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Bitstream Inc. Q1 2010 Earnings Call Transcript

Bitstream Inc. Q1 2010 Earnings Call Transcript

Bitstream Inc. (BITS)

Q1 2010 Earnings Call

May 17, 2010 4:30 pm ET


Anna Chagnon – President and CEO

Jim Dore – VP and CFO


William Martin – Raging Capital Management

Alex Washburn [ph]



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» Bitstream Q2 2009 Earnings Transcript
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Good day, ladies and gentlemen, and thank you for standing by. And welcome to the Q1 2010 earnings release conference call. Currently, all participants are in a listen-only mode. (Operator Instructions) As a reminder, this conference is being recorded for replay. I would now like to turn the program over to our speaker, Anna Chagnon. Ma’am, please go ahead.

Anna Chagnon

Thank you. Hello and welcome to Bitstream Inc.’s first quarter 2010 conference call. I am Anna Chagnon, President and Chief Executive Officer of Bitstream.

Jim Dore

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And I'm 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 27-A of the Securities Act of 1933 as amended and Section 21-E 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 listeners not to place undue reliance on such statements.

A short time ago, we reported our results for the first quarter of 2010 with the following financial highlights. Our aggregate cash, cash equivalent and investment in marketable security position at March 31, 2010 was $20,040,000, an increase of $2,011,000 from a balance of 18,029,000, at December 31, 2009.

First quarter revenue increased $207,000 or 4%, to $5,208,000 for the quarter ended March 31, 2010, compared to $5,001,000 for the same period last year. And our current size revenue may vary quarter-to-quarter due to the timing of license agreement.

Our type OEM on Pageflex publishing revenues continued to be affected by global economic concerns and decrease in consumer spending, causing delays in the licensing in our software products as well as decreases in royalties received from shipment of consumer products in the previous quarter.

Our e-commerce sales, however, continued to recover recording a substantial increase and resulting in a $559,000 increase in our direct licensing revenue or 21% as compared to the first quarter of 2009. The increase in e-commerce sales during the three months ended March 31, 2010, led to an increase in third-party cost of revenue consisting primarily of royalty expenses of $579,000 or approximately 39% as compared to the quarter ended March 31, 2009.

Cost of licenses as a percent of license revenue was 55% for Q1 2010, an increase from 42% at Q1 2009. Our product mix fluctuated between products bearing, various royalty rates and our e-commerce revenue as higher cost associated within than our type technology and publishing license revenue.

Due to anticipated e-commerce revenue growth, we expected the cost of license as a percent of sales for 2010, will continue at a level above that reflected for 2009 until such time as revenue from our OEM type Pageflex publishing and browsing license revenue increased relative to the increase in e-commerce revenue.

Our Q1 2010 cost of services as a percent of revenue from services was 39%, a decrease from 47% from Q1 2009, primarily due to the deployment of consulting personnel in to research and development projects. Our service infrastructure has remained relatively unchanged since the first quarter of 2009.

The roller coast margins realized from e-commerce sales contributed to our operating loss, increasing to $403,000, for the three months ended March 31, 2010 as compared to an operating loss of $166,000, for the same quarter in 2009. Despite reducing total operating expenses for the three months ended March 31, 2010, by $81,000, were approximately 3% as compared to Q1 2009, a $525,000 increase in cost of revenue during the quarter caused our net loss to increase from $153,000 or $0.02 per diluted share, for the three months ended March 31, 2009, to $398,000, or $0.04 cents per diluted share for the three months ended March 31, 2010.

The decrease in operating expenses was primarily due to decreases in sales and marketing expenses of $320,000 and general administrative expenses of $29,000, partially offset by $178,000 increase in research and development expenses. Primarily in salary, and other compensation expense associated with our BOLT web browsing product and from the reassignment of certain consulting personnel to research and development positions within our publishing product line.

The decreases in marketing expenses included decreases in trade show participation, sales commissions on less commissionable sales, decreases in the use of outside professional marketing consultants and a temporary decrease in sales and marketing personnel.

The decrease in general and administrative expenses was primarily due to decrease in bad debt of $147,000, partially offset by increased Investor Relations related costs and professional services including audit tax and consulting costs of approximately $21,000 and $87,000 respectively. Anna?

Anna Chagnon

Thanks Jim. We were impressed by return to growth of revenues from e-commerce product line during the first quarter, as surpassed our expectations, since the first of our product lines to return to growth after the economic downturn. Although this growth in e-commerce revenue also decreases our margins given the associated royalty payment is exciting to see the significant move forward of this business segment.

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