Bitstream's CEO Discusses Q4 2010 Results - Earnings Call Transcript

Bitstream (BITS)

Q4 2010 Earnings Call

March 21, 2011 4:30 pm ET

Executives

James Dore - Chief Financial Officer, Principal Accounting Officer and Vice President

Anna Chagnon - Chief Executive Officer, President, Secretary, Treasurer, General Counsel and Director

Analysts

Jack R. Ripsteen

Ken Lang

Presentation

Operator

Good day, ladies and gentlemen, and welcome to your earnings release call. [Operator Instructions] And now I would like to introduce your host for today, Anna Chagnon. Anna, please go ahead.

Anna Chagnon

Hello, and welcome to Bitstream Inc.’s Fourth Quarter 2010 Conference Call. I am Anna Chagnon, President and Chief Executive Officer of Bitstream.

James Dore

And I am 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 27A of the Securities Act of 1933, as amended, and Section 21E 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 fourth quarter of 2010 with the following financial highlights. Revenue increased $940,000 or 17% to $6,519,000 for the three months ended December 31, 2010, as compared to total revenue of $5,579,000 for the three months ended December 31, 2009, and by $537,000 or 9% sequentially as compared to $5,982,000 for the three months ended September 30, 2010. Revenue for the year ended December 31, 2010, increased $1,655,000 or 8% versus 2009. Revenue for the fourth quarter of 2010 was our highest quarterly revenue amount since we went public in 1996, and revenue increased across all of our product lines as compared to the fourth quarter of 2009.

The company's aggregate cash, cash equivalents and investments at December 31, 2010, totaled $11,412,000, a decrease of $1,333,000 from a balance of $12,745,000 at September 30, 2010, and a decrease of $6,753,000 as compared to a balance of $18,165,000 at December 31, 2009, reflecting the use of $6,528,000 of cash in June of 2010 to purchase certain assets of Press-sense Ltd.

Cost of license revenue increased due to direct third-party cost, consisting primarily of royalty expense of $480,000 as compared to the three months ended December 31, 2009. Cost of licenses also increased $47,000 due to the amortization of iWay Technology intangible assets purchased in June of 2010. Cost of services increased due to additional headcount added with the iWay acquisition.

Gross profit increased $287,000 or 9% for the fourth quarter of 2010 versus that of 2009. Operating expenses increased $1,440,000 to $4,476,000 for the three months ended December 31, 2010, as compared to $3,036,000 for the three months ended December 31, 2009. The increase in marketing and selling expense was due to an increase in iWay sales and marketing resources of approximately $232,000 and amortization of iWay-related customer list acquired in June of 2010 of $48,000.

The increase in R&D expense consisted primarily of $567,000 due to the addition of R&D resources related to the iWay product line, as well as increase in hosting cost for the BOLT browser of $78,000. The increase of G&A expense resulted from $263,000 of increases in G&A resources, including the establishment of an office in Israel, increases in directors' fees of $47,000 from an increase in the board and $271,000 in professional services, including investor relations and business advisory services of approximately $20,000 and $145,000, respectively.

Our loss from operations was $880,000 for the three months ended December 31, 2010, versus an operating income for the three months ended December 31, 2009, of $273,000. Our net loss for the three months ended December 31, 2010, was $979,000 or $0.10 per share versus net income for the three months ended December 31, 2009, of $167,000 or $0.02 per fully diluted share.

Our non-GAAP results for the three months ended December 31, 2010, excludes stock-based compensation expense, the amortization of intangible assets primarily acquired from Press-sense Ltd. and acquisition cost of certain assets of Press-sense Ltd. Our non-GAAP loss from operations was $579,000 for the three months ended December 31, 2010, as compared to an operating income for the three months ended December 31, 2009, of $472,000. Our non-GAAP net loss was $678,000 or $0.07 per share for the three months ended December 31, 2010, versus net income for the three months ended December 31, 2009, of $366,000 or $0.04 per fully diluted share.

Anna Chagnon

Our OEM-type business continues to close large OEM deals with customers for our font technologies and fonts in a wide variety of markets. Many of these deals also include future royalties based on shipment volume, so we do expect to see an ongoing benefit from these deals once shipments start in six to 24 months, depending upon product. The business also continues to be our most profitable and is helping us fund our Pageflex and BOLT growth initiatives.

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