February 14, 2008
To Our Valued Customers, Trusted Partners, Dedicated Employees and Esteemed Colleagues:
Dear Friends,
February is a month devoted to feelings from the heart. I can’t think of a better time to sincerely thank you for helping MWH Soft achieve the stellar success we continue to enjoy year after year.
In 2007, we’ve had another terrific year of triumph and we once again delivered enviable results that were both well ahead of the norm for our industry and record-setting in the history of the Company. We set high expectations and ambitious performance targets for the year, and we were able to exceed all of them. We also achieved multiple MWH Soft firsts with landmark product introductions that furthered our long-standing mission of delivering compelling, highly innovative solutions that address unmet or underserved needs and realize the promise of next-generation infrastructure management.
At MWH Soft, we believe in value-driven results. Everything we do is aimed at delivering outcomes for our customers that are nothing short of exceptional. Products and services that are second to none, helping improve the world’s hydraulic infrastructure systems and promote the advancement and well-being of people everywhere. Partnerships that enable engineering and GIS professionals to exercise their skills to the utmost and work faster, easier and more productively. Efficiencies in our operations and those of our customers. A high-performing organization of employees who are proud to excel and deliver the best. And a remarkably consistent level of extraordinary customer satisfaction.
We succeed in delivering these outstanding results because we are driven – to innovate and constantly improve, to focus intently on our customers, to serve and hold ourselves accountable. We also believe that companies are a powerful force for the greater good, and that they have the potential to achieve much more than business success.
We’ve created a culture that promotes employee pride and excellence in everything we do; fosters professionalism and integrity … thrives on serving our customers … supports environmental responsibility and the communities we call home … provides value beyond anything else available … and has the flexibility and speed to make it happen every day. These fundamentals are real and sustainable, and they give us an insurmountable competitive advantage. In short, MWH Soft is expanding the definition of what an engineering software company can do to build a better world for everyone. Like you, we would never accept anything less.
In last year’s report, we promised you that 2007 would be about breakthrough performance. Clearly, it was.
A Landmark Year
They say records are made to be broken, and MWH Soft certainly proved it again in 2007. Compared to last year, net revenues were up 20% (nearly double the level of just three years ago), operating income was up 34% (nearly triple the level of just three years ago), and backlog was up 32% (more than double the level of just three years ago). The average total days turned on receivables (DSO) hit an all-time low of 16 days, well beneath the industry norm and near optimization. Most remarkably, we boosted operating margin four percentage points (400 basis points) while maintaining our commitment to delivering compelling solutions that offer both price and performance advantages. This balance between profitability and customer satisfaction is among our greatest accomplishments — something only a few, if any, software companies in our industry have attained over the last several years. Ultimately, these results stem from the Company’s character and values and from our commitment to innovation.
The home run this year was the remarkable performance of our software implementation services group, which became a separate division in 2006 and has delivered exceptional growth, with more than triple sales over last year. This group is helping us enhance our value proposition and better meet our customers’ needs for long-term benefit. The team was specifically created to partner with engineering consultants and offer resources, guidance, expertise and tools to help them effectively solve the complex problems faced by water/wastewater utilities. These invaluable services are available across our entire product line, and address the different needs of small, midsize, and large engineering firms.
Our excellent results clearly demonstrate that our strategies are working; our product portfolio has never been stronger or better; our services offer concrete value; and, most importantly, our customers are satisfied. We are excited about the strong momentum going forward. Never has MWH Soft been so ready to compete effectively in the worldwide water/wastewater design and modeling marketplace, and never has that marketplace needed our products and services more.
A Fast-Growing Customer Base
What began as a small, one-person enterprise in mid-1996 has evolved into one of the top engineering software companies in the world and one of the most recognizable brands in the field, holding leading positions in the North American water and wastewater industries. Today, some 70 percent of the largest U.S. cities and many of Canada’s major utilities run on MWH Soft software. The Company’s geographical footprint spans over 40 countries on all five continents.
MWH Soft continues to have one of the highest customer retention rates in our industry, along with a steady stream of new customers. Current customers, recognizing the value MWH Soft delivers to their organizations, continued to increase their investment in our software by licensing more products. We grow in our markets by making products and services that are easier to use and offer better value than the alternatives, creating customer delight.
Our win rate against competitors remained strong, as we captured 155 new customers and obtained additional software licensing agreements from 203 existing ones. We not only continued to enjoy resounding customer loyalty, but our users reported demonstrable and dramatic economic returns on their investments. The hundreds of thank-you notes we received in 2007 offer unequivocal proof that we deliver the highest levels of customer satisfaction.
