Double-Take Software, Inc. (DBTK)

Q1 2010 Earnings Call Transcript

May 4, 2010 4:30 pm ET

Executives

Erica Mannion – IR

Dean Goodermote – Chairman, President and CEO

Craig Huke – CFO

Analysts

Rich Kugele – Needham & Company

Shaul Eyal – Oppenheimer & Company

Kevin Shea – MKM Partners

Tim Klasell – Thomas Weisel Partners

Presentation

Operator

Good day. And welcome to Double-Take Software's earnings conference call for the first quarter of 2010. The date of this call is May 4th, 2010. This call is the property of Double-Take Software and any recording, reproduction or transmission of this conference without the expressed written consent of Double-Take Software is strictly prohibited. This call is being webcast and recorded and you may access both live and replay webcasts of this call by going to the Investor Relations section of the Double-Take web site on the events and presentation page. You may also listen to an audio replay of this call by dialing 888-203-1112 from within the U.S., or dialing 719-457-0820 from outside the U.S. and entering replay pass-code 371-7147.

I will now turn the call over to Erica Mannion, Investor Relations for Double-Take Software.

Erica Mannion

Good afternoon and thank you for joining us to discuss Double-Take financial and operating results. With me today are Dean Goodermote, President and CEO and Chairman of the Board of Directors, Craig Huke, Chief Financial Officer. On the call today, you will hear forward-looking statements about events and circumstances that have not yet occurred, statements regarding projected financial results, statements containing words such as will, expect, believe and should and other states in the future tense are forward-looking statements. Actual outcomes and results may differ materially from the expectations contained due to a number of risks and uncertainties. Please refer to the company's recent SEC filings at the SEC's web site at www.SEC.gov for detailed discussions of the relevant risks and uncertainties.

The company undertakes no responsibility to update this information in this conference call and under any circumstance. The press release distributed today that announced the company's results is available on our website at www.doubletake.com in the investor relation section under financial press releases. The current report on form 8-K, furnished with respect to press release, is available on our website in the investor relations section under SEC filings. In addition, in this conference call we will provide non-GAAP financial results. The reconciliation of these measures to GAAP measures is set forth in the tables that reconcile our non-GAAP results to GAAP results from the press release located on our website as I just described.

Now I will turn the call over to Dean Goodermote, Chairman, CEO and President. Dean.

Dean Goodermote

Thanks, Erika. As previously announced, our Q1 revenue missed our expectations and I will discuss some of the reason for that shortfall. I'd like to give you some highlights first.

First and foremost, as is characteristic of Double-Take, we did produce earnings within the range of our earnings guidance. I believe we've always performed within our guidance range on earnings and sometimes exceeded it, even when topline performance was less than expected. Expenses this quarter were less than anticipated because we were unable to hire all the positions that we planned to early in the quarter and then we held back on offers late in the quarter as we sensed a revenue shortfall.

Going forward, we plan to manage headcount conservatively and not spend as far ahead of the revenue growth curve as we earlier communicated we would. Also note, with our renewals which were strong for us across all regions, renewal rates were approximately 85%, which is about 20 percentage points above the slump we saw a year ago.

We feel the strong trend will continue and believe it is a sign that a customer base is stabilizing and become more confident about spending for IT infrastructure. It also signals that our customer base continues to value our products and support. We saw license growth of about 7% globally over Q1 last year and this was led by the U.S. which grew by about 13%.

Hewlett-Packard, which always presents challenges, but we regard as a great opportunity, produced about 107% more software sales for us than it did last year. Lennox was strong too and while it maybe, not be up every quarter going forward, we do feel as if overall trend is up. Its product sales were more than 10 fold above sales over the same period last year.

Our Double-Take Move product, released last year has been a great entree into accounts that use it for migrations such as begin IT projects and thus helps insert us early in to the sales process as of up sell to Double-Take availability or sometimes into a project that we had never been a part of.

As an anecdote, we held a webinar featuring this product in the first quarter and attracted about 3100 registrants, 1500 live attendees who logged 600 questions. These stats are astounding even when compared to the largest of technology companies within the hottest of products and we believe show the growing interest and move in our flagship product Double-Take availability which incorporates it.

We also announced our cloud offering in Q1 and it received considerable coverage amongst the trade press. Sales to date are few and contributed a non-meaningful amount to revenue. But I believe this is the logical future for backup and recovery and we are ahead of the curves here, offering the rare possibility of running from the cloud when systems fail locally. We still plan to spend on development and marketing in this area disproportionately to its near term revenue potential. On the down side, sales cycle are longer than we would have anticipated but perhaps has to be expected given the newness of the cloud concept but on the upside we are finding the prospects to vary widely from firms and less than 10 servers to protect with those with hundreds.

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