Incentra's Strange Brew

Ten months ago, Incentra Solutions Inc. was born from an odd pairing. Now, it's looking to make the most of its unusual charter.

Incentra came about last August when Front Porch Digital, which makes digital archiving software, purchased ManagedStorage International (MSI), a provider of storage services, for $39 million in stock (see MSI's Incestuous Marriage).

At the time, the combination seemed puzzling, but the Boulder, Colo.-based company continued to wheel and deal, purchasing systems integrators PWI Technologies and Star Solutions earlier this year before completing a 10-for-1 reverse stock split on June 9 (see Incentra Completes Reverse Stock Split and Incentra Acquires STAR).

Incentra CEO Tom Sweeney says it's all part of a plan to turn Incentra into a solid public company.

Here's how it falls out: Because PWI and Star were system resellers, they allow Incentra to sell products as well as the monitoring, data protection, and management services MSI provided. So, along with its services, Incentra now resells storage systems from companies such as EMC Corp. (NYSE: EMC), Hewlett-Packard Co. (NYSE: HPQ), Network Appliance Inc. (Nasdaq: NTAP), and Sun Microsystems Inc. (Nasdaq: SUNW), thanks to its recent acquistions.Sweeney maintains that being able to sell products differentiates Incentra from rival service providers like AmeriVault Corp., Arsenal Digital Solutions Worldwide Inc., EVault Inc., and LiveVault Corp.

Services/systems combos account for most of Incentra's revenues. But Sweeney says Front Porch digital archiving software is still part of the scene. While Incentra sells Front Porch products primarily to broadcasters in Europe and Asia, the plan is to fit them into bigger bundling deals (see T-Systems, RTL Pick Incentra and ESPN STAR Picks Front Porch Digital). Monitoring services, for instance, would fit nicely with archiving packages, he asserts.

The benefits of bundling are already happening for Incentra, Sweeney says. Last quarter, Front Porch sold two million-dollar combos of hardware, software, and services -- well over the $250,000 cap for a software-only deal, Sweeney says.

So far, financial results have been as mixed as the firm's stock in trade. Combined revenue from all four companies was $16.4 million last quarter, up from $14.3 million the previous year (see Incentra Posts Record Q1). Yet net loss widened from $1.7 million to $1.9 million, including accounting, legal, and other charges related to acquisitions. While Sweeney says Incentra is on track to meet revenue guidance of $15.5 million to $16 million this quarter, that would be a drop from last quarter.

The reverse stock split reduced the companys outstanding shares from 128 million to 12.8 million. Sweeney hopes that will lure more institutional investors, raise the share price, and lead to getting the stock off the bulletin board and listed on a major exchange. Profitability would help as well.“We’d love to [get listed on an exchange] by the end of this year, but I don’t know if I can,” Sweeney says. “Maybe in a year from now. We won’t be net income positive until 2006.”

— Dave Raffo, Senior Editor, Byte and Switch