We know that our best source of new business is word-of-mouth recommendations from existing customers — and we work hard to keep that pipeline flowing strongly, generating competitive dynamics that are hard to duplicate. Word of mouth remains our most powerful customer acquisition tool, and we are intensely proud of the trust our customers have placed in us. As we solidify and extend our brand, expand our customer base, and serve our customers with an extraordinary level of care, repeat purchases and word of mouth will continue to impel us to new heights of operational excellence and market leadership.
We measure customer feedback rigorously via a methodology called Net Promoter Score (NPS). It’s based on the simple “ultimate” question: “On a scale of 0-10, how likely are you to recommend MWH Soft to a friend or colleague?” Customers who rate us 9 or 10, are promoters; 7-8, passive; and 0-6, detractors. The NPS is then calculated as the percentage of promoters minus the percentage of detractors, creating a picture of customer loyalty to our brand.
NPS is to customer relationships what a company’s net profit is to its financial performance. Because this metric reliably links to the economics of growth, it is something we always seek to maximize. NPS is now a standard measure for some of the world’s most successful companies, including GE, American Express, Enterprise Rent-A-Car, Southwest Airlines, eBay, Costco, Four Seasons hotel group, Chick-fill-A, Dell, Microsoft, Intuit, Commerce Bank, and HomeBanc.
Research across multiple industries has shown that the fastest-growing companies are those with the highest NPS. In 2007, our NPS stood among the highest in any industry, creating tangible customer value and durable competitive advantage that translate into sustained future growth.
Positioned to Win
Our excellent results put MWH Soft in a position of great financial strength, enabling us to maintain our longstanding reputation for innovation and legendary customer care by making even larger investments in new product development and customer service. We believe this helps us to drive ongoing innovation and supports our growth initiatives. Our financial position is rock-solid. Our products lead the market. Our brand is impeccable. Our reputation for business integrity and honorable dealings is immaculate. Our claims record is flawless. Our customer loyalty is unshakable, and we’ve amassed what may well be the largest number of referenceable customers in the industries we serve.
We have a strong management team with a proven track record. Members of our Executive Board are business leaders with experience, vision, and commitment to our customers’ success. We are blessed with an extraordinary group of people who are masters of their crafts and run our business as if it were their own. We achieved these gains through their combined efforts, and they continue to produce remarkable results from seemingly ordinary businesses. Our success is undisputed — and our drive to serve our customers remains absolute.
At MWH Soft, success begins and ends with our valued customers and partners. Our number one priority and passion has always been to satisfy them — a commitment that clearly sets us apart in our industry. We think and act from our customers’ perspective. We listen to them carefully and constantly in order to fully understand what they want from our products and services, today and in the future. We then strive to make their lives easier — by applying our best resources and executing with laser-like focus to deliver drop-dead-simple solutions to their complex chores. Their feedback, together with the disciplined, customer-centric, highly ethical and professional business approach that is our trademark, defines our priorities. Few companies if any in our industry can approach our record of creating simple, reliable solutions to complex customer problems.
We want MWH Soft to be essential to our users and their enterprises … to be a critical part of their successes … to be their long-term partner and valued friend. Keeping our promises. Exceeding expectations. Performing with integrity. This is the foundation on which we operate. The vast majority of customers we’ve signed is still realizing value from our products and services — a clear indication of how well we’ve met their needs.
MWH Soft was built on technological innovation, and our future depends on it. Our technology leadership both expands our capabilities and drives our growth. It produces great, compelling products that offer tangible value to our customers, win competitive battles, and create new markets. But the most important benefit of our vanguard skills is the opportunity to provide our loyal client base with new solutions for many years to come. Solutions, by definition, keep us focused on our customers. When we are solving their problems, our potential for growth is endless. When our Company wins, we all win.
Commanding New Releases
Within the confines of this report, it is impossible to do justice to the many exciting initiatives underway at MWH Soft. There is no question that our technical and technological capabilities are not only world-class, but world-leading.
MWH Soft’s pre-eminence in CAD- and GIS-centric infrastructure modeling and design is well-documented and widely known. We are clearly the most nimble vendor in the market, innovating at a much faster rate than the competition. MWH Soft’s magnificent process capability — the ability to not only develop unique, engineer-friendly products, but manufacture them efficiently and consistently — empowers us to deliver more innovative solutions tied to enduring customer needs in less time. More innovation means more great products. More great products mean more loyal customers. And more customers mean faster growth and more investment in innovation. This is how we’re taking MWH Soft to the next level, and the level beyond that.
