Edgewater Technology's CEO Discusses Q1 2012 Results - Earnings Call Transcript

Edgewater Technology, Inc. (EDGW)

Q1 2012 Earnings Conference Call

May 2, 2012 10:00 ET

Executives

Paul Neice – Director of Finance

Shirley Singleton – Chairman, President and Chief Executive Officer

Timothy Oakes – Chief Financial Officer

Analysts

Lee Jagoda – CJS Securities

Nick Halen – Sidoti & Company

Presentation

Operator

Good morning and welcome ladies and gentlemen to Edgewater Technology Inc.'s First Quarter 2012 Financial Results Conference Call. At this time, I would like to inform you that this conference is being recorded for rebroadcast and that all participants are in a listen-only mode. At the request of the company, we will open the conference up for questions and answers following the presentation.

I would like to turn the conference over to Paul Neice, Director of Finance for introductions. Please go ahead.

Paul Neice – Director of Finance

Thank you, (Marie). Good morning everyone and welcome to Edgewater Technology’s First Quarter 2012 Financial Results Call. I am 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 you 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 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 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 – Chairman, President and Chief Executive Officer

Thanks, Paul. Good morning everybody. We are really pleased to put up another strong quarter. Our previous guidance as it relates to service revenue was we've predicted will be sequentially flat typically and we see Q1 as a little bit softer with CFOs deciding to finish up their year end and not venture into new projects, but that was not the case this quarter, instead we grew 5% sequentially and we grew 10% year-over-year.

Let me share with you where the growth is coming. The growth is coming from traction in the channel-based offerings. On the last earnings call, I spent I would say a good deal of time, more time than I usually do describing all of the offerings that Edgewater brings to market and I mentioned that the Microsoft and Oracle channels we were seeing some expansion there.

The proposals going out the door in Q1 continued to be of an increased size both in depth and breadth, and in particular, if I spoke within on EPM that Oracle EPM offering, we have traditionally gone to market from a horizontal point of view. Robin Ranzal was actually bringing more vertical into that space and we are starting to sell more aggressively vertically as well as horizontally. And in particular, I wanted to call out energy and utility seems to be a place, where we are getting traction.

We are also starting to see some cross-selling synergies, particularly selling around the Microsoft Dynamics brands. Last call, I talked about that the X business is moving right along, that's the ERP portion and that we were organically growing a CRM practice, both of AX and CRM are under what they call the Microsoft Dynamics brands, and in particular, we are seeing traction of those two things cross-selling each other, which is relatively new for us in the process and discrete manufacturing space.

If we look at how many customers, we secured during the quarter, it was 27 and I'll name a few, Georgia Gulf, St. Luke's, TripAdvisor, United Healthcare, and here comes our energy ones, Tucson Electric Power, SM Energy, CCS Energy Services, and 5Star Life Insurance.

With that, I'd like to turn it over to Tim and will get into the details.

Timothy Oakes – Chief Financial Officer

Thank you, Shirley. Good morning everyone. I'll quickly jump right into our prepared comments on the first quarter. Total revenue for the first quarter was $25.3 million compared to $23.6 million in the first quarter of 2011. Service revenue was $21.8 million during the first quarter compared to service revenue of $19.7 million in the first quarter of 2011.

On a year-over-year basis, we are reporting 7.2% and 10.6% growth in both total revenue and service revenue respectively. The year-over-year growth is all organic and reflects meaningful growth given the absence of service and royalty revenue contributions from Fullscope's process-related contracts recorded during the first quarter of 2011.

As described in our press release issued already this morning, we believe that our pipeline continues to grow in breadth and depth. We are starting to see expansion in potential deal sizes, especially in our key product-based service offerings. Additionally during the quarter, we continued to add new customers securing first-time engagements with 27 new customers, which is consistent with previous quarters. We are able to leverage this growth in expansion to drive first quarter 2012 service revenue growth.

On a sequential basis, total revenues decreased by $1.1 million or 4.3% compared to the fourth quarter of 2011. The sequential decrease in total revenue was the net result of a $1.1 million or 4.6% increase in sequential service revenue offset by a $2.4 million decrease in software revenue. As with our increase in year-over-year quarterly service revenue, sequential quarterly growth is similarly being driven by the demand for our product-based consulting services.

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