Pervasive Software Inc. ( PVSW)

F2Q2011Earnings Call

January 25, 2011 5:00 p.m. ET

Executives

Randy Jonkers - CFO

John Farr - President & CEO

Analysts

John Fichthorn- Dialectic Capital Partners

Sarkis Sherbetchyan – B. Riley and Co.

Presentation

Operator

My name is Melissa and I will be your conference operator today. At this time, I would like to welcome everyone to the fiscal year 2011 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. Mr. Randy Jonkers, Chief Financial Officer, you may begin your conference.

Randy Jonkers

Good Afternoon and thank you for joining us, I am 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 meanings 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 can 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 December 31, 2010 and 2009 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 recap Pervasive's financial results during our second fiscal quarter. Then John will update you on our current operations.

Now for the financial results. Today we released financial results for the second quarter of our fiscal year 2011. Revenue and earnings were at the high end of our guidance provided on October 19. Pervasive revenues totaled $11.7 million in Q2, compared to $11. million of Q2 of last year. Our GAAP basis net income was approximately $400,000 in Q2, and diluted earnings per share was $0.03. Our effective tax expense rate in Q2 was 29.2%. Our non-GAAP net income in Q2, before amortization of purchase and tangibles and stock bid compensation expense, and taxed at 34% was approximately $800,000, and our non-GAAP earnings per share was $0. 05.

We ended the quarter with approximately $37.2 million in cash and marketable securities, and had approximately 16 million shares issued and outstanding. Also during the second quarter, we repurchased approximately 57,000 Pervasive shares on the open market, and the total costs were approximately $300,000, or approximately $5.12 per share. We generated approximately $1.5 million of positive cash flow from operations, our DSOs, or day sales outstanding, were 66 days, which was a decrease from our prior quarter.

By geography our Q2 revenue was as follows: domestic revenue totaled approximately $7.8 million in Q2, or 67% of our revenue. Our international revenue, principally Europe and Japan, totaled $3.8 million, or 33% of our revenue in Q2. At a product level, our database products represented approximately 55% of our business and our integration products represented approximately 40% in Q2. While our business exchange, data solutions, and DataRush products accounted for the remainder.

Turning to operating expenses. Our operating costs and expenses totaled $11.1 million in Q2, including stock-based compensation expense and amortization related to acquired intangibles in the approximate amount of $600,000 for non-GAAP expenses of $10.5 million. We had 239 employees at the end of Q2, which represent an increase of 11 employees from the end of the first quarter and an increase of 5 employes from the Q2 of fiscal year 2010.

Now looking forward. We expect revenues in our third quarter of fiscal year 2011 to be in the range of $11 to $12 million, compared to $11.7 million in Q3 of fiscal year 2010. With that we expect GAAP basis diluted earnings of $0.00 to $0.03 per share. We anticipate our effective tax rate for the third quarter will be approximately 30%. Non-GAAP profitability is expected to include stock-based compensation expense and the 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 third quarter to be $0.02 to $0.05. Our non-GAAP effective tax rate for comparative purposes reflects a statutory rate of 34% on pre-tax, non-GAAP income. We anticipate cash flows from operations to be between $1 and $2 million for the third quarter of fiscal year 2011. Also, as in prior quarters, we are not providing specific guidance beyond Q3.

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