We remain as passionate as ever about our product innovation strategy — an approach that is customer-driven, not technology-focused. We dig deep to understand our customers and identify their needs and pain points. We challenge conventional wisdom to uncover new, innovative solutions to them. Then we conceive, engineer, and deliver a new generation of software that works the way our customers think, operating behind the scenes to make their jobs easier. We also strive continually to make the end-to-end customer experience of our products simpler and better, supporting and servicing our clients with impeccable care. That’s been our recipe for success. As we get stronger and better, our prospects for the future become even brighter.
We continually plan for tomorrow. With the goal of long-term growth, we never stop investing for the future. In 2007, we significantly stepped up our investments in R&D and buoyed our prospects for the future. The year marked the release of our most powerful and comprehensive family of true ArcGIS-centric (ESRI, Redlands, CA) infrastructure modeling applications ever. This revolutionary product line embodies innovation to the core. It empowers industry professionals to command any type of analysis: simple steady state; dynamic hydraulic, hydrologic and water quality assessment; sophisticated transient evaluation; comprehensive optimization; and state-of-the-art unidirectional flushing, sensor placement, pressure zone management, leak detection, and pond design.
Our products have been recognized by the National Association of GIS-Centric Software (NAGCS) with the world’s first and only GIS-centric water and wastewater modeling software certification, setting even higher modeling and design standards for our industry. They represent the next step in the evolution of high-end geospatial water distribution and sanitary, storm and combined sewer systems management technologies, powered by the intelligence and versatility of ArcGIS. They also position us years ahead of competitive software architectures. Few companies can come close to our record of creating comprehensive, engineer-friendly solutions for complex customer problems. We have literally written our industry’s book on value differentiation through great products and customer care — the most powerful recipe for business and personal success.
We also released Pressure Zone Manager (PZM), a first-of-its-kind geospatial water master planning solution that enables water utilities and consulting engineers to automatically delineate, analyze, design, and produce accurate hydraulic schematics for pressure zones — supporting reliable, cost-effective capital investment decisions. PZM not only makes water distribution system modeling and master planning easier, faster and more reliable than ever before, but also enables users to perform quality assurance and quality control during the development of a model, before performing any rigorous evaluations.
Just as excitingly, we entered a vital new modeling category and brought another compelling product to market. In direct response to customer feedback, we developed and introduced H2OCALC software — an indispensable hydraulic and hydrology toolbox for mainstream design engineers. Powerful, comprehensive and easy to use, the program gives engineers uncomplicated access to scores of advanced water resources computational algorithms essential to designing better systems. H2OCALC enables users to deploy these sophisticated computational abilities to streamline the hydraulic design and analysis of pumps, pipes, ditches, open channels, weirs, orifices, culverts, and inlets without having expertise in this complex field. It also eliminates the need for messy nomographs, cumbersome spreadsheets and homegrown programs, empowering engineers to work more effectively, improve productivity and design better systems. The program is so profound and simple that customers wouldn’t dream of going back to their old ways of doing things.
2007 also saw the release of robust and compelling new versions of our flagship products, with scores of new features, capabilities and functionalities. These pivotal offerings continue to receive kudos and aggressively gain market share. Our product cycles are now the shortest they’ve ever been, with new enhancements or versions of all products released each fiscal year. Our current product portfolio is the richest and strongest vertical lineup of applications in our history.
Finally, in an event unprecedented in our industry, we introduced another authoritative textbook that sets a new standard for water and wastewater engineering reference works. The comprehensive set of volumes we have published to date is by far the largest array of textbooks produced by any member of our industry. We were honored to have the American Water Works Association quickly recognize and add our premier textbooks to its bookstore, enabling industry professionals to purchase them directly from the AWWA website.
A New Generation of InfoSWMM
The market is moving very rapidly to adopt and standardize on ESRI ArcGIS-centric applications, and MWH Soft is leading the way. Redefining the vanguard of innovation in the wastewater industry, we introduced two revolutionary new modules for our InfoSWMM Executive Suite, the world’s first true ArcGIS-centric urban drainage and sewer modeling and management solution. Our Pond Design Manager extension addresses the need for fast, accurate analysis of pre- and post-development watershed conditions and sizing of single and interconnected ponds and outlets. Our Google Earth™ (NetView) modeling extension puts expert presentation methods in every user’s hands, enabling multiple wastewater utility departments maximum interaction with spatial photography, GIS data and critical analysis results to improve business efficiency and effectiveness.
Distinguished by a compelling combination of cutting-edge GIS functionality and hallmark hydraulic, hydrologic and water quality simulation and optimization capabilities, InfoSWMM Executive Suite now delivers a comprehensive and cost-effective solution for managing urban runoff and wet weather water quality problems in combined, sanitary and storm sewers — giving utilities new power to optimize BMP and LID designs and meet stringent SSO and CSO regulations.
