Edgewater Technology, ( EDGW)

Earnings Conference Call

May 11th, 2011, 10:00 am ET

Executives

Paul McNiece

Shirley Singleton – President, CFO

Timothy Oaks - Chief Financial Officer

David Clancey – EVP, Chief Strategy, Technical Officer

Analysts

George Mellas – MKH Management

Arnold Ursaner – CJS Securities

Presentation

Operator

Good ladies and gentlemen and welcome to the quarter one 2011 Edgewater Technology Financial Results Conference Call. (Operator Instructions) I would now like to introduce your host for today’s conference, Mr. Paul McNiece. You may begin.

Paul McNiece

Thank you, Operator. Good morning everyone and welcome to Edgewater Technology’s first quarter 2011 financial results call. I’m here today with Shirley Singleton, Chairman, President and CFO. David Clancey, Edgewater’s EVP and Chief Strategy and Technology Officer and Timothy Oaks, Edgewater’s Chief Financial Officer. Before we begin I would like to remind everyone that this call may contain forward looking statements as described under the Securities Act. Investors are cautioned that such statements could involve risks and uncertainties that could cause actual results to differ from current expectations with respect to such statements. These types of statements and the underlying factors were related to these statements are listed and reported in filed information with the Securities and Exchange Commission as well as within the company’s press release that was distributed earlier this morning. The statements made during today’s calls are made only as of the date of today’s call and the company undertakes no obligation to update the forward-looking statements to reflect subsequent events or circumstances. With that I will now turn the call over to Shirley.

Shirley Singleton

Thank you, Paul. Good morning, everyone. We said we were expecting strong organic growth and service revenue for Q1 and we do deliver on that projection. I’m really pleased with our Q1 performance. Our service revenue is up on both a year over year and sequential basis, and we’re really doing a good job of the number of new customers as well. We secured 31 new customers. I tried to take a sampling of customers from all of offerings across all offerings. One name is Old Mutual out of South Africa, it’s a new customer.

QUALCOMM, Essential Rewards, Employers Insurance, Maxwell Technologies, and Cisco but with that let’s have Tim get into the details.

Timothy Oakes

Thank you, Shirley. As disclosed and announced in our press release this morning we are pleased to report solid first quarter operating performance and related metrics. We are able to leverage strong fourth quarter bid and proposal activity resulting in an all-time high in service revenue, improved billable consultant utilization and improved gross margin in EBITDA.

This is positive news in light of that fact that operating performance comes in a period in which typically is a soft period due to traditionally seasonality in our EPM service offerings in the cyclical resetting of fringe expenses.

Total revenue for the first quarter was $23.6 million compared to $20.3 million in the first quarter of 2010. Service revenue which was $19.7 million during the first quarter compared to service revenue of $16.7 million in the first quarter 2010. On a year over year basis we’re reporting growth in both total revenue and service revenue of 16.4% and 25.5% respectively. Excluding the incremental revenue generated by our Meridian acquisition, which was completed in May of 2010, organic service revenue increased by 22.5% on a year over year basis.

We are reporting organic service revenue growth across all of our service offerings. On a sequential basis, while total revenue was relatively consistent with the fourth quarter of 2010. There was a shift in the underlying mix of the revenue. Service revenue increased by $2 million or 11.5% while softer revenue decreased by $2.1 million. The sequential increase in service revenue is primarily driven by sequential increases in our EPM and the RP related service offerings.

Software revenue which includes maintenance revenue representing 6.7% of our total revenue during the first quarter, this compared to 14.4% during the first quarter 2010. On an absolute dollar basis software revenue decreased by $1.3 million on a year over year basis, which is in large part driven by a singular software sale during the first quarter 2010. As we have stated in each of our past earnings calls, we’d like to remind everyone that we anticipate that software revenue will be a material part of future total revenue and hat our future operating results can be materially influenced by our ability to recognize software.

Also we’d like to reemphasize that quarterly software revenue can be volatile if subject to our customers demand for such off the shelf third party software. It can be impacted by software based revenue recognition rules. Quickly touching upon some of our other first quarter revenue metrics before moving on to gross profits, our annualized service revenue per billable consultant metric was $327,000 in the first quarter of 2011, which is consistent with the first quarter 2010.

We entered into first time engagements with 31 new customers during the quarter compared to 25 new customers in the year ago quarter. Service revenue generated by our top ten customers represented 25.9% of total revenue service compared to 30.3% in the first quarter of 2010. Only one individual customer accounts for more than 5% of our total service revenue during the current quarter.

Moving on to gross profit, total gross profit as a percentage of total revenue was 36.4% during the first quarter compared to 33.1% in the first quarter 2010 and 38% in the fourth quarter of 2010. Similarly gross profit margin related to service revenue was 38.5% in the first quarter compared to 34.1% in the year ago quarter and 39.5% in the fourth quarter of 2010.

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