Altiris, Inc.

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Altiris, Inc.

588 W. 400 South
Lindon, Utah 84042-1914
U.S.A.
Telephone: (801) 805-2400
Toll Free: (888) 252-5551
Fax: (801) 226-8506
Web site: http://www.altiris.com

Public Company
Incorporated: 1998
Employees: 600
Sales: $99.3 million (2003)
Stock Exchanges: NASDAQ
Ticker Symbol: ATRS
NAIC: 334611 Software Reproducing

Based in Lindon, Utah, Altiris, Inc. offers software and related services to manage information technology (IT) systems. The company's suite of 18 modules enables IT professionals to deploy, migrate, patch, and restore software on servers, desktop PCs, notebook computers, and handhelds. Altiris is able to greatly reduce software installation times and also allow IT managers to correct problems and counteract viruses without interrupting users. Changes to an entire system can be completed in a matter of minutes and if necessary rolled back to the previous stable condition, thereby providing IT managers with a margin for error and the confidence that they can quickly recover from a mistake. In addition, Altiris software is able to keep track of a company's computer assets as well as the performance history and diagnostic metrics of both hardware and software. The products rely on a Web-based infrastructure and are multi-tiered, allowing them to be used by small businesses as well as large corporations. Altiris benefits from both good economic conditions and poor. When budgets are tight, companies turn to Altiris to help save money managing their IT assets, because the purchase price represents only 20 percent of the costs associated with a computing device. During prosperous times, companies add hardware and use Altiris software and services to help in rollout and management. A global company, Altiris has forged alliances with such major corporations as Dell, Hewlett-Packard, and Microsoft. It is publicly traded on the NASDAQ.

Starting in 1996 As KeyLabs' Software Division

Altiris was launched by KeyLabs, which was started in Provo, Utah, in January 1996 as a full-service Internet and network-testing company for large corporations as well as hardware and software developers. KeyLabs was founded by J.D. Brisk and two partners: Jan Newman and Kevin Turpin. Brisk had worked as a test engineer and manager for Provo-based Novell Labs and became director of engineering. He designed and managed Novell's SuperLab, the largest network test facility in the world, which tested third-party software applications and hardware devices. He then decided to strike out on his own and along with Newman and Turpin started an independent network-testing company. Because KeyLabs had a large number of computers in its laboratory that needed regular software updates and had to be reconfigured before each test, company engineers created a solution to automate the process. Now a single technician at one console could redeploy KeyLabs' entire inventory of computers in a matter of minutes. It was an impressive display of power and control and when customers visited the lab this in-house software tool often upstaged the company's actual testing business. Thus KeyLabs created a software division and began selling a commercial version of its management software, primarily targeting schools and corporations that maintained large computer labs.

Both KeyLabs divisions were doing well, but in 1998 management decided to split the company to allow management and employees to better focus on their particular businesses. The separate companies would also have a clearer mission and avoid confusion in the marketplace about what they offered. Moreover, the testing business needed to maintain its neutrality, and having a software IT management product was a potential conflict of interest. In August 1998 Keylabs' 12-person software division was spun off as Altiris, Inc.

Funding had not been easy to find. The company was rejected by a number of venture capital firms before a deal was reached with a firm that shared Novell's roots, Canopy Group, a high-tech incubator and venture capital firm established in Lindon, Utah, in 1995 by legendary Ray Noorda, Novell's longtime chairman and chief executive officer. Noorda was raised in Ogden, Utah, during the Great Depression, earned an electrical engineering degree from the University of Utah, and then worked for General Electric until starting his own business career in the 1970s. He earned a reputation for building successes out of troubled companies. In 1983 he was asked to take over Novell, Inc., a PC components manufacturing company that had been struggling since its start three years earlier. Noorda transformed Novell into a network-software company and was instrumental in the growth of the local area network (LAN) concept that linked personal computers and allowed organizations to lessen their need for large and expensive mainframe computers. By the time Noorda retired in 1994, Novell had grown to become one of the largest software companies in the world. Although 70 years old, Noorda remained active, mostly through Canopy Group, funding a number of start-up companies including Altiris, which set up shop in Lindon where he could easily visit them.

Forging an Alliance with Compaq in 2000

Initially Altiris concentrated on software for deployment and imaging. The company's first migration product was leased in 1999. Revenues grew steadily, improving from $1.8 million in 1998 to $3.6 million in 1999. A major step in the growth of the company came in January 2000, when it forged an alliance with Compaq, which agreed to bundle Altiris software on its commercial desktop computers. A month later, another important development took place when Jan Newman, who had been serving as chief executive for both KeyLabs and Altiris, decided it was time to turn over the helm of Altiris in order to take the company to the next level in its growth. Greg S. Butterfield, another Novell alumnus, was tapped for the job. He had more than 15 years of experience as a sales and marketing executive in the software industry, working at WordPerfect Corporation, Vinca Corporations, and two years at Novell, where he served as regional director of sales for the Rocky Mountain region.

