Bitstream Inc. (BITS)

Q2 2010 Earnings Call Transcript

August 16, 2010 4:30 pm ET

Executives

Anna Chagnon – President and CEO

Jim Dore – VP and CFO

Analysts

George Guffey [ph]

Kenneth Liang [ph]

Presentation

Operator

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Previous Statements by BITS
» Bitstream Inc. Q1 2010 Earnings Call Transcript
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Good day, ladies and gentlemen, and welcome to your earnings release conference. At this time, all participants will be in a listen-only mode. But later, we will conduct a question-and-answer session, which instructions will be given at that time. (Operator Instructions) And as a reminder, today's conference is being recorded.

And now, it's my pleasure to announce your host, Anna Chagnon.

Anna Chagnon

Hello and welcome to Bitstream Inc.'s second quarter 2010 conference call. I am Anna Chagnon, President and Chief Executive Officer of Bitstream.

Jim Dore

And I am Jim Dore, Bitstream's Vice President and Chief Financial Officer. We will begin this conference call with highlights for the quarter, followed by a question-and-answer session. During this conference call, we may make forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 as amended and Section 21E of the Securities Exchange Act of 1934 as amended.

Investors are cautioned that forward-looking statements are inherently uncertain. Actual performance and results of operations may differ materially from those projected or suggested in the forward-looking statements due to certain risks and uncertainties, including without limitation, market acceptance of the company's products, competition, and the timely introduction of new products. Any forward-looking statements made during this conference call represent the company's judgment as of today and we caution investors not to place undue reliance on such statements.

A short time ago, we reported our results for the second quarter of 2010 with the following financial highlights. Total revenue increased by $186,000 or 4% to $5,435,000 for the three months ended June 30th, 2010 as compared to total revenue of $5,249,000 for the three months ended June 30th, 2009 and $227,000 or 4.4% sequentially as compared to $5,208,000 for the three months ended March 31st, 2010. These increases were predominantly the result of increases in e-commerce revenue for font and OEM revenue for fonts and font technology.

The company’s aggregate cash, cash equivalents, and investments at June 30th, 2010 totaled $12,133,000, a decrease of $5,896,000 as compared to a balance of $18,029,000 at December 31st, 2009, reflecting the use of $6,528,000 of cash to purchase certain assets of Press-sense Ltd. Had the company not purchased the assets of Press-sense Ltd., cash would have increased by $633,000.

Our loss from operations was $714,000 for the three-months ended June 30th, 2010, and our operating income for the three-months ended June 30th, 2009 was $358,000. Our net loss for the three months ended June 30th, 2010 was $685,000 or $0.07 per share, and our net income for the three months ended June 30th, 2009 was $319,000 or $0.03 per fully diluted share.

The loss was primarily attributable to increased operating expenses for our increasing investment in BOLT; costs incurred for the addition of personnel in Israel, Europe, and the U.S. relating to the acquisition; legal, accounting, and consulting fees related to the acquisition of certain assets of Press-sense; and the amortization of intangible assets, primarily acquired from Press-sense.

Our non-GAAP results for the three months ended June 30th, 2010, excluding stock-based compensation expense, the amortization of intangible assets, and the acquisition of certain – acquisition costs for certain assets of Press-sense Ltd., out net – our non-GAAP loss from operations was $94,000 for the three months ended June 30th, 2010, while our operating income for the three months ended June 30th, 2009 was $571,000.

Our non-GAAP net loss for the three months ended June 30th, 2010 was $65,000 or $0.01 per share, while our net income for the three months ended June 30th, 2009 was $532,000 or $0.05 per fully diluted share.

Anna Chagnon

Our revenue growth in fonts and font technology during the second quarter was due to both the continued strength of e-commerce sales of font and the return to growth of our OEM revenue for fonts and font technology.

Revenue growth in e-commerce sales was driven by continued increases in the new user acquisition rate. Over 70,000 new users registered on MyFonts during the second quarter, bringing the total number of registered users to an excess of 1.2 million.

Although growth in e-commerce revenues also decreases our margins, given associated royalty payments, it's exciting to see continued strength in our e-commerce sales of fonts to consumers. The return to growth of our OEM revenue for fonts and font technology is due to key placements in the set-top box, printer, and mobile phone industries. Many of these deals will also allow us to receive recurring revenues based on customer shipments.

The shipment of products containing our fonts and font technologies from deals closed during the second quarter is expected to possibly start as soon as Q4 2010 with the major product shipments occurring throughout 2011. As a result, the reinvestment revenue from these deals is expected to start next year when the underlying products ship to consumers and it becomes bookable revenue to Bitstream.

Our publishing revenues were lower than anticipated during the second quarter for a variety of reasons, including the continuing slowdown in the print industry overall, resulting in decreased – a decreased number of qualified leads and global economic conditions that are causing corporations to spend less money on print and marketing in the near term. We also continue to see a commoditization of web-to-print solutions through inexpensive SaaS offering and the OEM bundling of web-to-print software.

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