Pervasive Software Inc. F2Q09 (Qtr End 12/31/08) Earnings Call Transcript

Jan.20.09 | About: Pervasive Software (PVSW)

Pervasive Software Inc. (NASDAQ:PVSW)

F2Q 2009 Earnings Call

January 20, 2009 5:00 pm ET


John E. Farr – Chief Executive Officer

Randall G. Jonkers – Chief Financial Officer


Mark Murphy - Piper Jaffray

Kevin Liu - B. Riley & Company, Inc.

Bradley Whitt - American Technology Research


Good afternoon and thank you for holding. My name is [Bernice] and I will be your conference operator today. At this time, I would like to welcome everyone to the fiscal year 2009 second quarter financial results conference call. (Operator Instructions) Mr. Jonkers, you may begin your conference.

Randall G. Jonkers

Good afternoon and thank you for joining us. I am Randy Jonkers, Chief Financial Officer of Pervasive Software. While we wait for others to join, I will go over the standard disclaimer regarding remarks on this call. This conference call may contain forward-looking statements within the meaning of the Federal Securities laws, including statements regarding the company or management’s intentions, hopes, beliefs, expectations and strategies for the future.

Forward-looking statements may include without limitation statements regarding the following; future investments, sales, market growth and direction, competition, revenue growth, operating margins and profitability. A detailed discussion of risks and uncertainties that could cause actual results and events to differ materially from such forward-looking statements is included in Pervasive’s most recent filings with the Securities and Exchange Commission.

Pervasive does not undertake any obligation to update forward-looking statements to reflect events or circumstances after the date of this conference call. Also, and as a reminder, our non-GAAP results for the quarters ending December 31, 2008 and 2007 exclude the amortization of purchased intangibles and stock-based compensation expense, and presents income taxes at a statutory rate of 34%.

We believe that the non-GAAP results described in today’s press release and in this conference call are useful for an understanding of our ongoing operations and to assist the investment community in comparing Pervasive’s non-GAAP results from period to period, as well as comparing our results with that of similar companies. We use these non-GAAP results to compare our performance to that of prior periods for analysis of trends, to evaluate the company’s financial strength, develop budgets, manage expenditures, and develop a financial outlook.

Non-GAAP results are supplemental and are not intended as a substitute for GAAP results. Note that our call today is being broadcast simultaneously via the Pervasive website. Welcome to those listeners.

In this call we’ll cover two primary agenda items. First I will recap Pervasive’s financial results during our second fiscal quarter, then John will update you on the significant elements of our business. Now for the financial results.

Today we released financial results for the second quarter of our fiscal year 2009. Revenue and earnings were in line with our updated guidance issued on January 6. Pervasive revenues totaled $11.2 million in Q2, which is an increase of $850,000 as compared to Q2 of last fiscal year. Our GAAP basis net income was $1.2 million in Q2 and diluted earnings per share were $0.06, representing an increase from GAAP basis net income of $685,000 and diluted EPS of $0.03 in Q2 of last year.

Our effective tax expense rate in Q2 was 12% as compared to a tax rate of 24% in Q2 of last fiscal year. As we mentioned in our conference call last quarter, our second quarter tax rate benefited from the recently enacted extension of the Research and Development tax credit. That benefit amounted to $126,000 related to fiscal year 2008 and the remainder related to fiscal year 2009 provision. We presently expect our GAAP basis effective tax rate for the remainder of fiscal year 2009 to be approximately 29%.

Our non-GAAP net income in Q2, before amortization of purchased intangibles and stock-based compensation expense, and taxed at 34% was $1.3 million compared to $1.1 million Q2 of last fiscal year. Our non-GAAP earnings per share was $0.07, an increase of $0.02 per share as compared to Q2 of last fiscal year. We ended the quarter with approximately $44.9 million in cash and marketable securities, and had 18.3 million shares issued in outstanding.

During the second quarter we repurchased approximately 768,000 Pervasive shares on the open market at a total cost of approximately $3.1 million or approximately $3.99 per share. And we generated approximately $1.1 million of positive cash flows from operations, after making two estimated tax payments totaling $1.4 million. Our DSO’s or Days Sales Outstanding were an excellent 44 days, down 1 day from Q2 of last fiscal year.

