Editor's note: The previous version of this article said that the company's third-quarter guidance called for a net profit. We have updated the article to reflect that guidance actually calls for a net loss. We regret the error.
Integration software developer webMethods (NASDAQ:WEBM) had few surprises on its earnings announcement last week. In early October, the company reported weak preliminary results, dropping the stock's price by $0.81 to $6.67. But the price has bounced back as investors consider the company's strong product offering for a new category, service-oriented architecture (SOA), which is experiencing increased demand from corporate America.
In the fiscal second quarter, revenues increased from $49.2 million to $50.8 million. The big disappointment was the drop-off in software license revenues, which fell from $19.4 million to $16.5 million. This revenue is critical, because it leads to ongoing maintenance and services fees.
The company posted a net loss of $4.1 million or $0.07 per share in the quarter. This compares to net income of $2.6 million or $0.05 per share in the same period a year ago.
webMethods develops sophisticated software targeted primarily for Global 2000 customers, providing solutions for data integration. The technology helps tie together different business applications from companies such as Oracle (NASDAQ:ORCL) and IBM (NYSE:IBM).
But webMethods has moved into other areas as well, including SOA. Serivice-oriented architecture is a Web-based approach for companies to connect different systems and build new applications. As part of the company's SOA strategy, it's purchased best-of-breed companies in the space, including Cerebra and infravio. Consequently, the company has a full-featured product line for its SOA customers.
So why is the firm having problems? For one thing, it's had issues with its sales force, which was not focusing enough on generating new business. Management is revamping its approach to include new incentives and greater accountability.
Interestingly enough, based on the guidance from the earnings call, it looks like the weakness will continue. The fiscal third-quarter forecast calls for revenues of $47 million to $50 million, with license revenues of $13.5 million to $16 million. The company's net loss is expected to range from $0.11 to $0.16 per share.
The third quarter is typically strong for webMethods, so it's possible that management is being unduly conservative on its guidance. Then again, given its recent performance, caution is probably wise.
Restructurings are often difficult, especially when they require changing the behavior of the sales force. While webMethods has a great product for a major trend, the company may take a couple quarters to get back on track.
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Fool contributor Tom Taulli does not own shares mentioned in this article. He is currently ranked 61 out of 12,404 in CAPS.
