Pervasive Software Inc. (

PVSW

)

F2Q2011 Earnings Call Transcript

April 19, 2011 5:00 pm ET

Executives

Randy Jonkers – CFO

John Farr – President and CEO

Analysts

Kevin Liu – B. Riley & Company

Presentation

Operator

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Good afternoon. My name is Simon and I will be your conference operator today. At this time, I would like to welcome everyone to the Pervasive Software Inc. fiscal year 2011 third 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. I will now turn the call over to Chief Financial Officer, Randy Jonkers. Sir, you may begin your conference.

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Randy Jonkers

Thank you, Simon. 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 will go over to standard disclaimer regarding remarks on this call.

This conference call may contain forward-looking statements within the meaning of the federal securities laws, including statements regarding the company's or management's intentions, 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's 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 a reminder, our non-GAAP results for the quarters ending March 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 our 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 recap Pervasive's financial results for our third fiscal quarter. Then John will update you on our current operations.

Now for the financial results. Today we released financial results for the third quarter of our fiscal year 2011. Revenue and earnings exceeded our guidance provided on January 25. Pervasive revenues totaled $12.1 million in Q3 compared to $11.7 million in Q3 of last fiscal year.

Our GAAP basis net income was approximately $800,000 in Q3 and diluted earnings per share was $0.05, including $0.01 per share attributable to a favorable income tax adjustment. Our non-GAAP net income in Q3 before amortization of purchased intangibles and stock-based compensation expense and tax at 34% was approximately $900,000, and our non-GAAP earnings per share was $0.06.

We ended the quarter with approximately $37.5 million in cash and marketable securities and approximately 16.1 million issued in outstanding. Also during the third quarter, we repurchased approximately 98,000 Pervasive shares on the open market at a total cost of approximately $535,000 or approximately $5.42 per share. We generated approximately $825,000 of positive cash flow from operations. Our DSOs or days sales outstanding were 68, which was an increase of two days from our prior quarter.

By geography, our Q3 revenue was as follows. Domestic revenue totaled approximately $7.4 million in Q3 or 67% of our revenue. Our international revenue, principally Europe and Japan, totaled $4.7 million or 39% of our revenue in Q2. At a product level, our database products represented approximately 57% of our business and our integration products represented approximately 38% in Q3. While our Business Exchange, DataSolutions and DataRush products accounted for the remainder.

Turning to operating expenses. Our operating costs and expenses totaled $11.3 million in Q3, including stock-based compensation expense and amortization related to acquired intangibles in the approximate amount of $600,000 for non-GAAP expenses of $10.7 million. We had 247 employees at the end of Q3, which represents an increase of 8 employees from the end of the second quarter and an increase of 9 from Q3 of fiscal year 2010.

Now looking forward, we expect revenues in our fourth quarter of fiscal year 2011 to be in the range of $11.2 million to $12.2 million compared to $11.7 million in Q4 of fiscal year 2010. With that, we expect GAAP basis diluted earnings of $0.01 to $0.04 per share. We anticipate that our effective tax rate for the fourth quarter will be approximately 25%.

Our non-GAAP profitability is expected to include stock-based compensation expense and amortization of acquired intangibles representing approximately $600,000 in the third quarter of fiscal year 2011. With that, we expect non-GAAP and fully taxed diluted earnings per share in our fourth quarter to be $0.03 to $0.06.

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