Now let’s turn to the quarterly revenue details. By geography, our Q2 revenue was as follows. Domestic revenue totaled $7.6 million in Q2, up 3% from Q1 and up 18% from Q2 of last fiscal year. Our international revenue, principally Europe and Japan, totaled $3.6 million in Q2, down 20% from Q1 and down 8% from Q2 of last fiscal year. This was due to some of the weakness in our Japan business as expected coming into the second quarter.

From a mix standpoint, our international Q2 revenue was 32% of total revenues, which is less than the 37% related to Q2 of last fiscal year. At a product level, our database products and our integration products represented approximately two-thirds and one-third of our business respectively in Q2.

Turning to operating expenses, our operating costs and expenses totaled $10.1 million in Q2 and includes amortization of acquired intangibles and stock-based compensation expense of approximately $600,000 combined, or a non-GAAP expense of $9.5 million which is consistent with Q1 and approximately $350,000 higher than Q2 of last fiscal year as we continue to invest in our integration business and our innovation projects.

We had 221 employees at the end of Q2 which represents an increase of 7 employees from the end of the first quarter and an increase of 20 from Q2 of last fiscal year.

Now, looking forward we expect revenues in our third quarter of fiscal year 2009 to be in the range of $10.5 to $11.5 million compared to $10.8 million in Q3 of fiscal year 2008. And we expect GAAP basis diluted earnings of $0.04 to $0.07 per share compared to GAAP basis diluted EPS of $0.05 in Q3 of fiscal 2008. We anticipate that our effective tax rate for the remainder of the year will be approximately 29%.

Non-GAAP profitability is expected to exclude stock-based compensation expense, representing approximately $450,000 in the third quarter of fiscal year 2009. With that, we expect non-GAAP and fully taxed diluted earnings per share in our third quarter of fiscal year 2009 to be $0.05 to $0.08 compared to non-GAAP diluted and fully taxed EPS of $0.07 in Q3 of fiscal 2008. Our non-GAAP effective tax rate for comparative purposes reflects a statutory rate of 34% on pre-tax, non-GAAP income.

We anticipate cash flows from operations to be between $1 and $2 million for the third quarter of fiscal year 2009. Also, as in prior quarters, we are not providing specific guidance beyond Q3. For EPS calculation purposes, we expect our GAAP basis and non-GAAP fully diluted share accounts for the third quarter of fiscal year 2009 to be approximately 18.6 million and 19 million shares respectively. Note that this share account estimate excludes the impact of any future share repurchases.

Now let me turn the call over to John Farr, CEO of Pervasive Software.

John E. Farr

Thanks Randy. We executed well in the December quarter in both of our core product lines, resulting in year-over-year quarterly revenue increase of 8% and our 32nd consecutive quarter of profitable operations. Our integration revenues increased 14% from the December quarter of last year, in part due to another strong quarter from our professional services group. And our database revenues increased 4% from the December quarter of last year.

Well you might say that Pervasive appears to be bucking the otherwise challenging trend in software. Why is that? Well, no company is immune to tough economies including Pervasive, but it is exactly these kinds of challenging times that shine a bright light on our primary value proposition, delivering products and solutions to the data management and data integration markets with a focus on lowest total cost of ownership, or OTCO.

With average sales prices per unit around $1,000 for our database server engines and $10,000 for our data integration engines, we are not your stereotypical enterprise software company with the painfully direct sales model relying on seven figure software transactions in the last week of quarter. With Pervasive’s relatively high volume, low price sales model; selling through well developed, indirect sales channels we are quite diversified by geography, by market and by customer.

Our horizontal positioning and value orientation serve us well in these difficult times. Our solid core business results have also allowed us to continue to fund our commitment to innovation, namely Pervasive Data Solutions and Pervasive Data Rush, as well as more earlier phased experimentation in our innovation labs.

And in this call I’d like to give you an update on each of the significant elements of our business. First the database business. As a reminder, Pervasive’s PSQL v10 is designed to help ISV’s, bars, and OEM’s successfully embrace new technologies including the current Vista in Windows Server 2008 operating systems from Microsoft, as well as take advantage of the latest 64-bit technology for accelerated database performance.

