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The security space is the fastest growing software market by far.
There is incredible demand for the kind of software we provide. With that, we expect that
the marketplace will be driving Proginet’s growth very effectively
Technology
Computer Services
(PRGF-OTCBB)
Proginet Corporation
200 Garden City Plaza
Garden City, NY 11530
Kevin M. Kelly
Director, President and CEO
Interview conducted by:
Lynn Fosse, Senior Editor
CEOCFOinterviews.com
March 24, 2005
BIO:
Kevin M. Kelly, Director
President and CEO
Kevin M. Kelly is Director, President and Chief Executive Officer of Proginet Corporation.
Mr. Kelly was elected President in June 1994, and had previously served for several years
as an outside director. Under his leadership, Proginet has completed four successful
acquisitions, including the mainframe product lines of both Microsoft Corporation and
Novell, Inc., and gained U.S. SEC approval to list on the OTCBB (symbol: PRGF). Prior to
this, Mr. Kelly served as Chief Operating Officer of CDC Systems, managing an organization
of over 1,500 employees. From 1984 to 1992, Mr. Kelly served as Senior Vice President of
Nationar Bank, a correspondent commercial bank in New York. Previously, Mr. Kelly was
Division Executive and Vice President of Chase Manhattan Bank, one of the world's premier
banking organizations. Mr. Kelly holds a BS from Iona College.
Company Profile:
Proginet Corporation develops software to enable the controlled integration of data across
enterprises of all sizes. Throughout its 20 year history, the company has earned a solid
reputation for its multi-platform expertise and dedication to customer service. Its
products, including CyberFusion®, SIFT, SecurPass®, and ePS™, support all major
computing platforms, from PCs to mainframes. Proginet’s global customer base spans
more than 23 countries and includes many Fortune 500 companies. The company is
headquartered in Garden City, NY, and is publicly traded under the symbol [OTCBB: PRGF].
Products:
SIFT (Secure Internet File Transfer) is a centrally managed Web service that allows
organizations to securely exchange information over the Internet. SIFT enables businesses
to transmit data without the need for partners to purchase or install software; all they
need is a standard Web browser.
CyberFusion® is software that delivers secure, reliable file transfer capabilities across
both corporate networks and the Internet. CyberFusion combines enterprise-strength
automation, remote execution, central administration, and comprehensive auditing
capabilities with industry-standard encryption and compression to provide guaranteed,
secure delivery.
SecurPass® is a password-management product suite that lets systems administrators
provide password synchronization and self-service password reset to corporate users across
all major computing platforms and business applications.
ePS™ software extends the Enterprise Single Sign-On (SSO) functionality of
Microsoft® Host Integration Server (HIS) 2004 beyond the Windows® environment to
non-Windows platforms across the enterprise. Users can access any application for which
they have proper authorization without logging onto each operating system or platform
separately.
CEOCFOinterviews: Mr. Kelly, you have been with the company
for about eleven years, what was your vision when you came to Proginet, and how has that
played out?
Mr. Kelly: "The vision was that Proginet was a software
development company that focused on the large complex enterprise. The company developed
technology that allowed companies to integrate their heterogeneous computing environments.
Those were the days where distributed processing was becoming much more popular and
companies needed to leverage those investments in terms of integrating Windows platforms,
UNIX platforms, IBM’s OS/400 – make it all work together. My vision when I came
to Proginet was to develop technologies that would be industrial-strength, and bring the
disciplines and controls of the mainframe world, to the distributed processing world. That
took a long time but we believe we have been quite successful at developing such
technologies."
CEOCFOinterviews:
What services are you providing for your clients?
