Bitstream Management Discusses Q2 2011 Results - Earnings Call Transcript

Bitstream (BITS)

Q2 2011 Earnings Call

August 15, 2011 4:30 pm ET

Executives

Unknown Speaker -

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

Costas Kitsos - Vice President of Engineering

Analysts

Unknown Analyst -

George Guppy

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the Bitstream Earnings Release Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to turn the conference over to your host today, Jim Dore, Vice President and Chief Financial Officer. Please begin.

James Dore

Hello, and welcome to Bitstream Inc. Second Quarter 2011 Conference Call. I am James Dore, Vice President and Chief Financial Officer, Bitstream. And here with me today are Costas Kitsos, Bitstream's Vice President of Engineering, who is currently focused on our Publishing division; John Collins, Vice President and Chief Technology Officer currently focused on our MyFonts.com e-commerce business; and Sampo Kaasila, Vice President of Research and Development, who is focused on our browsing and OEM-type product lines.

Amos Kaminski, our Executive Chairman and CEO, has asked me to read the following statements.

Good afternoon. I apologize for not being able join the call today. As a results of ongoing exploration of strategic alternatives, the company continues to actively pursue a sale of the business in full or in part. No definitive agreements or understandings have been reached and there can be no assurance that any such transaction will be consummated. Also, regarding our search for a new CEO, several potential candidates have been identified, for the selection process is a part of the company's broad strategic review. As such, nothing further can be said at this time. We will begin this conference call with highlights from 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 second quarter of 2011 with the following financial highlights. Revenue increased by $1,884,000 or 35% to $7,319,000 for the 3 months ended June 30, 2011, as compared to total revenue of $5,435,000 for the 3 months ended June 30, 2010 and increased $506,000 or 7% sequentially as compared to $6,813,000 for the 3 months ended March 31, 2011. Revenue has now grown sequentially for the last 5 quarters.

2Q revenue was the highest quarterly revenue amount, and revenue increased across all of our product lines as compared to the second quarter of 2010. The company's cash, cash equivalents and investments at June 30, 2011, totaled $10,402,000, a decrease of $1,054,000 from the balance of $11,456,000 at March 31, 2011. The decrease reflects the payments of approximately $650,000 related to the resignation of our former CEO.

Increase in cost of license revenue for the 3 months ended June 30, 2011, as compared to the 3 months ended June 30, 2010, is due to increase in direct third-party costs of $774,000, which is primarily comprised of royalties from the sale of third party products of $499,000 as well as $244,000 in closing fees for the browsing product line. Prior to the monetization of the browser user base, hosting fees had been classified as a research and development expense, which was its primary function at that time. Cost of services increased primarily due to the additional personnel added with the iWay acquisition.

Operating expenses increased $1,607,000 to $5,177,000 for the 3 months ended June 30, 2011, from $3,570,000 for the 3 months ended June 30, 2010. Marketing and selling expenses increased $132,000 primarily due to additional costs, including personnel associated with the acquisition of the iWay product line. Research and development expenses increased $449,000, primarily due to increases in personnel and benefit cost of $551,000. G&A expense increased $1,026,000, including $695,000 associated with the resignation of our former CEO, $150,000 in professional services relating to the company's exploration of its strategic alternatives, and $278,000 related to the establishment of an office in Israel in June 2010. These increases were approximately offset by decrease in stock compensation expense of $152,000 from the forfeiture of stock options held by the former CEO.

GAAP loss. Our loss from operations increased $640,000 to $1,354,000 for the 3 months ended June 30, 2011, as compared to $714,000 for the 3 months ended June 30, 2010. Our net loss increased $566,000 to $1,251,000 or $0.12 per share for the 3 months ended June 30, 2011, as compared to $685,000 or $0.07 per share for the 3 months ended June 30, 2010.

Non-GAAP loss. Our non-GAAP results exclude stock-based compensation expense, the amortization of intangible assets primarily acquired from Press-Sense Ltd., acquisition cost of those assets from Press-Sense Ltd. and the cost of the resignation agreement with our former CEO. Our non-GAAP loss from operations increased $329,000 to $423,000 for the 3 months ended June 30, 2011, as compared to $94,000 for the 3 months ended June 30, 2010. Our non-GAAP net loss increased $255,000 to $320,000 or $0.03 per share for the 3 months ended June 30, 2011, as compared to $65,000 or $0.01 per share for the 3 months ended June 30, 2010.

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