Last week, in previewing the Q2 2006 earnings release that enterprise and mobile software provider Sybase (NYSE:SY) was to put out on Thursday, I opined that "Wall Street should be easy to impress," based on its expectation that Sybase would post just 4% sales growth for the quarter.

Which is exactly the way things played out, objectively speaking, Sybase's meager 5% growth in sales wasn't calculated to impress anyone. But against the background of low expectations, it sparked what has, so far, turned into nearly a 4% rise in the stock's price over the past two days.

Of course, that wasn't exactly how Sybase played the news. Although it did boast of beating the predictions of Wall Street's best and brightest, Sybase emphasized the double-digit aspects of its performance:

  • Database licensing revenue growth of 31%
  • Mobile and wireless licensing of 21%
  • Profits per-share growth of 71%

Why did Sybase place so much emphasis on the licensing numbers (aside from the obvious point that they showed a lot more growth than did overall revenues, which were dragged down by a 3% decline in services revenues)? Because as uber-profitable companies like Qualcomm (NASDAQ:QCOM), Microsoft (NASDAQ:MSFT), and Oracle (NASDAQ:ORCL) have demonstrated over the past decade, licensing revenues are among the highest margin revenues a company can earn.

And what's true for these more famous names was true for Sybase as well, permitting CEO John Chen to claim not just his company's "highest year-over-year license growth in 12 years," but also its "highest Q2 operating margin in [Sybase's] history as a public company." Compared to Q2 2005, Sybase grew its operating margin 130 basis points to hit an even 15%. That looks even more impressive when viewed from the bottom up, as it helped the company net 12.2 pennies from every dollar of revenues taken in this quarter -- a 450-basis-point improvement over last year.

In other news, the company has increased its free cash flow by 7.7% versus last year, generating $117.2 million year to date. Don't expect cash generation to maintain that pace through the end of the year, however. In its forward guidance, Sybase projected that (before capital expenditures are deducted to calculate free cash flow) operating cash flow would not exceed $170 million at the end of this fiscal year.

Finally, in a demonstration that management thinks Wall Street continues to be off base in its valuation of its shares, Sybase bought back another $20.6 million worth of its stock during the quarter. And although I'd rather not end on a down note, it bears mentioning that continued issuance of stock options negated the effect of the buybacks, and the firm's diluted share count today is therefore higher than it was a year ago.

For further Sybase scribblings, read:

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Fool contributor Rich Smith does not own shares of any company named above.