly impact in 2013 and beyond. Carry-forward losses from the past are depleted. Government exemptions are also fully consumed.

The marketing expenses incurred in the past year and a half built a sophisticated and disciplined pipeline structure for predicting future business. An energized sales force and notable reseller partnerships should position ClickSoftware well ahead of competitors. ClickSoftware believes it has the right products at the right time. Still, it is just not yet time to start the clock. If the first half of 2013 ends with ClickSoftware delivering revenues in the range of $54 to $56 million and maintaining operating margins of 8%, the current phase can be considered at the midnight hour. The clock can then start ticking on a new day for Click Software where revenues continue gaining at a double-digit pace, margins begin expanding and earnings per share commence a sturdy upward trend.

Source: Time For The Clock To Tick On ClickSoftware?

Additional disclosure: I belong to an investment club that owns shares in CKSW.