Incentra Grows Services Business As It Acquires VARs

"Under the right circumstances, the company could get to positive net income by the end of 2008," said Tom Sweeney, chairman and CEO of the Boulder, Colo.-based solution provider.

For 2007, overall services revenue grew about 80 percent over 2007. The company's managed services business has traditionally been larger than its professional services business, but faster growth in professional services will make the two approximately equal in size by the end of this year, Sweeney said.

For the fourth quarter, which ended on December 31, Incentra reported revenue of $53.6 million, up 123 percent over the $24.1 million it reported for the fourth quarter of 2006. Revenue for all of 2007 was $145.8 million, up from $66.6 million in 2006.

The company said the fourth quarter of 2007 saw an operating profit of $188,000, compared to an operating loss of $2.4 million in 2006. Overall, the company lost $3.1 million, or 12 cents per share, during the quarter, compared to a loss of $4.5 million, or 34 cents per share, last year.

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Total losses for all of 2007 were $11.9 million, or 63 cents per share, compared to $5.5 million, or 40 cents per share, in 2006. The 2006 loss figure included a $15.4 million gain recognized on the sale of its Front Porch Digital Broadcast and Media division to Toronto-based Genuity Capital Partners during the year.

Revenue growth, and the possibility of positive net income, stems in part from the company's acquisition of two other solution providers in 2007.

In late August, Incentra acquired Helio Solutions, a large Santa Clara, Calif.-based solution provider and a significant partner of Sun Microsystems, of Santa Clara, Calif.

It followed that move a few weeks later with the acquisition of another Sun solution provider, SSI hubCity, Metuchen, N.J.

While Incentra has had SSI and Helio only for a few months, the company has already seen significant changes in its business as a result of the acquisitions, Sweeney said.

For instance, both Helio and SSI have started selling products they did not sell before, including products from Cisco Systems, of San Jose, Calif., Hewlett-Packard, of Palo Alto, Calif., and NetApp, of Sunnyvale, Calif. Those sales are going to those two companies' existing and new customers, he said.

Both companies have also started selling first call and professional services to existing customers, and already have significant pipelines to sell managed services to those customers, Sweeney said.

As the acquired companies bring new products and services to their customers, Incentra is seeing increased margins from them, Sweeney said. For instance, gross product margins, which had been about 16 percent before they were acquired by Incentra, are now approaching Incentra's legacy gross product margin of about 21 percent, thanks to increased buying power and lower dependence on profits from Sun.

Assuming no more acquisitions, Incentra expects revenue in 2008 of between $200 million and $220 million, Sweeney said. About 17 percent of that will be from services, he said.

Incentra started out as a storage service provider in 2004, but has since branched out to become a full-spectrum product and services provider. Storage is still an important part of the company's managed services mix, however.

It currently manages about 3,000 Tbytes of customer data in 60 data centers in the US and Europe, including customers' own data centers and in third-party data centers, Sweeney said. That represents growth of about 78 percent over 2006.

Incentra also offers managed security services.