GlobalSCAPE, Inc. (GSB-AMEX)

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May 14, 2012 Issue

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Entering New Markets in 2011 and Expanding their Total Addressable Market Size, GlobalSCAPE, Inc. is Focused on Continued Revenue Growth in 2012 and Beyond as they Integrate and Leverage their New Products and Businesses

Company Profile: San Antonio, Texas-based GlobalSCAPE, Inc. (NYSE Amex:GSB) is a leading provider of software and services that enable customers to access and share information quickly, securely, and reliably. Beginning in 1996 with its CuteFTP(R) product, GlobalSCAPE has been helping businesses and consumers -- including 15,000 companies in more than 150 countries -- facilitate cost-effective, secure information exchange. With its 2011 acquisition of Seattle-based TappIn, Inc., GlobalSCAPE also offers customers the ability to access and share documents, pictures, videos, and music -- anytime, from anywhere -- easily and securely, without the need for uploading, syncing, or paying for cloud storage.

James R. Morris
Chief Executive Officer and Director

Jim Morris joined GlobalSCAPE as Chief Executive Officer (CEO) in 2008. He is responsible for guiding the company's strategy, growth, operations, and customer satisfaction across GlobalSCAPE's enterprise, consumer and vertical markets.

For more than three decades, Morris has been an innovator and leader in the fields of information technology, network security, assurance, and operations for both product-centric and independent system consulting solutions. Morris served in military intelligence, the civil service, and for the past 25 years in senior executive positions for leading companies including; General Dynamics (VP), Veridian (VP), Veritect (EVP), Trident Data Systems (SVP), SecureInfo (EVP/GM), and Synteras (VP).

 

He co-led the Y2K Cyber Assurance cell for the White house, was an independent advisor for two security software product companies, and served on numerous industry and government review panels.

 

Morris is a frequent keynote speaker/panelist at trade conferences, published internationally, and has provided the expert view for national news coverage of network risks. He has received advanced training from the national security community and served as a subject matter expert on network security-focused delegations to the People’s Republic of China and Australia.

 

Morris has received the award for Army Intelligence Action Officer of the Year and was named in Who's Who in Technology and Engineering. He also sits on the board of directors for San Antonio's Boys and Girls Club.


Technology
Application Software
(GSB-AMEX)

GlobalSCAPE, Inc.
4500 Lockhill Selma Road
Suite 150
San Antonia, TX 78249
Phone: 210-308-8267

GSB-Print Version

 

Interview conducted by: Bud Wayne, Editorial Executive, CEOCFO Magazine, Published – May 14, 2012


CEOCFO:
Mr. Morris, would you tell us about GlobalSCAPE how long you have been with the company and what brought you on board as CEO?

Mr. Morris: I am the chief executive officer. We recently promoted our COO Craig Robinson to both president and COO of GlobalSCAPE. GlobalSCAPE is a San Antonio headquartered company that has been in business for 16 years. The most well known product that we have is CuteFTP, used by consumers to transfer files principally to be loaded into websites. We actually have 2 million customers of CuteFTP. It has been sold into 150 countries, licensed 2 million times and is among the most popular consumer file transfer software products. While CuteFTP is well known, it represents less than 10% of our overall revenue. Over 90% of our revenue comes from our enterprise file transfer products, which have been sold to15,000 customers around the world; 5,000 are international. That software has been certified by the US government as being secure.

Our largest single deployment is with US Army logistics, and includes 20,000 endpoints. It has been certified as being secure. Our secure encryption libraries have also been certified for use with retail file transfer, including secure file exchanges with partners and suppliers. Some retail organizations require that all of their suppliers be compliant with a standard known as Drummond AS2, and we are. We have 95 full-time employees, plus we have an additional 15 subcontractors. These subcontractors are software engineers based in the state of Texas and overseas. We also have certified resellers and distributors for our products worldwide.

 

Besides file transfer, we are also in the secure data mobility business. In December of last year, we acquired a Seattle- based company called TappIn and it is a mobile content delivery solution that has both consumer and enterprise applications.

We also have a secured email product offering called Mail Express that allows you to attach up to a 25-gigabyte file within Microsoft Outlook to send exceptionally large files securely anywhere in the world. We are also in development of an end-point security product. It is a new way of providing antivirus capability through application control. That product known as appShield is currently under-test in evaluation and will be available some time in 2012.

 

For fiscal 2011, we achieved record revenue of approximately $21 million, which was up 13% from the prior year, and we expect revenue to reach another record in 2012. We were profitable for the year, generating 3 cents of earnings on a GAAP basis. However, we would have generated approximately 6 cents of earnings if not for the acquisition of TappIn and the one-time costs associated with the purchase.

 

CEOCFO: Would you explain the relevance of file transfer today?