With v10, we continue our proven 25 year track record of delivering low TCO, reliability, scalability, performance, ease of use and embed ability in a secure environment. Our database engineering team is continually focused on keeping our product up-to-date with the ever changing environment and the known or anticipated needs of our ISV customer base. The team is presently working on a future update which will include support for the latest dot net release, version three dot five, as well as Windows 7 Desktop OS, the beta version of which was recently released by Microsoft.

Our engineering team continues to improve the digital licensing capabilities of our product in order to simplify deployment and improve reporting of software licenses sold through our ISV and bar channels, and used by their end user customers. And we continue to work on multi-core enablement of our database engine for future release to support the latest in multi-core chips in rapidly [commoditizing] hardware.

Our database business continues to be a great franchise, primarily because of the work we have done year in and year out to maintain and improve our product relevance within our installed base of customers, all with the focus on product quality. Our tactical support backlog is presently the lowest it’s been in recent memory, a great testament to the inherent quality of our database products.

Next let me update you on the integration business. The investments in integration have enabled us to achieve year-over-year, quarterly revenue growth over the last four quarters of approximately 10% in Q3 and in Q4; 19% in Q1; and now 14% in this Q2 by both expanding existing relationships within large companies, as well as continuing to develop new ISV, SAS and systems integrated partnerships.

Our integration sales and professional services teams have had two very good quarters in a row now in selling and delivering VSG engagements. These teams, along with product management, have stepped back to take a look at the common themes in many of these engagements and have initiated marketing activities around the first several of these products solutions deliverables.

These solutions are based on pre-configured templates, tools and designs for Pervasive professional services, using Pervasive Data Integrator and include the following; Pervasive MetaData Management for powerful analysis of integration processes, designs and interrelationships. The Pervasive MetaData Management solution automatically captures extensive design time in production MetaData in a single repository for powerful analysis of integration processes, designs and interrelationships.

Business and [technical] users can search on any data element, any function and/or rule, source or target connection, map or process design for impact analysis, or on [inaudible] reports for team collaboration.

Second, Pervasive Integration Hub a trading partner and direct fee management solution. The Pervasive Integration Hub enables developers, IT personnel and analysts to manage the processing of many diverse, disparate data feeds using multiple methods of communication, not to mention unknown data quality, constantly changing business rules and costly restarts.

And third Pervasive Data Warehouse, the data warehouse modeling solution. We now offer a solution to quickly scope, plan and deliver an analytical data warehouse to meet business intelligence objectives. These deliverables of this solution include thorough documentation and a detailed design model for the customer’s data warehouse; an optional requirements gathering phase to be used to define and architect the integration processes necessary for the detailed portion of the project.

The design can then be implemented by the customer’s developers or by professional services consultants from Pervasive. We hope that these three PSG solutions will help us serve our customers even better, helping them help themselves in solving the many complex integration challenges they face in their constantly changing and constantly growing data environments.

Also in the December quarter we signed seven new ISV partners, one of which was Austin based Convia. Convia will offer hosted by directional integration on their cloud to their customers either as self service for the easy ones or through partners for the more complex ones. We are building a DMS connector to the new Convia service API to help Convia simplify their integration challenges in connecting to sales force in the area and to other CR vendors over time.

As a reminder, DMS or Data Mediation Service was first introduced as a feature in our currently shipping Pervasive Data Integrator version 9. The DMS is an SBK for easily extending our core integration platform with new standards based connectors. It is significant because it is an open API, allowing our internal engineering team to more quickly build out connectivity but also opening up the delivery of a new kind of connectivity to our professional services team, to partners, ISV’s or to any third party wishing to enrich the Pervasive Data Integrator with direct connectivity to the many data and application in-points that are out there.

Now an update on Pervasive’s Innovation Initiatives. We have talked for a little over a year now about Pervasive’s Data Solutions initiative. Pervasive Data Solutions is significant in that it represents the first time we focused on selling our integration offerings as a solution as opposed to a tool. The initial solution delivered by our Data Solutions team about 18 months ago is called Pervasive Data Seek for QuickBooks and Salesforce CRM.

