Advent Software's CEO Discusses Q4 2011 Results - Earnings Call Transcript

Advent Software (ADVS)

Q4 2011 Earnings Call

February 06, 2012 5:00 pm ET

Executives

Heidi Flaherty -

Stephanie G. DiMarco - Founder, Chief Executive Officer and Director

James S. Cox - Chief Financial Officer, Principal Accounting Officer and Senior Vice President

David Peter F. Hess - President

Analysts

Sterling P. Auty - JP Morgan Chase & Co, Research Division

Christopher R. Donat - Sandler O'Neill + Partners, L.P., Research Division

David M. Scharf - JMP Securities LLC, Research Division

Presentation

Operator

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Good day, ladies and gentlemen, and welcome to the Fourth Quarter 2011 Advent Software Earnings Conference Call. My name is Kathy, and I'll be your operator for today. [Operator Instructions] As a reminder, this conference is being recorded for replay purposes.

I will now like to turn the conference over to your host for today's call to Ms. Heidi Flaherty, Vice President of FP&A and Investor Relations. Please proceed.

Heidi Flaherty

Thanks, Kathy. Good afternoon, everyone. Thanks for joining us today for Advent's Fourth Quarter 2011 Earnings Call. Hosting our call today are Stephanie DiMarco, Advent's Chief Executive Officer; Peter Hess, Advent’s President; and Jim Cox, Advent's Chief Financial Officer.

Most of you participating in this call are aware of the regulations regarding forward-looking statements. Accordingly, we would like to note that during the course of this conference call, we will make forward-looking statements regarding future events and the future performance of the company. We wish to caution you that such statements are just predictions that involve risks and uncertainties and that actual events or results could differ materially. We discuss a number of these risks in detail in the company’s SEC reports, including our quarterly reports on Form 10-Q and our annual report on Form 10-K, and any forward-looking statements must be considered in the context of such risks and uncertainties. The company disclaims any intention or obligation to publicly update or revise any forward-looking statements, whether as a result of events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.

As a reminder, we include non-GAAP financial measures in our disclosures. These non-GAAP financial results are not meant to be considered in isolation or as a substitute for results prepared on a GAAP basis. Please refer to the tables entitled, "Reconciliation of Selected Continuing Operations: GAAP Measures to Non-GAAP Measures" in our earnings release, which is filed with the SEC on a Form 8-K and available on our website for a reconciliation of GAAP to non-GAAP financial measures.

I have one more thing to note today. Advent is hosting an Analyst and Investor Day on the morning of Friday, May 11, at the NASDAQ market site in midtown. We will send invitations within the next few weeks.

I'll now turn the call over to Stephanie.

Stephanie G. DiMarco

Thanks, Heidi, and welcome, everyone. Thank you for joining us this afternoon. Advent had a very strong fourth quarter, finishing 2011 with record quarterly bookings and record revenue. Revenues were $86 million, a 14% increase; bookings or annual contract value were $13.7 million, a 31% increase; and operating cash flow was $27.6 million, a 13% increase year-over-year.

Later in the call, I'll talk more about our accomplishments and highlights. But first, let me turn the call over to Jim, who will provide further details on the numbers.

James S. Cox

Thanks, Stephanie. Our fourth quarter results capped off another successful year for Advent, setting performance records in annual contract value, revenue, operating profit and operating margin. In our earnings calls throughout 2011, we said we would finish the year strong, so we are especially gratified to see our expectations for the second half of 2011 realized.

Now let's start with bookings. Annual contract value, or ACV, for new contracts signed during the fourth quarter was $13.7 million, a 31% increase over the fourth quarter of 2010. We are quite pleased with the depth and diversity of our bookings performance. No single deal in the fourth quarter exceeded 10% of total annual contract value booked.

For the full year, ACV was a record $33.9 million, which represents 6% growth over our strong 2010 results. In 2011, we signed 52 new Geneva contracts, 86 new locally installed APX contracts, Tamale signed 38 new contracts in 2011 and Black Diamond sold 81 new contacts since our acquisition on June 1, 2011.

Turning to renewals. Our initially reported renewal rate, which is based on cash collection and therefore reported 1 quarter in arrears, was 93% in the third quarter, 2 points higher than the same period last year. When all the cash is collected for our third quarter renewals, we expect the initially disclosed rate of 93% to increase by our typical 2 to 4 points when we update the number with further cash collections.

Our second quarter 2011 renewals increased from last quarter's initially reported 92% to an updated 96%, as we've received subsequent collections.

Turning to the financials. Net revenue for the fourth quarter was a record $86.3 million, up 14% over the fourth quarter of 2010. Recurring revenue was 90% of total revenue. For the full year, revenue was a record $326.2 million, representing 15% growth over 2010. International revenue, as a percentage of total revenue, was 18%, up significantly from 15% in 2010.

Turning to expenses and profitability. Cost of revenue for the fourth quarter was $29.2 million, up $7 million or 31% over the same period last year, resulting in a decline in gross margin for the quarter of 4 points to 66%. The decrease in gross margin is driven by lower professional services billable utilization from investments in strategic accounts and strategic geographies, higher amortization of intangibles from our 2011 acquisitions and increased facility expenses.

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