Edgewater Technology Inc. CEO Discusses Q4 2011 Results - Earnings Call Transcript

Edgewater Technology Inc. ( EDGW)

Q4 2011 Earnings Call

February 29, 2012 10:00 AM ET

Executives

Paul McNeice - Director, Finance

Shirley Singleton - President and CEO

Tim Oakes - CFO

Analysts

Lee Jagoda - CJS Securities

Nick Halen - Sidoti & Company

Presentation

Operator

Good morning and welcome ladies and gentlemen to Edgewater Technology Incorporated Fourth Quarter 2012 Financial Results Conference Call. (Operator Instructions).

I’ll now turn the conference over to Mr. Paul McNeice, Director of Finance for introduction.

Paul McNeice

Thank you, Karen. Good morning everyone and welcome to Edgewater Technology’s Fourth Quarter and Full Year 2011 Financial Results Call. I’m here today with Shirley Singleton, Edgewater’s Chairman, President and CEO; David Clancey, Edgewater’s EVP and Chief Strategy and Technology Officer; and Timothy Oakes, Edgewater’s Chief Financial Officer.

Before we begin I would like to remind everyone that today’s 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 related to these statements are listed and are reported in filed information with the Securities and Exchange Commission, as well as in the Company’s press release that was distributed earlier this morning.

The statements made during today’s call are made only as of today’s date and the company undertakes no obligation to update the forward looking statements to reflect subsequent events or circumstances.

With that, I’ll now turn the call over to Shirley.

Shirley Singleton

Thanks Paul. Good morning everyone. Tim tells me that we’re welcoming some new investors on the call this morning so I thought I would change it up a little bit and describe what Edgewater does so that we can get everybody on the same page. I want to make sure everyone understands.

In a nut shell Edgewater provides strategic consulting services and if you think about who the buyers are, specifically CSOs and if we think about a market it’s broadly in the upper mid-market and it’s selectively in the global 2000 market. We’re not typically reaching interim maintenance budget. The buyers are really using funds that they set aside for transformational change. If I narrow down the CSOs into what is a really hot buyer of our services, it’s usually a CFO and the first thing that comes to mind that they want to buy is budgeting, planning and consolidation services or as we call it EPM, which stands for Enterprise Performance Management.

The best way to understand EPM is if you have ever done an Excel spreadsheet and fast fingered a formula in the spreadsheet, it could literally change your financial forecast which isn’t a good thing if you are public company’s CFO. So you really need a hardened down process to be able to rely on software to assist you in your budgeting, planning and consolidation and that’s an area where we have a fair amount of expertise. In fact, we’re a platinum partner which is a very coveted position within the Oracle channel. We are frequently recognized as top five worldwide solution provider and I wish I could I get a hardened quote but the rumor is we’re number one in North America in planning in the Oracle channel.

That represents a good chunk of our business and that business is hot. The second major thing that I wanted to highlight is ERP or, Enterprise Resource Planning which is also an offering where the CFO is in the buyer’s seat. The implementation of a ERP system is a major change for a CFO. It’s like getting open heart surgery. You are taking out a financial system and replacing it with something else. In our case, our specialty is in the Microsoft dynamics channel which is their AX product.

Why would people want to change off their financial systems? It sounds like who wants to have open heart surgery. The reason is some of these systems are one and the twos. The last time there was a major change in ERP systems was really Y2K. It’s been 12 years and we’re seeing people that are deciding to invest and change our their infrastructure. Also emerged as acquisitions occur, when you are grabbing another company or divesting. Sometimes when you divest from a company the company is spun off and it really doesn’t have any internal financial systems to stand on its own. So there is a lot of trends that are driving this and in particular Edgewater is specializing in the manufacturing process and discrete portion of ERP replacement cycles again in the Microsoft channel and it’s very strong for us.

And then lastly, most buyers, the great products accelerated. Our product based consulting business has grown like a weed in the Microsoft and Oracle channels but you still need some good old fashioned systems integration custom code to sort of knit these things together. When we put in an ERP system, normally it has to touch some old backend systems and communicate with trading partners and all of these interfaces may be custom or partially custom. So that’s where the original classic consulting business comes in. Think about it as a wrapper around EPM and ERP where this is sort of like the hit squad that can go in and build anything from scratch and make it integrate within the existing environment.

I hope that helps a little bit in terms of what Edgewater does for a living. We do report as one segment but I would call out to all of you, all the old investors and new that the Microsoft and oracle channels are really being kind to us and we’re growing. In fact this is the first time in the press release we’ve talked about an annual guidance of double digital service revenue growth and that’s due to what I see in these channels.

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