And in September we introduced – or during the September quarter, we introduced Pervasive Data Seek for QuickBooks and Microsoft Dynamix era. The Data Seek solution delivers users reliable, real time synchronization of data between QuickBooks and either SalesForce CRM or Microsoft Dynamix CRM, whether it be for use on premise or for use on demand, delivered via our Pervasive Data Cloud. Pervasive Data Cloud is our platform for 24 by 7, on demand, multi-unit hosting of our Pervasive Data Solutions, expanding the full range of integration scenarios including SaaS to SaaS, on premise to SaaS and on premise to on premise.

With approximately 20 net subscribers added in the December quarter, total Data Seek subscribers have grown now to close to 120 and with our annual subscriptions amounting to more than 100,000. And our Pervasive Data Cloud delivery platform is attracting attention, the attention of our more traditionalized v customers. In October we announced that Montreal based Ryma Technology Solutions partnered with Pervasive to deliver on demand integration between Ryma’s feature plan on demand, product management solution and SalesForce CRM.

Pervasive has delivered and is hosting this integration on the Pervasive Data Cloud. And we are having conversations right now with other ISV’s in our install base to see how they too can benefit from our Pervasive Data Cloud, on demand integration service delivery capabilities. For more information on Pervasive Data Solutions, please visit

Another of our innovation initiatives involves our work on Pervasive Data Rush. We have discussed this initiative in the past but I want to be sure that any new listeners have the advantage of some background.

Chip and server vendors such as AMD, IBM, HP, and Intel have transformed the S&P and high performance computing landscape with their recent introductions of 4, 8, and even 32 core systems. The problem? For decades, most applications built to perform data intensive processing were not architected with 8, 4 or even 2 cores in mind. Software developers must change their implementation methodologies now and get ready for the new world of parallel programming before the disconnect between the hardware capabilities and software design leads to massively under utilized computing power in the data center.

[Gartner] recently picked multi-core and hybrid servers as the number one most disrupted technology through 2012. They and we believe multi-core servers will have a broad impact on the entire computing industry, affecting the speed with which data gets processed, applications deployed and so on. They and we believe programmers will have to learn parallel coding or have the right applications for the unpredictability of machines leveraging multiple cores.

Enter Pervasive Data Rush. Pervasive Data Rush is our framework that allows developers to quickly build highly parallel, data intensive applications that take full advantage of multi-core, S&P platforms. Our Pervasive Data Rush technical team has done an outstanding job over the last calendar year.

A calendar year in which we announced exciting benchmark test results in March, working with HP demonstrating near linear processing scalability on a 32 core HP Integrity Server; announced our work with Sun Microsystems, demonstrating exciting scalability on their Quad Socket Sun Spark D2 Enterprise T54-40 server with 32 cores and 256 threads; enjoyed our first lighthouse customer deployment last March, teaming with systems integrator PeopleForce to deliver lightning fast, fuzzy matching for a very large master data management solution.

And delivered our second [via] desk customer project for TC 3 Health, in which we are combining the power and capabilities of Pervasive Data Rush, Pervasive Data Profiler and Pervasive Data Integrator to deliver lightning fast healthcare claims data prep pre-processing.

So here we have Pervasive Data Rush, an emerging business with an outstanding engineering team and proven technology, positioned at the beginning of an emerging market with referencable customers and referenceable partners in a company willing and able to invest significant resources in the market development effort.

We knew last summer and we spoke to our investors last summer that the time had come for us to begin looking for a senior leader dedicated to the Pervasive Data Rush effort, so that we could then build ourselves a marketing capabilities. We were looking for that ideal leader who would spend his every waking hour defining our next step so that we could be best positioned to capture the opportunity Data Rush presents to Pervasive and its shareholders.

I believe we have found that person in Mike Bryars. Mike hit the ground running as general manager of our Data Rush initiative on December 29. He has begun the important effort of laying out our go-to-market strategies for Pervasive Data Rush, while also beginning the recruiting effort to add a handful of experienced business development, sales and marketing talents to the team.

