Pervasive Software Inc. (

PVSW

)

F1Q2012 Earnings Conference Call

January 24, 2012 5:00 PM ET

Executives

Randy Jonkers - Chief Financial Officer

John Farr - President and Chief Executive Officer

Analysts

Kevin Louve - B. Riley & Co.

Presentation

Operator

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Good afternoon, my name is Jessica and I will be your conference operator today. At this time, I’d like to welcome everyone to the Fiscal Year 2012 Second Quarter Financial Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. (Operator Instructions) Thank you.

Randy Jonkers, you may begin your conference.

Randy Jonkers

Thank you. Good afternoon and thank you for joining us. I’m Randy Jonkers, Chief Financial Officer of Pervasive Software. While we wait for others to join, I’ll go over the standard disclaimer regarding remarks on this call. This conference call may contain forward-looking statements within the meaning of this Federal Securities Laws, including statements regarding the company’s or management’s intensions, hopes, beliefs, expectations and strategies for the future.

Forward-looking statements may include without limitation statements regarding the following; future investments, sales, market growth and direction, competition, revenue growth, operating margins and profitability. A detailed discussion of risks and uncertainties that could cause actual results and events to differ materially from such forward-looking statements is included in Pervasive’ most recent filings with the Securities and Exchange Commission.

Pervasive does not undertake any obligation to update forward-looking statements to reflect events or circumstances after the date of this conference call. Also and as reminder, our non-GAAP results for the three and six months periods ended in December 31, 2011 and 2010 exclude the amortization of purchased intangibles and stock-based compensation expense and present income taxes at a statutory rate of 34%.

We believe that the non-GAAP results described in today's press release and in this conference call are useful for an understanding of our ongoing operations and to assist the investor community in comparing Pervasive's non-GAAP results from period-to-period, as well as comparing our results with those of similar companies.

We use these non-GAAP results to compare our performance to that of prior periods for analysis of trends, to evaluate the company's financial strengths, develop budgets, manage expenditures, and develop a financial outlook. Non-GAAP results are supplemental and are not intended as a substitute for GAAP results. Note that our call today is being broadcast simultaneously via the Pervasive website. Welcome to those listeners.

In this call, we will cover two primary agenda items. First, I will provide some additional financial metrics from our second fiscal quarter to supplement those already provided with our press release today. Then John will update you on our current operations and plans.

Today, we released financial results for the second quarter of our fiscal year 2012. The results were consistent with our previously updated guidance provided on January 16. By geography, our Q2 revenue was as follows. Domestic revenue totaled approximately $7.9 million in Q2 or 66% of revenue. Our international revenue principally Europe and Japan totaled $4 million or 34% of our revenue in Q2.

At a product level, our database products represented approximately 53% of our business and our integration products represented approximately 43% in Q2. While our Business Xchange, DataSolutions and DataRush products accounted for the remainder.

We had 252 employees at the end of Q2, which represents an increase of five employees from the end of the first quarter. Now looking forward into subsequent Q3 guidance provided in today's press release. We anticipate cash flows from operations to be between $1 million and $2 million for the third quarter of fiscal year 2012. We also anticipate that operating expenses will increase in Q3 and Q4 based on our planned marketing events in those quarters and the effect of the new calendar year on employer payroll taxes.

We anticipate that our effective tax rate for our third fiscal quarter, GAAP earnings will be approximately 15%. For EPS calculation purposes, we expect our GAAP basis and non-GAAP fully diluted share accounts for the third quarter fiscal year 2012 be approximately 16.2 million and 16.8 million shares respectively. Note that this share count estimate excludes the impact of any future share repurchases.

Also, as in prior quarter we are not providing specific guidance beyond Q3. Now, let me turn the call over to John Farr, CEO of Pervasive Software. John?

John Farr

Thanks, Randy. We are energized each and every day knowing that the software market as a whole are going through rapid and disruptive change. The emergence and mainstreaming of cloud-based infrastructure and applications is testament to the increasing demand for scalability and rapid deployment provided by the SaaS delivery model.

Organizations increasingly demand software that provides ease of use, reusability, interoperability with widely adopted technologies and the flexibility to be deployed on-premises or in the cloud, all in a cost effective manner. In this environment, delivering flexibility and performance with high return on investment becomes increasingly critical.

In addition, the rapid proliferation of commodity hardware along with exploding data volumes, aka, Big Data, provides opportunities for companies to leverage affordable multi-core servers and clusters of servers to extract value from large volumes of the data. But only if they have the software, they can effectively scale on the new hardware.

As these disruptive market trends will continue, we believe infrastructure software will be a key ingredient for all businesses as they seek to integrate and streamline their back end systems and eliminate delays in the management and execution of critical processes and seek to gain business insight and value from their vast data assets being generated in this increasingly digital business world.

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