Under Butterfield's leadership, Altiris began to make a series of calculated acquisitions that filled out the company's business. In the fall of 2000, Altiris paid $3.8 million for Computing Edge, a Utah company that provided systems and asset management solutions for the Windows and UNIX operating systems. The addition of Computing Edge gave Altiris a complete Web-based operations management and inventory and asset management solution. In February 2001, Altiris paid $800,000 for Tekworks, acquiring products that it had previously leased from Tekworks and that were major parts of its helpdesk and problem resolution products. A month later, Altiris acquired Compaq's Carbon Copy technology for $3.6 million, adding remote control capability and further help desk and problem resolution support. Then, in September 2002, Altiris spent $1.1 million to acquire technology assets from San Diego-based Previo Inc., filling out its data protection and recovery capabilities by adding Previo's Web-based data backup software suite. By now the company was enjoying steady growth in revenues, although it continued to lose money as the business was established. Sales totaled $10 million in 2000 and jumped to $34.5 million in 2001. Net losses, however, increased from $6.5 million in 2000 to more than $10.2 million in 2001.

In the early months of 2002, Altiris completed three rounds of private stock sales, raising $24.5 million. The company was well financed, yet management needed new capital to speed up product development and for other reasons decided that the time was right to take the company public. According to an interview Butterfield gave to the IPO Reporter in 2002, "We concluded that based on where we were as a company . . . based on the fact we were doing much larger transactions with larger companies who wanted to get confidence and drill down in the financial stability of the company, that it made sense at this time [to go public]." To serve as lead underwriter of the initial public offering (IPO), Altiris chose Credit Suisse First Boston, which had been cultivating a relationship with the company for the past 18 months, making their analysts and merger and acquisitions people available to provide advice as Altiris engineered its acquisitions and new product releases. The company had hoped to raise $70 million, but conditions were hardly ideal. The NASDAQ was plummeting as the tech bubble burst and the business world was still reeling from a series of corporate scandals, including Enron and WorldCom. Altiris's accountant, Arthur Andersen, was also on the verge of self-destruction. To make matters worse, Altiris was a money-losing company whose business model was all too similar to Peregrine Systems, which was in trouble and about to restate its earnings. Altiris dropped its asking price from a range of $12–$14 to $10–$12, and proceeded with the offering in May 2002. It had to settle for the low end of the range, $10 a share, and at the end of the day netted $43.8 million. Further disappointment followed as the price of the company's stock immediately fell and continued to decline for the next few weeks, eventually bottoming out at $4.50 in June.

Company Perspectives:

Our mission is to be the leading systems management software vendor for organizations of any size.

Rebounding from Disappointing 2002 IPO

Butterfield described to Varbusiness the sensation of watching the company's IPO on television monitors in New York City: "There I was in what was supposed to be one of the happiest moments for a CEO, watching a nightmare unfold right before my very eyes." The disappointment over the offering and the collapse of the stock price cast a pall over the company. Butterfield called a companywide meeting to rally the employees. He turned to the movie Hoosiers about a troubled coach who guides a small school in overcoming great odds to become Indiana state high school basketball champions. "I remembered when Hackman had his team in the arena where the big game was to be played," Butterfield told Varbusiness. "He could tell his players were a little awestruck, so he takes out a tape measure and shows them that the rims were still only 10 feet tall." Butterfield told his employees that despite investors' negative take on the company's offering and prospects, their products had not changed: They were still just as good and the company had just as much potential to prosper as before the IPO.

Altiris soon benefited from a downturn in the economy and the dropoff in IT spending. First, because companies were not hiring, no disillusioned employees decided to leave Altiris, an event that might have caused a snowball effect, and possibly destroyed the company. Instead, Altiris retained all of its key people. Moreover, because IT budgets were slashed, companies were looking to maximize their resources and found that investing in Altiris products was a prudent, money-saving investment. As a result, momentum began to shift and the company renewed its march toward profitability. It also began to change the minds of investors who gradually came to recognize the company's worth and began bidding up the price of Altiris stock. A year after the IPO, Altiris stock traded at more than $20. Revenues grew to $62.9 million in 2002, an 83 percent increase over the year before, and the company's net loss was reduced to just $86,000. Efforts to expand international sales also were beginning to pay off, as revenues outside of the United States grew from $5.4 million in 2001 to $12.8 million in 2002.

In August 2003 the company made a secondary offering of stock, this time netting $66 million. Altiris completed another strategic acquisition in 2003, paying $43 million in cash and stock for Wise Solutions, a Michigan software management company. The two had worked together for the past year, and Wise Solutions had been helpful to Altiris in winning some important contracts. More important, the acquisition added a patch delivery module to Altiris's suite of software applications. Patches, used to ward off attacks from computer viruses and worms, were becoming increasingly more important to IT managers in maintaining the security of their networks. Altiris was able to incorporate the patch module into the first upgrade of its software in two years, Altiris 6, which offered the new patch delivery module as well as an improved user interface, faster performance, and an increased number of language options. The software also offered what the company called a type of "preflight testing," allowing IT managers more options in patch management, so that if something should go wrong, they would be able to restore their computers to their prior stable state. In March 2004 Altiris added to its application management capabilities by acquiring the file system layering technology of FRLogic Inc., purchased for $1.8 million.

In 2003 Altiris reached $99.3 million in sales and turned its first net profit, totaling more than $14 million. The company appeared well established and was known to be very aggressive in closing deals. Moreover, the functionality and ease of use of its products gave Altiris a competitive advantage. Because it took a module approach, both small or large customers could choose the options suited to their needs. But there was little margin for error. There were some 200 companies vying for business in a highly competitive field, and giants like Microsoft and Hewlett-Packard were becoming more involved in management software. While the prospects for Altiris remained bright, they were far from certain.