We will provide some insight to those plans with you in our call next quarter. For more information on Data Rush, please see

Now in closing, every company experiences some headwinds in a tough economy and Pervasive is no exception. However, our relative price to performance value proposition does provide an interesting, competitive advantage in a difficult economy. Pervasive continues to enjoy this and many other competitive advantages, including solid and proven product lines; a well developed channel and operating leverage; a strong balance sheet; a furious focus on innovation; and consistent profitability and positive cash flow.

We were happy to see earlier this month that Hurwitz Analysts and Bloor Research founder Robin Bloor listed Pervasive among his top ten IT companies to watch in 2009. In his discussion of Pervasive, Bloor writes, “I was probably more impressed with Pervasive’s software than any other company I came in contact with this year. Pervasive may be a relatively small fish in a big pool, competing to some degree with the likes of IBM and Informatica, but it has a clear technology leadership over its competitors in several areas.” Robin we hold you in high regard as well.

I’ll now open the floor for questions.

Question-and-Answer Session


Your first question comes from Mark Murphy - Piper Jaffray.

Mark Murphy - Piper Jaffray

John, a question on the integration business. Were there any unusually large deals in the quarter or perhaps could you talk about the size of the largest deal in the integration business and in the database business?

John E. Farr

Yes. We don’t typically disclose transaction sizes. We have in the past when we have big, sequential changes in our result as we did last quarter. But we normally don’t disclose that, but as you know we certainly don’t rely on million dollar plus kind of transactions. We do have our handful of six-digit kinds of transactions from time to time. And we had a few of those this quarter in both businesses. We have several in the pipeline for next quarter.

And so the transactions of those kinds of sizes are becoming and have been for that matter over the last few years rather consistent from quarter to quarter.

Mark Murphy - Piper Jaffray

Can you talk about even at a high level Mike’s plan for the Data Rush product line and perhaps any early thoughts on what direction he’ll take?

John E. Farr

You know, I would love to but if I did I’m afraid I’d put him in a corner. And I want him, even though he’s been here two-and-a-half, three weeks, I want him to have full freedom of thought. And we have our thoughts and we want him to start with a clean slate as he has, and I like the thinking that he’s come up with thus far; i.e., he is not constraining himself to our traditional norm. In our normal way of doing things with our Database and Integration business, we’re very horizontally positioned. We are very high volume, low price point.

Mike is considering all possibilities for Data Rush and he does have some early thoughts, but in this first few weeks he has not tested those thoughts with the market. And before they become actionable by a marketing or sales team, they need to be tested with the market. So Mark we will have much, much more to say in the call in April and much more confidence in saying that to the investing public, because we will have in fact started acting.

We are developing the launch plan today for the general release of Data Rush and it’s in a matter of months before we will have that GA.

Mark Murphy - Piper Jaffray

What are you hearing from some of your largest ISV’s out there just regarding the state of demand for SMB applications? I guess part of what I’m trying to get at it is when we look at mid-market ERP I think a lot of the license sales if you tear through the numbers, those are really down probably 20 to 30% year-over-year organically. And I’m just curious how do you think that is trending in the SMB space?

John E. Farr

This question is really speaks to why we are in pretty good position when we have tough markets. Because we are so horizontal, so diversified, from so many ISV’s. And so I wouldn’t say – I couldn’t say anything that was a common theme across all of those ISV’s. You know, naturally you’d assume that those ISV’s are serving the financial services sector are probably in challenging times right now, but for every ISV that serves financial services you’ve probably got another ISV that serves healthcare or another that serves government and government contractors.

And so there are even in this challenging time, there are pockets of activity, pockets of industry that should theoretically be doing quite well and we have a good chance that we touch on some of those as well as some of the industries that are a little more challenging. So there’s really no common theme.

I have to, given our results especially in the database business which can be a proxy for packaged software solutions for SMB, we’re – I have to read the Wall Street Journal every morning to get a sense for what everyone else is seeing because as you can see in our results and in our guidance for the next quarter anyway, we’re not feeling it to the same degree that I read about in just about everyone else’s releases.

So we consider ourselves to be in a good place, relatively speaking, and therefore it has to be a testament to our sales model, our channel-oriented sales model and our value oriented pricing and lack of dependence on huge deals each and every quarter. As well as being embedded in the – so deeply embedded in so many of these ISV’s applications. It’s hard for any given ISV to just stop selling their own software, and they would have to stop selling their own software for our revenue stream to also stop.