These capabilities will help our customers tremendously in pinpointing the most cost-effective way to keep their systems operating efficiently well into the future and safeguard against adverse health and environmental effects. We are proud to have introduced a groundbreaking product line that will make an immediate difference in people’s lives and the ecological health of our nation’s waterways.
Growing Worldwide Impact
In 2007, we enjoyed very strong results internationally, with an exceptionally robust performance in Australia and the Middle East. We also expanded our global reach in Asia, establishing a presence in Singapore to better serve the needs of clients in that country, Malaysia and Brunei. The local office reports directly to our Asia-Pacific headquarters in Gold Coast, Australia.
In another 2007 landmark, we hosted our annual User Conference, spotlighting the latest innovations in geospatial infrastructure modeling, in Broomfield, Colorado. This major event, sponsored by the US Environmental Protection Agency and ESRI, and co-chaired by American Water, NJ, East Bay Municipal Utility District, CA and the Las Vegas Valley Water District, NV, drew full capacity attendance. The sessions were packed with a remarkable group of professionals from all corners of the world, including engineers, managers, operators, researchers, and GIS specialists — all there to share their knowledge and experience. Participants from major utilities and top engineering firms presented a wide variety of innovative solutions to real-world problems. The event offered attendees a wealth of critical knowledge, an invaluable forum for exchanging cutting-edge information and proven strategies, and a chance to interact with water and wastewater industry movers and shakers.
We also kicked off our highly-acclaimed workshop seminar series in Melbourne and Brisbane, Australia; Auckland, New Zealand; and Singapore and Beijing, China. These comprehensive seminars explore how water and wastewater professionals can use advanced GIS modeling and design technology and information management applications to do their jobs better, easier, faster and more efficiently. They also showcase the newest geospatial applications for hydraulic and water quality modeling and asset management.
People: Our Most Priceless Advantage
Our list of accomplishments is phenomenal — but it is the sides of the mountain, not the top, that sustain its greatness. The most pivotal reason MWH Soft is so superbly positioned, with a future that looks even brighter than its past, is our people. Each one is exceptionally skilled at creating customer value and eagerly providing the best customer experience in our industry. Through their intellect, heart, drive, energy, passion, creativity, competitiveness, and often enormous personal sacrifice, they routinely turn vision into reality. We have placed much trust in them — and their achievements have far exceeded that trust. Our success is a tribute to all of them.
The story of the remarkable work our people do every single day, productively and with great pride, is an extraordinary one. They share a burning sense of urgency about reaching our goals, and unleash their passion to serve our customers, execute flawlessly and deliver results — all with integrity and high ethical standards. They are committed to adding value to our industry, reigniting year after year the entrepreneurial spirit that made MWH Soft great in the first place. Together, they’ve created a remarkable family that enjoys delivering truly incomparable — even legendary — customer service. Their commitment to total satisfaction is unwavering. They never give in, and never give up. The results they’ve achieved have created milestone after milestone for the MWH Soft brand worldwide.
Every month, I receive dozens of messages praising our people, and I am often brought to tears when I read of the amazing and generous deeds they’ve selflessly done for our customers — not because they had to, or because they expected to be rewarded, but solely from their hearts. They make me immensely proud to be their colleague, and I can’t thank them and their families enough for the sacrifices they make for our Company on a daily basis.
Our people also furthered their rich tradition of community service in 2007. They truly bring their enthusiasm and dedication home to the cities, towns and neighborhoods where they live by supporting a wide range of worthy causes. They make it a priority to do well for themselves by doing good for others. MWH Soft lauds and supports their efforts that make a difference in the lives of others. Our MWH Soft Caring Foundation program offers assistance to qualifying nonprofit organizations in the areas of education, culture, and the environment through monetary donations and in-kind contributions.
The people of MWH Soft are incredibly special in mind, heart and spirit. Their goodness has fostered greatness, making ours a Company that is not only built to last, but built to lead. We are extremely fortunate to have this group of talented and dedicated professionals, whose sacrifices and zeal built and continue to build MWH Soft. Our people’s passion for making a positive difference in the lives of our customers and communities is the basis for my unrelenting optimism and conviction that our greatest achievements lie ahead.
I fundamentally believe that a company grows when its people grow, and our financial growth has been matched by team growth. In 2007, we continued to place a high priority on augmenting staff, developing our next generation of business leaders, transferring knowledge and skill sets, and ensuring that we have the right management initiatives and tools to facilitate a creative environment where both individual excellence and teamwork are rewarded. We filled key positions, growing our total head count by 4 percent.