Mr. Morris: We allow small, mid-sized, large, and Fortune-100 corporations to move files securely electronically over the Internet and over their internal networks and over networks with trading partners. The alternative to doing that is to burn a CD, DVD, or Blu-ray disc and put it in an overnight mail package if you want it to get there overnight. You would be able to send it through overnight delivery with a physical magnetic media, or you could actually download the content onto a thumb drive and accomplish the same thing. What we do is we move that information electronically, so it basically moves very rapidly and securely. You can have multiple locations identified on the routing of that file and you can get a read receipt that they have received it. Therefore, maintaining the trail of evidence to say that you moved a file containing financial information or healthcare information from point A to point B. Much of the file transfer technology that we use allows the individual business to be compliant with specific regulatory, US or international regulations. These might include Sarbanes Oxley and Gramm- Leach-Bliley. Financial services use a standard called SAS70. The healthcare industry requirement, for the individual, for the hospital and for pharmaceutical and laboratories is called HIPAA. It basically demonstrates to the US government or international standards, international or US partners that you are moving a file to them that meet regulatory standards. They are also going to meet the regulatory standards as far as receiving the information.

 

CEOCFO: So this is more than just uploading information to a website?

Mr. Morris: Absolutely! Uploading information to a website is only one of the activities we support.

 

CEOCFO: It is a competitive business, what gives GlobalSCAPE a competitive edge in this business?

Mr. Morris: CuteFTP, our consumer file transfer product, is known to be secure, works out of the box the first time and is very stable, as is all of our software, including our business solutions. Our enterprise solutions are also known to be scalable, secure and best value. We do have many competitors in the market place, but we do win our share of competitive acquisitions through the request for proposal process. However, very few publicly traded software companies are in the managed file transfer business. We are in the managed file transfer business and have been recognized as the leader by multiple organizations including Gartner, which has put us in the leader quadrant for managed file transfer against our competitors, including IBM.

 

CEOCFO: You discussed ongoing transitions from a traditional managed file transfer only product company into other promising products and solutions, will you elaborate on certain products that will drive this transition?

Mr. Morris: We have our on-premises managed file transfer solutions software, which you would buy and own and use in your enterprise. A little over a year and a half ago, we repackaged it and repurposed it to allow that solution to go into a cloud computing environment. We do this with business partners such as Rackspace. That allows the individual to fundamentally lease our software solution and put it on servers located in data centers around the world. The customer fundamentally leases our solution, which includes the cloud computing solution and they are able to pay for that on a monthly basis. They lease our solution for 12, 24 or 36 months and included in the file transfer are the servers necessary to move the information using data centers in the US, Canada, and Europe.

 

CEOCFO: The US Army has historically been a large customer for GlobalSCAPE. Why did they choose to work with GlobalSCAPE?

Mr. Morris: We met their testing criteria, which are very rigorous as far as operability of the software even over relatively low-bandwidth radio networks, security, having a relatively small footprint on a ruggedized laptop in a Humvee and the server in a headquarters compound or the server located in one of the Army Depots in the United States. They did a very rigorous selection, installation and testing process. They also considered ease of training, ease of maintenance and support of our software used in both tactical and fixed garrison environments for all US Army logistics.

 

CEOCFO: Will you eventually be able to springboard into other parts of the service?

Mr. Morris: Yes. We use a partner’s general service administration, or GSA, Schedule to make buying easy, because our software is certified. We have what is known as a certificate of net worthiness. We can take our solution to other services within the Department of Defense and take it to other organizations in the federal government other than the Department of Defense. Therefore, we are pursuing those opportunities.

 

CEOCFO: You mentioned the TappIn acquisition; why did you acquire that company last December?

Mr. Morris: TappIn is a company that has been in business in Seattle for two years and they have 100,000 users. It is a consumer content mobility solution. Fundamentally, it can exchange, push and pull information from mobile devices and fixed devices. For example, we can talk to all flavors of Apple, Android, smartphone, tablets, iPad’s, PCs, laptops, desk books, file servers, to be able to push and pull content of those devices securely without it being cloud based storage. Our principle competitors push and pull content, but require paid storage. The TappIn solution does not require paid storage. The information resides and always resides on the hard drive on the device that you are exchanging information with. Our competitors are principally cloud based storage; we are not. We currently have a consumer solution. We just announced a secure mobile access module that will allow customers to access and see enterprise data when used with our Enhanced File Transfer Server solution. We are also in the process of developing a professional consumer version, known as the “prosumer” solution, which will be available sometime in 2012. We will then focus our attention on delivering an upgraded enterprise solution in 2013. In addition, we are enabling our solution to be private labeled. In other words, somebody else buys our solution, puts their name on it and embeds the TappIn solution into their platform on the factory floor. We are pursuing OEM relationships today with the goal of adding some OEM relationships in 2012.

