Softworks Preps for Secondary Stock Sale

By Richard McCaffery, Staff Writer



Local software maker Softworks Inc. and its parent company plan to cash in on a booming stock market, selling 3.5 million shares of common stock in a move expected to raise $54 million.

The company did not disclose in its May 3 filing with the Security and Exchange Commission a proposed offering price for the shares or say when they will be issued, but the sale would reduce Computer Concepts Corp.'s ownership in Softworks from 51 percent to 42 percent.

Softworks is trading at about $13 a share, nearly twice its initial public offering price of $7 last August — and way up from its low of $3.12 a share, hit in October when the market wilted.

The Alexandria, Va., company expects to receive $12.2 million from the sale. If so, it could represent a nice windfall for the little storage management software company, which has been bootstrapped since opening its doors in 1977.

"We're a very strong, independent corporation," said Judy Carter, Softworks president and chief executive. Carter joined the company in 1980 and took over as chief executive in 1991.

The company grew without venture capital financing and received no investment from Computer Concepts Corp. of New York when it was acquired in 1993. Softworks did receive $7 million when Computer Concepts took it public last summer.

The secondary offering should provide working capital to hire additional employees, fund product development and expand operations overseas, according to the company's SEC filing. The 264-employee company added 103 employees since the beginning of last year and has operations throughout the United States, Europe, Asia and Brazil. In February it opened an office in Japan.

Plans for 1999 include boosting federal sales from just over 10 percent of revenue to 20 percent, an ambitious mark the company is more likely to achieve in 2000, Carter said.

"One of our goals this year is to penetrate [the government] market more effectively than we have in the past," she said.

One way Softworks expects to do this is with new products. Before 1998, its storage management software worked only on mainframe operating systems. Last year Softworks introduced Unix and Windows NT-based versions of its storage management software, which should give the company a nice lift in the federal market, Carter said.

"It makes the government market larger for Softworks," she said.

Softworks makes storage management and performance management software, products that help IT managers monitor software, systems and networks. Companies such as Wal-Mart Stores Inc., Prudential Services Co. and Citigroup Inc. use its products. Government customers include the U.S. Customs Service, Defense Information Systems Agency and Social Security Administration. Softworks has had a unit focused on the federal government since 1996.

On April 16, Softworks sold a package of software worth $55,000 to the Social Security Administration, and March 31 it sold the same package to the Defense Information Systems Agency for $57,000. The company is now pursuing other opportunities at DISA as well as the Agriculture Department.

The company has been on an upswing since 1995. Executives grew sales 55 percent annually the last four years, from $11.6 million in 1995 to $44 million in 1998. Bottom-line growth shot from a loss of $1.7 million in 1995 to a profit of $3 million in 1998, and executives managed to do it with a clean balance sheet. Softworks has $18 million in cash and has not added a nickel to its $1.4 million debt load in three years.

But the tiny company swims with sharks — companies that have established government and commercial practices, such as Computer Associates International of Islandia, New York, and BMC Software Inc. of Houston, which bought Softworks rival Boole & Babbage Inc. March 30. Carter considers Sterling Software Inc., a Dallas company that had $720 million in 1998 sales, her chief rival.

Paul Mason, vice president of infrastructure software research at International Data Corp. in Framingham, Mass., said it will be difficult to compete against the likes of Sterling and BMC.

"So far [Softworks] has done it by being a little quicker and more lively," he said, noting that Boole & Babbage and Sterling lacked strong marketing operations. "I think the challenge is these two giants may stir and compete."

Still, Mason expects Softworks to stay ahead of the pack because of its technical foresight.

"They've always been at the cutting edge of understanding the need for the unified look of storage management platforms across the enterprise," he said.

Another way Softworks thrives in crowded waters is through partnerships with well-known players, Carter said.

IBM Corp., for example, distributes Softworks products in its catalogs, and Hewlett-Packard Co. gives Softworks access to its technology through a business partnership that allows many of their products to work together. It is also developing relationships with storage giants EMC Corp. and Storage Technology Corp.

Softworks also tries to differentiate its products, said Carter. Its software contains features that allow customers to choose the level of automation built into their packages as well as functions that allow IT operators to monitor and repair storage indexing functions, called Catalog Solutions.

"This adds significant value to our products," she said. "We have a very strong management team and a strong infrastructure to support growth."