Mr. Kelly: "Proginet provides two major technologies; a
managed file transfer suite of products and an identity and password management suite of
security products. On the file transfer side, we provide CyberFusion® and SIFT (Secure
Internet File Transfer), which are both secure file transfer solutions. Those two products
taken in unison allow large enterprises to move and manage their information within their
entire complex, or their internal environment, and at the same time interconnect with
their partners and third parties outside of their enterprise – including connecting
with customers through secure internet file transfer. On the security side, we provide
password management, including synchronization, as well as identity management that allows
for individuals in large enterprises to manage and change their password and have the
changes propagate through all those platforms I mentioned."
CEOCFOinterviews:
You recently made an acquisition related to password management and security, how will
that change Proginet?
Mr. Kelly: "The acquisition that we did recently was a
company called Blockade Systems Corp., out of Canada. That is consistent with Proginet’s
overall strategy; developing software internally and selling it to the marketplace, and
acquiring technologies that are synergistic and complementary to Proginet’s security
suite and managed file transfer suite. Blockade had technologies that were complementary
and similar to Proginet in terms of password synchronization and a password reset
technology. In addition, they had two other technologies that add additional capability to
Proginet’s suite of products. One is called ESaccess, which allows for access over
the Internet or password management to the retail market as well as to partners over the
Internet. The other product is a product called ManageID which allows us to extend our
overall solution further in the password management and password synchronization market
– where enterprises can include the addition of users into the database –
streamlining the process and making it easier for enterprises to self-manage passwords and
reduce costs at the help desk."
CEOCFOinterviews:
Are many companies taking advantage of both sides of your business?
Mr. Kelly: "The beautiful thing about our technologies
is that both of them are great in terms of being mission critical applications. On the
managed file transfer side, we have over 100 customers in banking, over 100 customers in
the insurance and financial services industry, and another 100 customers in other
industries around the world. We have customers in over thirty countries and in many
instances; we have one of the top five enterprises in those countries, using our managed
file transfer technology to conduct their day-to-day business. The largest insurance
company in France has over 25,000 file transfers in a day. The largest bank in Italy has
over 700 branches where they are moving data back-and-forth many times a day and closing
out their production environment using fusion technology. In the US we have a car
manufacturer who sends their car designs and blueprints using CyberFusion® - relying on
its compression methodology, its encryption methodologies and the like, to ensure the
secure protection of the data as it moves from one location to another. On the file
transfer side, then, our technology is clearly pervasive throughout the various market
places. On the security side, we have some corporations using our password management for
over 100,000 employees. Again, like in the CyberFusion® managed file transfer space, the
enterprises are using it for total reliability and scalability in terms of managed access
to computers – and that is employees, and third-party relationships as well as
customers. We have been very successful on the secure password side as well as the
CyberFusion side. Just as I have described in file transfer, we have customers with our
secure password solutions in about twenty-five of those thirty countries, as I mentioned a
moment ago. Both products are strong in terms of product revenue growth. On a year-to-year
basis, we typically see a swing of 45-55 to 55-45 in terms of the revenues generated by
those two products."
CEOCFOinterviews:
How do you intend to build the business?
Mr. Kelly: "In terms of growth, we expect our growth in
three ways. One, through strategic alliances. With regard to our sales overseas, we have
eighteen distributors who resell our products. We expect to continue to expand our
indirect channel markets that way. We expect to continue to do domestic sales growth
through our direct sales organization. We are going to continue to do acquisitions. We do
expect that through our organic growth, we can increase our revenues by about 50% per
year. For example, last year the fiscal year 2004 ending July 31, Proginet revenues were
$6.3 million. This current fiscal year we will be expecting revenues to exceed $9 million
and with our recent acquisition of Blockade, and other acquisitions to come, we expect to
increase our revenues by another 50% because of acquisitions. We are projecting annual
revenue growth to be about a hundred percent or greater in the next few years."
CEOCFOinterviews:
Will you tell us about the revenue model?