 

CEOCFO: On March 22 you reported that fiscal 2011 revenue was $20.9 million and EPS excluding one-time expenses associated with the TappIn acquisition were about 6 cents a share; what drove your record setting performance?

Mr. Morris: In fiscal 2010, we generated about $18.6 million in revenue, and increased revenue 13% to $20.9 million in fiscal 2011. In fact, we have averaged 13% revenue growth over the last 3 fiscal years. Our 2011 revenue did not include some additional subscription sales of our cloud based solutions. These subscription sales provide a growing book of business, basically backlog, that will be recognized into revenue as the services are delivered monthly.

 

We have added to our staff and we have more feature rich and more stable solutions. Our sales organization has been able to sell them competitively and we also have added to our distributors worldwide. We have certified them, and they are able to sell our solutions independent of us. From a partner or distributor perspective, you could be in Australia, the UK, Italy, Columbia; the list goes on, of international countries where you speak the language, you are in that time zone, you understand the culture and you already have a business relationship with customers and prospects in the information technology industry. Now you are able to sell the GlobalSCAPE solution to your current customers and in the local currency, speaking the language with the appropriate culture within the appropriate time-zone. Therefore, we have actually grown our international business to represent about one third of our total enterprise customer installed base.

 

CEOCFO: On May 8 you reported your first quarter fiscal year 2012 results.  Revenue was up 16% from the same quarter last year.  What helped drive this growth?

Mr. Morris: The increase in revenue was largely due to an increase in maintenance and support (M&S) contract renewal sales, an increase in EFT Server Enterprise license revenue, and an increased contribution from the Company’s managed solutions business. The increase in M&S renewals resulted in a 19% increase in the Company’s deferred revenue, to $7.8 million at the end of the first quarter of 2012, up from $6.5 million at the end of the first quarter of 2011. In addition, our first quarter revenue performance not only reflects continued growth in our core business, plus the short-term effects of the TappIn acquisition

 

Our net loss in the quarter was primarily the result of increased operating expenses associated with the TappIn acquisition. TappIn has established and is actively pursuing additional arrangements with original equipment manufacturers, known as OEMs, and other companies that will directly integrate TappIn into their hardware devices or participate in joint marketing and promotion activities. We expect to increase net income, particularly in the second half of 2012, as we recognize additional revenue from the TappIn OEM arrangements and potentially continue to increase our core revenue.

 

CEOCFO: What is your financial position today for GlobalSCAPE, and what is your revenue goal for 2012?

Mr. Morris: We do not give specific guidance as part of our ongoing investor relations communications, but we did say in our call on May 8 that in fiscal 2012 we were anticipating revenue of approximately $25 million. Last year when we bought TappIn, we acquired it through a loan and cash. Therefore, of the original $9 million purchase price, we used $2 million of our cash, and we borrowed $7 million dollars from a local bank, The Bank of San Antonio. It was a total of $7 million, of which, $4 million was secured, and $3 million was unsecured. The total interest rate paid was less than 4% for the entire $7 million. Even when accounting for the TappIn acquisition we still ended 2011 with $9 million of cash and short-term investments.

 

We have consistently generated cash for several years. In fiscal 2011, we generated approximately $2.8 million in cash from operations and expect to be cash generative in 2012. Therefore, we still have dry powder if in fact we need it for an additional investment, potential merger or acquisition. We believe we did a very sound and prudent financial investment in acquiring TappIn and we did not have to go back to the equity market and issue additional stock, which would have been dilutive to our shareholders.
 

CEOCFO: GlobalSCAPE is traded on the Amex, ticker symbol GSB, are you out there currently talking about your stock, and what would you like to say to shareholders as well as potential investors who may be looking at GSB?

Mr. Morris: We do on average two non-deal road shows per year. Last year as an example, we did Boston and New York. We traditionally do investor conferences. Last year we did five. We have already done two this year. We have one additional one scheduled for May, the B. Riley conference in Santa Monica California, and are planning to present at the Sidoti Microcap conference in New York in June We do get in front if institutions on a routine basis and talk to the investment community, so we continue to do that.

 

From an investment stand point GlobalSCAPE is a long term investment play. Most of our investors have been holding our stock for a relatively long period of time.

 

Potential investors looking at GlobalSCAPE should recognize that in 2011 we entered new markets and expanded our total addressable market size. In 2012, we will remain focused on integrating and leveraging our new products and businesses, which we believe will lead to continued revenue growth both in 2012 and beyond.

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Potential investors looking at GlobalSCAPE should recognize that in 2011 we entered new markets and expanded our total addressable market size. In 2012, we will remain focused on integrating and leveraging our new products and businesses, which we believe will lead to continued revenue growth both in 2012 and beyond. - Jim Morris

 

 

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