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When Jeff Rodek took over the reins seven months ago as CEO of software company Hyperion Solutions Corp. (HYSL), he was careful to do his due diligence. He asked various employees of the $500 million company about its projections for future growth. "The answer was consistent. Everyone said that sales would hit $1 billion in the next three to five years," says Rodek. Even though individuals responded that way, however, "as a team the optimism wasn't there," he adds.
Thus, Rodek's first task has been to create the esprit de corps that has been missing since Arbor Software and Hyperion Software merged in 1998. The task of combining the two sales forces -- and educating each of them about the other's products -- didn't go smoothly, so sales fell short of forecasts. Profits were disappointing, too. The stock stagnated. And salespeople jumped ship. Now, Hyperion's investors are depending on Rodek, whose experience includes stints at Ingram Micro and Federal Express, to make things right again.
Shortly after his arrival, Rodek reorganized the company by product line and launched an internal communications campaign that has slowed sales-force defections. Now, he's focused on achieving 30% sales growth over the next couple of years. Analysts believe Hyperion can do it. If they're right, the stock offers a chance to buy into a dominant player in business-analysis software at the beginning of what should be the company's -- and the industry's -- rapid-growth phase.
CULT FOLLOWING?
Since last fall, the stock has been on a roller coaster. It shot up from around 23 in November to a 52-week high of 65 in mid-March, before taking the same nosedive the rest of the Nasdaq did and ending up at 20 by late April. The company announced 30% growth in software licensing revenue for the fiscal third quarter ending in March, and 19% growth in service and maintenance revenue, as overall revenues jumped 24%, to $125 million. In response, the stock has edged up to 29 7/8.
It should be trading at 50 within the next 6 to 12 months, predicts Bert Hochfeld, a vice-president for technology research at Manhattan-based securities firm Josephthal & Co. It might hit 100 within the next year or two, according to Gary Abbott, a vice-president and enterprise software analyst at New York investment bank Punk Ziegel & Co. The company's total market valuation "is extremely cheap at 1.6 times revenue," says Pat Farley, a senior research analyst at money manager Kopp Investment Advisors, which owns the stock. "They lost a year and a half with the merger integration, but you'll be getting paid handsomely to see if they can turn it around.
"The turnaround should be reflected in both the top and bottom lines, according to analysts. They expect revenues to hit $485 million for the year ending in June and to rise to around $600 million next year. Earnings per share over the same period should rise from around 90 cents to around $1.20, give or take a penny.
Analysts are bullish thanks to the company's two basic product lines. Rodek claims that there's a cult following for Essbase, so-called online analytical-processing database software that's designed for multidimensional analytics.
"THEY'RE ENTRENCHED."
Multiple dimensions make it a lot easier and speedier to analyze a large number of variables. As Josephthal's Hochfeld describes it, "suppose you wanted to know how many green-eyed, red-haired women over 60 went out in a snowstorm and purchased something with a coupon in Grand Rapids on Tuesdays in February. Without Essbase, you'd have to write out eight [database] queries and join seven tables to do this analysis." Not only that, he says, but the computer could only analyze one variable at a time, so you would have to wait for the results of each query before putting the whole analysis together. Essbase not only allows simultaneous processing of queries but it also does routine precalculations on factors that link certain variables. The result is that it's much faster than relational databases. Essbase accounts for about half of the company's revenue, and its sales should grow 30% or so a year, say analysts.
The other half of Hyperion's business, its Internet analytical application software, has faster growth potential -- perhaps 50% a year -- but more competition. This software is used to manage and analyze information about customers, and to integrate all the software products that a company uses. In this business, Hyperion has competition from companies like E.piphany.
Analysts believe that Hyperion may have an edge in this field on a couple of counts. "The existing customer base [of Essbase clients] means shorter sales cycles and better opportunities for pushing the Internet applications software," says Punk Ziegel's Abbott. He also likes Hyperion's network of 400 partners -- companies such as Ernst & Young, Andersen Consulting, and IBM that resell the product. "It means they're entrenched in the largest companies that spend the most on technology."
DRUMBEATS.
Of course, such positioning means little if Hyperion can't deliver new products on time -- a past weakness that now seems about fixed. Not to leave anything to chance, Rodek has hired Beth Broderson from KPMG as Hyperion's new head of global marketing. Previously, Rodek says, clients -- and the company's sales force, for that matter -- didn't understand how Hyperion's products meshed. Broderson will help make that clear. Based on the 50,000 to 60,000 resource-planning systems that are now installed in large companies, Rodek says, the total market for such software could eventually be $7 billion to $12 billion a year.
Rodek is still working hard to complete the integration of the two companies. He sends (more or less) weekly state-of-the-company e-mails, which he refers to as "drumbeats," to all 2,100 employees. The reference to the movie Ben Hur is unfortunate: The drumbeat is the sound that keeps oarsmen in sync on a slave ship -- and the slaves remain chained to the oars as the ship goes down. Nonetheless, Rodek says the concept of extending communications deep into the bowels of the company appears to be working.
Employees appear to be on board, given their responses to Rodek's March drumbeat announcing plans to hit 30% annual sales growth. "I got a few e-mails that said I was crazy, but I got a lot of responses saying that people were glad I had recognized the potential of our product line," says Rodek. If clients get the same message, Hyperion's stock could be a good one to watch.
Popper covers the markets for BW Online
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