ClickSoftware Technologies carves out a great niche

Why would a technology company be up 24% on a day where the Dow is down nearly 350 points? Such price action would naturally invite some investigation. The company I am speaking of is ClickSoftware Technologies, Ltd. (NASDAQ: CKSW). So let’s take a look at this well capitalized software company that expects to report record revenues for the third quarter and see what’s driving the interest in this company’s stock.

CKSW is a leading provider of workforce and service management software products and solutions. The company’s products and solutions incorporate best business practices, key business functions of field service operations, and sophisticated decision-making algorithms that enable clients to more efficiently manage their field service operations in a scalable, integrated manner. CKSW has an end-to-end service chain optimization suite of products that is designed to increase service revenue and customer responsiveness while reducing costs.

CKSW service optimization solutions are utilized by leading organizations in a number of service industry segments, including: utilities and energy, telecommunications, retail, insurance, high-technology, computer and office equipment, industrial equipment, medical equipment, building automation, aerospace and defense, and home services. The company’s largest vertical market traditionally has been the telecommunications market. However, in recent years, CKSW has seen strong demand in other markets, particularly the utility market which has benefited from deregulation and modernization trends and became their largest vertical market in 2007. CKSW markets and sells products mostly through a direct sales force located in North America, Europe and the Asia Pacific region. Major clients include: Best Buy (NYSE: BBY,), Caterpillar Inc. (NYSE: CAT), Diebold (NYSE: DBD), Pacific Gas & Electric, Southern California Edison, Xerox (NYSE: XRX) (North America), Bell Canada, Gaz Metro (TSX: T.GZM.UN), Terasen Gas (Canada), Anglian Water, Deutsche Telekom and Ericsson (NASDAQ: ERIC).

Things have been improving at CKSW for some time. The company became profitable in the second quarter of 2006 and has maintained profitability since then. During 2007, CKSW generated $4.9 million in positive cash-flow from operations. The company’s revenues grew by 23% in 2007 representing growth in North America and Europe and in all line items. The growth was primarily attributable to the addition of new customers and additional market penetration into new vertical markets. For the second quarter ended June 30, 2008, total revenues were $11.0 million, with net income of $0.1 million, or $0.00 per share. This compares with revenues of $10.5 million and net income of $1.0 million, or $0.03 per share, for the same period last year. Yet investors should note that management mentioned some contracts would fall into the following quarter and increase revenues.

CKSW has a number of factors currently driving revenues increases. The company has witnessed an increasing demand for mobile workforce optimization products. Deregulation has introduced fierce competition for service quality and P&L pressures in the private sector have driven the need to increase productivity and utilization. Also, the increase in oil and gas prices drives service companies to seek cost-effective solutions for their respective fleets. ClickSoftware, by lowering travel time, reduces the customer’s costs of gas, and thereby contributes positively to the environment.

So what are my thoughts? There is a lot to like about CKSW. Revenues are diversified geographically and global competition is here to stay. Service revenues have grown giving the revenue base a recurring component and more stability. CKSW also maintains partnerships with some larger companies like Accenture (NYSE: ACN, Stock Forum), Microsoft (NASDAQ: MSFT, Stock Forum) and SAP AG (NYSE: SAP, Stock Forum). On September 30, 2008 CKSW stated that it expects record revenues for the third quarter of 2008 at an approximate range of $15.5 to $16 million. The company also said that it currently expects annual revenues in the range of approximately $52 to $54 million dollars, exceeding the annual guidance and bringing the year-over-year growth to the 30% to 35% range. With $24 million in cash, a strong franchise and a trailing twelve month price to sales ratio of 1.3x CKSW gives investors some good reasons to take a close look.