Edgewater's CEO Discusses Q2 2012 Results - Earnings Call Transcript

Edgewater Technology, Inc. (EDGW)

Q2 2012 Results Earnings Call

August 1, 2012 10:00 AM ET


Paul McNeice – Director, Finance

Shirley Singleton – Chairman, President and CEO

Timothy Oakes – Chief Financial Officer


Lee Jagoda – CJS Securities

Nick Halen – Sidoti & Company



Good morning. And welcome ladies and gentlemen to Edgewater Technology Inc.'s Second 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 question and answers following the presentation.

I would now like to turn the conference over to [Paul McNeice], Director of Finance for introductions. Please go ahead.

Paul McNeice – Director of Finance

Thanks, Kevin. Good morning, everyone and welcome to Edgewater Technology's second quarter 2012 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 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

Thanks, Paul. Good morning, everyone. In Q2 Edgewater demonstrated solid momentum in service revenue, I was really happy to see us put up another quarter of double-digit organic growth, that service revenue increased 16% from, a year-ago Q2, 2011 and all of that growth was organic.

The other piece that I'm really pleased about is the gross margin on service revenue improved to just under 40% – 39.5%, up from 36% and some change in same quarter last year. If I have to put my finger on where the primary driver of growth is coming from, it's in our Oracle EPM unit. We do have other patches within the organization that are growing, but the EPM business is the primary driver of growth.

At the end of the second quarter of 2012, and actually it's on the last date, Tim, right? June 30th, Microsoft acquired our Fullscope Process Industries 2, solution and we like to call it PI2, internally. So if you hear us say that, that's what we're talking about. And they are going to incorporate our – PI2, solution into their core Dynamics AX product.

Their desire to purchase this and incorporate it into their core product, actually, I believe showcases our expertise and proficiency in identifying and building solutions for the channel and it is a testament to our relationship with Microsoft and that they trust us and offer to – even buy our software modules.

But before I comment further I'd like to turn it over to you, Tim, and we can get into the financial details and then, it'll come back to me, and I'll give you some additional highlights of what occurred during the quarter. Tim?

Timothy Oakes

All right. Thank you, Shirley, and good morning, everyone. Total revenue for the second quarter was $27.2 million, compared to $27.4 million in the second quarter of 2011. Although total revenue was down slightly year-over-year, we think it's important to note that we're comping against the second quarter of 2011, which included $2.2 million in royalty revenues in connection with Fullscope's pre-acquisition sale of Microsoft Dynamics AX related discrete in process manufacturing software modules that occurred in June of 2009.

Royalty and service revenues earned in connection with the process related contracts expired in June of 2011; as such we will not be comping against them on a go-forward basis. Excluding the process-related royalties total revenues actually increased 8% in the second quarter of 2012 compared to the second quarter of 2011.

Service revenue was $21.6 million during the second quarter, growing 16% compared to the year ago quarter. As Shirley mentioned this growth was entirely organic and which primarily driven by demand for Oracle and Microsoft products-based consulting service offerings.

Software revenue which includes related maintenance revenue was $3.6 million during the second quarter, compared to $4.7 million during the second quarter of 2011, our quarterly software revenue primarily consists resales of Microsoft Dynamics AX software and maintenance.

The comparative decrease in quarterly software revenue, reflects the fact that we were not able to successfully bring closure to several deals that we're in process at the end of the quarter. While the future closure of these deals remain uncertain at this time, we continue to actively pursue a healthy amount of software deals as we enter the third quarter.

As we always do, we would like to remind you that quarterly software revenue is volatile and it's subject to customer demand and that respective quarters – typically the strongest software quarter for us as it coincides with Microsoft fiscal yearend.

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