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After Thursday's bell, secure file transfer software provider GlobalScape (AMEX:GSB) reported first quarter 2010 earnings of $.02 per share on revenues of $4.4 million. That's a top line increase of 44% over last year. Cash and short term investments grew to $9.1 million, or about $.51 per share.

CEO Jim Morris expects even better performance in the second half of the year:

“Our first quarter performance was very strong and we dramatically improved every major financial indicator compared to the same quarter last year,” said Jim Morris, GlobalSCAPE president and CEO. “We are pleased to see financial results significantly better than our prior quarter,” Morris continued. “We are running in front of the broad guidance provided in our March 31 earnings call, and continue to look forward to the second half of the year where we expect to see even greater performance, driven by new solutions and partnerships.”

While GlobalScape is known among consumers for its CuteFTP software, enterprise products drive most sales by dollar volume and account for virtually all of GlobalScape's revenue growth:

Sales of GlobalSCAPE’s enterprise solutions continued to climb, to almost 90 percent of revenues, in the first quarter, continuing a trend that began several years ago. Increased enterprise revenue resulted primarily from continued growth in sales of the Enhanced File Transfer Server™ (EFT Server) solution. EFT Server sales increased to over $3.3 million in the first quarter, compared with just under $2.3 million in the first quarter a year ago. Similarly, sales of the Wide Area File Services (WAFS™) application increased to $530,000 as compared to approximately $421,000 in the first quarter of 2009.

Increasing enterprise revenue led to continued growth of maintenance and support (M&S) revenues during the first quarter, as more customers contracted for ongoing support of GlobalSCAPE’s business-critical solutions. GlobalSCAPE’s M&S revenue grew to over $1.9 million, or almost 44 percent of total revenue, in the first quarter, compared to just under $1.3 million, or 40 percent of total revenue, a year ago. Increasing M&Srevenue further strengthens GlobalSCAPE’s long-term financial position and reflects continued customer confidence in the Company’s solutions.

A $1.30 stock with $.51/share in cash and securities, growing and profitable businesses, and a reasonable PE multiple sounds great. Let me be clear — I am long, having purchased GlobalScape in smallish quantities back in March between $1.46 and $1.49, and having added to that position today at $1.30 ahead of earnings. But like any investment thesis there are risks:

(1) GlobalScape has made a $2.3M investment in CoreTrace. Early indications are positive but if CoreTrace flops then this will have to be written down;

(2) the chart is not great. There is an overhang of sellers, but I don't know how much. Yesterday's news might shake them out, but if there is another block to go then any pop could easily fade. Watch for a sustained move above $1.55, which would flip the technical picture to positive;

(3) if the positive guidance doesn't pan out, shares could trade down substantially, even from here.

DISCLOSURE: Long GSB.

Source: GlobalScape Earnings Indicate Q1 Good, 2nd Half of Year Even Better