Datawatch Corporation ( DWCH)

F3Q11 Earnings Call

July 28, 2011 16:30 ET

Executives

Dan Incropera – VP & Corporate Controller

Michael A. Morrison – Chief Executive Officer

Murray P. Fish – Chief Financial Officer

Analysts

James Fronda – Sidoti & Company.

George Marina – Private Investor

Doug Foley – Private Investor

Presentation

Operator

Greetings and welcome to the Datawatch Corporation third quarter 2011 conference call. At this time all participants are in a listen-only mode. (Operator Instructions).

As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Dan Incropera, Controller for Datawatch Corporation. Thank you Mr. Incropera, you may begin.

Dan Incropera

Thank you. Good afternoon, everyone. Thank you for joining us today for the Datawatch Corporation third quarter fiscal year 2011 earnings conference call. I'm Dan Incropera, Vice President and Controller at Datawatch.

Joining me today is Michael Morrison, our President and CEO; and Murray Fish, our Chief Financial Officer and Vice President of Finance.

You can obtain a copy of our earnings release, which was distributed at 4 o'clock P.M. Eastern Time today by emailing us at investor@datawatch.com. This release is also available on our website at www.datawatch.com. Let me first outline for you this afternoon's agenda.

Following a reading of our Safe Harbor statement, Michael will provide some general comments and an update on the business. Murray will then present a discussion of our third quarter 2011 financial results. Following our prepared remarks, we will open up the call for question-and-answer session.

Before we begin, I'd like to review our Safe Harbor statement with you. While we do not share projections of our future performance, we do need to remind you that any statements we make that do not describe historical facts may constitute forward-looking statements and are made under the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Any such statements are based on our current expectations, but are subject to a number of risks and uncertainties that could cause actual results to differ materially from current expectations.

For more information, I refer you to the descriptions of these risk factors found in our earnings release as well as the company's Annual Report on Form 10-K for the year ended September 30, 2010, its quarterly report on Form 10-Q for the quarters ended December 31, 2010 and March 31, 2011 and other publicly available documents filed with the SEC. Any forward-looking statements should be considered in light of those factors.

I will now turn the call over to Michael for a discussion of business results.

Michael Morrison

Thanks, Dan, and thank you all for joining us this afternoon. I will turn the call over to Murray surely, but first I want to share some brief comments about our Q3 performance. After Murray provides additional details on this performance I'll comeback and talk about our just completed quarter as well as the overall market and our plans moving forward.

Total revenues for Q3 were $4.41 million, down 4% from total revenues in the same quarter a year ago. License revenue were $2.4 million, a 2% decline from the comparable quarter a year ago.

Net income for the quarter was $213,000 or $0.03 per diluted share compared to net income of $222,000 or $0.04 per diluted share from a year ago.

We ended the quarter with $8.26 million in cash and investments, which was up 17% from $7.05 million at the end of our last fiscal year.

I will now turn it over to Murray to give you more details on our financial results.

Murray Fish

Thank you, Michael. Good afternoon. For those of you who may have not seen our results released earlier today, our total revenues for the third quarter fiscal year 2011 of $4.41 million as compared to $4.9 million for the third quarter of fiscal year 2010.

Revenue decreased $180,000 or 4% quarter over quarter. The third quarter of fiscal year 2011, revenues from licenses were $2.4 million as compared to $2.46 million for the third quarter of fiscal year 2010. As a percentage of revenue software license revenue accounted for 54% of revenue for both the third quarter of fiscal year 2011 and 2010.

For the third quarter of fiscal year 2011, revenues from maintenance and services were $2.01 million as compared to $2.13 million for the third quarter of fiscal year 2010. As a percentage of revenue, maintenance and services accounted for 46% of revenues for both the third quarter of fiscal year 2011 and 2010.

Report analytic solutions, report management on demand solutions, and business service management solution product revenues were 79%, 13%, and 8% of total revenues for the third quarter of fiscal year 2011 as compared to 70%, 21%, and 9% for the third quarter of fiscal year 2010.

Domestic revenues and international revenues were 76% and 24% of total revenues for the third quarter of fiscal year 2011 and were 75% and 25% of total revenues for third quarter of fiscal year 2010.

Gross margin for software licenses were 78% for the third quarter fiscal year 2011 as compared to 76% for the third quarter fiscal year 2010. Gross margins for maintenance and services was 67% for the third quarter of fiscal year 2011 and 66% for the third quarter of fiscal year 2010. Overall, total gross margins were 73% for the third quarter of fiscal year 2011 as compared to 71% for the third quarter of fiscal year 2010.

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