Mark Murphy - Piper Jaffray

Trying to dig into the database revenue growth about 4% year-over-year, is there any way to look at it in terms of what do you think the volume changes there versus maybe the ASP change? Or upgrades? How upgrades are driving that versus non-upgrades. I’m not sure if you can slice and dice it that way, but any thoughts on that would be appreciated.

John E. Farr

Yes, we – I’ve always resisted the temptation to speak to that business at those levels. The reason being that the pricing for our full engine sale, a new engine sale, is not that different than an upgraded engine sale. And so I know for a fact we’ve got some ISV customers who just simply choose to sell new engines or deliver new engines and pay us for that new engine every time they deliver it, whether they’re delivering it to a new customer or an upgrade customer, just for the simplicity of the deployment for that particular ISV.

So right there you’ve got a situation that doesn’t – it would take the conclusions one would draw just looking at our SKU’s and we do have our deals, as you mentioned in one of your earlier questions, that tends to affect one quarter compared to the next. I’ll tell you every time I’ve looked at it over my some 14 years here at Pervasive, especially on the database side, when you do get down to that level the average sales price per unit or per user has always been very, very consistent from period to period.

How we expected it is the same way now. I haven’t detected any discernible change in that in recent quarters.


Your next question comes from Kevin Liu - B. Riley & Company, Inc.

Kevin Liu - B. Riley & Company, Inc.

I know you’re not ready to put too much detail around kind of the build-up of the Data Rush infrastructure, but just kind of from an expectation standpoint what should we be looking for to monitor the progress in this current fiscal year? Will it mainly just be getting infrastructure in place, the sales and marketing team put in there? Or are you actually expecting some revenue generation to start occurring?

John E. Farr

I’m expecting revenue. I don’t know that it will be discernible in our top line. But that’s why we hired Mike. I mean, as I said we’ve done tremendous things in the last year with our technical team and one [diz] guy. And it was time to bring professional sales and marketing to that team and it’s not so we can go for another 12 years of lighthouse customer, i.e. free, product to product.

And so Mike and his time are going to be working as hard as they can to put themselves in a position so that we have a really responsible and well thought out planning cycle for our fiscal 2010. That process starts in March and April and culminates with board approval usually in June or July. And so they want to and they have an interest in getting out there into the market and testing all of their assumptions and their models so that they can put forth a responsible plan for our coming fiscal 2010.

And the only way to get really comfortable about all those assumptions is to get out there and test those assumptions with real people paying real dollars for a real solution. And so yes I absolutely expect that we will have revenue on Data Rush between now and June 30. But we’re not going to pour the gas on too, too much on marketing investments until we’ve tested those assumptions and those models support it.

So sorry a long answer to a short and easy question, but planning is underway and yes I do expect revenue between now and June 30, but it probably won’t be discernible in our top line consolidated revenue.

Kevin Liu - B. Riley & Company, Inc.

And also could you talk about any sort of incremental impact we should see to the OpEx line as you continue that headcount to that group?

John E. Farr

I’m sorry. Say that again?

Kevin Liu - B. Riley & Company, Inc.

Just any incremental OpEx that we should expect in terms of adding this group.

John E. Farr

Yes. I said in my script a handful of new bodies, so it’s not outrageous. Mike has convinced me that he is a great steward of our cash asset and that he’ll be able to do great things with limited resources, so our new people will be we believe on board this quarter. And we’ve already taken that into account for our Q3 guidance. And as you noticed our guidance is similar to what we have done in the past.

So it’s not going to be something that we can’t manage around through our other businesses. Our ongoing commitment to our shareholders is profitability. So we are not talking about investments of those kinds of size that would take us – would increase our expense stack so much that we would no longer be profitable.

Kevin Liu - B. Riley & Company, Inc.

In terms of the Data Synch initiative, just curious what you guys have been seeing in terms of any renewals you might have there. And I’m also wondering if the current economic environment has any sort of impact among the subscriber group that you were expecting relative to coming in today?