My role is to attract and keep talented and loyal people who are skilled at working in this setting. In concert with my partners, Erick Heath, our Sales leader, Dan Antal, our head of Operations, and Roger Ro, our Product Development head, three outstanding individuals with great record of leadership. Together, we recruit, train, develop, inspire, motivate, and think about people constantly. As a result, we are building a remarkably strong leadership pipeline. We believe in the MWH Soft team. We see every day just how exceptional it is. Its members are diverse, dedicated, and talented. They have amazing passion, endless energy and relentless drive. They are committed to working together, delivering, and always putting the customer first.
My executive staff and I are profoundly elated and honored to be at the helm of the Company, part of a team where opportunities abound and growth prospects are defined only by the aspirations and efforts of our people. We possess leading market positions, a rising flow of innovative new products, close relationships with customers, a strong global presence, and powerful brands. We’re led by a talented management team focused on leveraging MWH Soft’s unique strengths and effectively executing our game plan day in and day out, year after year. There has never been a better time to be here. The past has belonged to MWH Soft. We stand ready to seize the future.
This is MWH Soft now, and it is the best MWH Soft ever.
Moving Into the Future
Our 2007 performance is a milestone, not a destination — and we see enormous growth potential in 2008 and beyond. We enter 2008 with greater momentum and a stronger set of products than at any time in our history. Never satisfied with the status quo, MWH Soft will continue to be driven by our customers’ exacting needs. We’re committed to developing solutions that deliver advantages in price, convenience, reliability and performance while dramatically enhancing the future of enterprise computing for the water and wastewater industries. We’re dedicated to innovation and determined to make our software even more powerful and easy to use. We love to be pioneers; it’s in the DNA of the Company. We’re also steadfast in our resolve to keep our customers at the forefront of all we do. We are determined to win and deliver on our commitments in all aspects of our business. Our New Year’s resolution, this year and every year, is to stay ahead of their high expectations. We could not be more intensely motivated to do our best.
As in the past, MWH Soft has changed ahead of the times. We are a company that does what few others can do and goes where few can follow. We are poised to move forward to levels of performance, growth and excitement undreamed of in the past. You have helped us create a great, sustainable firm with the strength to continue winning. I have never been more enthusiastic heading into a new fiscal year.
A key element in expanding our horizons is our commitment to increasing long-term customer value. Our industry is consolidating, as evidenced by the significant global merger and acquisition activity of recent years. We believe consolidation is good for the industry, and we intend to participate in a controlled and disciplined manner. We cannot and will not rule out the possibility of our products, portfolio and innovation expanding beyond our existing borders, including pursuing external growth opportunities such as complementary strategic acquisitions of adjacency products and/or companies. As we continue our aggressive growth path, we remain deeply committed to the core ethics, culture and philosophy that have served us so well, and to maintaining a small company soul in a big company body.
Our accomplishments and successes are built upon foundational relationships with our customers, our worldwide partners, and our entire MWH Soft family. I can’t thank you enough for your invaluable contributions and support. We couldn’t have done it without you. Your unwavering commitment to our Company and confidence in our abilities is tremendously gratifying, both in these exciting times and those that lie before us. We’re leading the charge toward a future of infinite possibilities, and you’ve been with us every step of the way.
We feel energized by and tremendously proud of our accomplishments and the people who worked so diligently to achieve them — and even more excited by what we want to do. Our journey is up a mountain with no peak. A continuous landscape of challenges faced and challenges met, of problems that turn to opportunities for new achievements. We have the talent, resources and initiatives to serve our customers well, accomplish our mission to help them succeed, and maintain and enhance our market-leading positions. Truly, our best years are still ahead of us.
At MWH Soft, the startup spirit remains alive and well.
We’re doing it Together!
Sincerely,
Paul F. Boulos, Ph.D
President and Chief Operating Officer
MWH Soft
MWH Soft At A Glance
MWH Soft is a leading global provider of infrastructure management applications software and professional solutions designed to meet the technological needs of water and wastewater utilities, government industries, and engineering organizations worldwide. Its clients include the majority of the largest North American cities and ENR top-rated design firms. With unparalleled expertise and thousands of deployments around the world, MWH Soft equips progressive organizations with a proven set of industry-specific best practices; state-of-the-art CAD, GIS and Internet enabled solutions; and business processes. The advantages we provide empower industry professionals to competitively plan, manage, design, protect, maintain and operate highly efficient and reliable hydraulic infrastructure systems and consistently deliver superior customer experiences.