Mr. Kelly: "Proginet has over 50% of our revenue, which
is recurring revenue, for maintenance and services for the customers to whom we license
our software. As a result, over 65% of our expenses are covered by these recurring
revenues. The company remains strong in terms of cash flows and this year in EBITDA we
expect to have in excess of $2 million and produce a profit in excess of half-a-million
dollars. The model is to continue to grow through acquisitions and add to our recurring
maintenance space, in addition to generating revenue through sales and licensing of our
technology."
CEOCFOinterviews:
What is the competitive landscape like in your part of the industry and why are people
choosing Proginet?
Mr. Kelly: "The enterprise software space is highly
competitive and yet it is a large space in terms of the multiplicity and complexities of
the technologies that are offered in the marketplace. In the managed file transfer space,
we have a couple of major competitors including Sterling Commerce, which is now owned by
SBC, and Axway, which is another large competitor. A recent report from the Gartner group
indicates that those two players are going to the more broad systems integration space and
they are not going to be specializing on managed file transfer by itself. We see that as a
major competitive advantage for Proginet, where we can partner with other alliance
partners in making sure we provide the best of the best when it comes to integration of
the technologies in today’s very complex environment where you have Sarbanes Oxley,
HIPAA Legislation, Graham-Leach-Bliley. They are related to the financial services
industry and all of those require that companies solve very specific problems related to
the control, movement, and auditability of the data that moves within the enterprise and
outside the enterprise. While we have large competitors, the space we play in, in terms of
the mainframe environment, puts Proginet at a competitive advantage. The security space is
a complex environment, and more levels of security are typically required by the large
enterprise. Proginet specializes in a niche market, which is password management and
password reset, plus the technologies I described, relative to our recent Blockade
acquisition. That niche market, allows Proginet to be one of the only players that support
the very large enterprise organizations with that technology. As such, we have been
fortunate enough to have that technology leveraged with OEM partners throughout the world,
including Beta Systems, Netegrity. Courion Systems has licensed our software rights to
imbed it into their own products as well. We have been very successful in providing our
niche solution into some other major OEM partners. When customers want to have a password
synchronization or a reset solution, and more robust security solutions, Proginet is the
choice."
CEOCFOinterviews:
Are there other areas of the world where you would like to enter?
Mr. Kelly: "Yes and no. Yes in that we would like to
conquer the world, but in reality, we are only a company of $10 million in revenue and
growing too fast would likely strain our infrastructure in terms of expanding further. We
have some customers in Asia, but we have no plans currently to be aggressive into the
Asian market. We have recent activities relative to Australia where we expanded into that
area. With a competent distributor in-place now, we expect that that market will be
growing for us. Other than that, we expect to ‘stick to our knitting’ in terms
of North America, Europe, and South America in terms of the three primary spaces in the
world that we are going to focus on."
CEOCFOinterviews:
In closing, why should potential investors be interested and what should they know that
they might not realize when they first look at the company?
Mr. Kelly: "Proginet is somewhat of anomaly in the
software industry because we have positive cash flow and we are profitable. That, I
believe, puts us in a small percentage of software companies. Secondly, the multiple in
terms of our selling prices of our stock, gives a multiple of 1.6 times revenues. That is
very low for a software company that has the kind of technology we have and that is
growing rapidly. Anyone that has an interest in investing, has a greater likelihood that
they can be successful in investing in Proginet more so than they would investing in the
IBMs or the Computer Associates in terms of return on investment. The other thing to keep
in mind is that the security space is the fastest growing software market by far. There is
incredible demand for the kind of software we provide. With that, we expect that the
marketplace will be driving Proginet’s growth very effectively. Proginet has a
customer base of 400-plus organizations; really a who’s who of major corporations
around the world. We have not taken advantage of that base at this stage, in terms of
cross-selling. Proginet has initiated several new initiatives to contact our existing
customer base who give us high mark in terms of support and service, and cross-sell
technologies that they are currently not using. The combination of our low market-cap, the
demand for security products, our customer base and the fundamentals of being positive
cash flow and profitable, I believe to be very strong factors for anybody to consider in
terms of investing in Proginet."
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