John E. Farr

That’s a good question because we’re experiencing renewals in a – as you remember, we only started this a little over a year ago. And so our renewals, our first rounds of renewals are happening in a difficult economy. So we’re going to have a hard time deciding those that don’t renew, are they not renewing because of the economy or what?

And I first say and remind everybody that our Data Synch solutions are offered in two flavors. One for about $900 a year, the other one for about $1,800 a year and so we’re not talking about a huge subscription. And as you also notice, most of the business right now is from QuickBooks to SalesForce or QuickBooks to Microsoft and MCRM. So QuickBooks, and that is very small business.

And of those that have failed to renew thus far, it’s not an alarming percent but above that number that has not renewed quite a few of them are just small businesses that didn’t make it and are no longer in business. And so we’re going to have that. We’re going to experience that probably forevermore, that is life in small business.

But I would say that those that are still in business that have chosen to not renew, at least in a few of those cases it’s because they were changing from QuickBooks to some other accounting system and we lo and behold find those opportunities in our Data Integration and Data Migration pipelines, to help them in their data movement problem from the old QuickBooks system to the new accounting system.


Your next question comes from Bradley Whitt - American Technology Research.

Bradley Whitt - American Technology Research

John I was wondering if you could give us just a little more color on what you’re seeing on the international front? I think you mentioned Japan was a little weak. Are you experiencing any kind of a turnover or a change in country manager, that type of thing. If you could just give us some more color on the international business.

John E. Farr

Yes, let me answer that both, first in the database business and then separately the integration business. December has actually turned out to be the last several years a seasonally down quarter in Japan, especially in our database business. That’s the primary – that’s the bulk of our business in Japan is in the database business. And it’s seasonally down in December, but then wow it comes back with a vengeance in March.

And if you don’t know Japanese business, the typical corporate year-end in Japan is March year-end. And so their version of the budget flush is March instead of December. And we expected to have a less revenue in Japan in the December quarter, but by the same token we expect to have quite a bit more revenue from Japan in the database business in the March quarter.

So what I’m seeing, what we saw this quarter is not terribly alarming to me. We actually saw it two years ago to an even greater degree. They bounced right back last year. So it’s just kind of become the trend on buying patterns and they just swing a little bit more wildly than they do here in the states.

On the integration business actually we – our Japanese integration partner is not the same as our very long time and great database partner. The integration partner is called Data on Demand. They actually, with our assistance, book a nice transaction in the December quarter that once we deliver some custom connectors could translate to a small six-figure kind of revenue stream for them and therefore us in the March quarter.

If you remember from a couple years ago, this country manager in Japan was a former Informatica country manager and he’s selling pretty high into some pretty big customers. And so he will have potentially larger transactions less frequently and probably in doing so push us a little bit to see how far up market we can go. And so we will be watching that transaction closely and hopefully have a lot of good news to tell you about that one when we meet again in April.

So I feel good about that. We put out another press release earlier this month about a company that was served in their international business by our distribution partner called PolyAsia based in the back room and that was a nice transaction for us in Q2. It will be a recurring revenue stream if I remember correctly.

So I – that all sounds good and well, but I did go to Asia, Korea in particular and Japan in the December timeframe and Korean market, Korean economy so, so dependent on consumer spending by those of us in the states. All things Samsung, all things LG, all things automotive; I mean, it’s going to be a tough time for all businesses that are dependent on business in Korea that is dependent on the U.S. consumer spending.

We are building our market in Korea through also a former Informatica country manager, but he’s still building the market and we hope that he will find as much value in our lowest so-called toll ship value proposition as we do here in the states during those tough times. We’ll see how that goes. So another long answer to an easy, short question; mixed, I’m seeing mixed results in Asia.


If there are any additional questions, please press star and then the number one now.

John E. Farr

All right. Well we will conclude the Question-and-Answer Session then. I want to take a minute just to thank everyone for joining us on the call today, especially on such a historic day in American politics. There’s so many events going on today in D.C. and throughout the country and so much coverage of those that I want to thank each and every one of you for joining us to hear the Pervasive story and hope that you have a great evening. Thanks a lot.


This concludes today’s conference. You may now disconnect.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to All other use is prohibited.


If you have any additional questions about our online transcripts, please contact us at: Thank you!