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Pervasive Software, Inc. (NASDAQ:PVSW)

Q1 2009 Earnings Call

April 21, 2009 5:00 pm ET

Executives

Randall G. Jonkers – Chief Financial Officer

John E. Farr – President, Chief Financial Officer & Director

Analysts

Kevin Liu – B. Riley & Company, Inc.

Analyst for Mark Murphy – Piper Jaffray

[Brian Wallen – Broadpoint Amtech]

Operator

At this time I’d like to welcome everyone to the fiscal year 2009 third quarter financial results conference call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks there will be a question and answer session. (Operator Instructions) Mr. Randy Jonkers you may begin your conference call.

Randall G. Jonkers

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’s 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 and 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 that is included in Pervasive’s most recent filings with the Securities & 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 March 31, 2009 and 2008 exclude the amortization of purchase intangibles and stock-based compensation expense and present 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 usable for an understanding of our ongoing operations and assists the investor 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 will cover two primary agenda items, first I will recap Pervasive’s financial results during our third 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 third quarter of our fiscal year 2009. Revenue and the earnings were in line with our updated guidance issued on March 31st.

Pervasive’s revenues totaled $13 million in Q3 which is an increase of $2.3 million as compared to Q3 of last fiscal year. Our GAAP basis net income was $1.9 million in Q3 and diluted earnings per share were $0.10 representing an increase from GAAP basis net income of $.9 million and diluted EPS of $0.05 in Q3 of last year. Our effective tax expense rate in Q3 was 31% as compared to a tax rate of 34% of Q3 of last fiscal year.

Our non-GAAP net income in Q3 before amortization of purchase intangibles and stock-based compensation expense and tax of 34% was $2.1 million compared to $1.4 million in Q3 of last fiscal year. Our non-GAAP earnings per share was $0.11, an increase of $0.04 per share as compared to Q3 of last fiscal year. We ended the quarter with approximately $44 million in cash and marketable securities and had 18.2 million shares issued and outstanding.

During the third quarter we repurchased approximately 733,000 Pervasive shares on the open market at a total cost of approximately $2.7 million or approximately $3.72 per share and we generated approximately $2.1 million of positive cash flow from operations. Our DSOs or days sales outstanding were an excellent 46 days down two days from Q3 of last fiscal year.

By geography our Q3 revenue was as follows: domestic revenue totaled $9 million in Q3, up 18% from Q2 and up 31% from Q3 of last fiscal year. Our international revenue principally Europe and Japan totaled $4.1 million in Q3 up 14% from Q2 and up 4% from Q3 of last fiscal year. Turning to operating expenses, our operating costs and expenses totaled $10.5 million in Q3 including stock-based compensation expense of approximately $450,000 or non-GAAP expenses of $10 million as compared to non-GAAP expense of $10.1 million in Q2 and $10.3 million in Q3 of last fiscal year.

The amounts from prior periods exclude not only stock-based compensation but also amortization of acquired intangibles. We had 223 employees at the end of Q3 which represents an increase of two employees from the end of the second quarter and an increase of six from Q3 of last fiscal year.

Now, looking forward, we expect revenues in our fourth quarter of fiscal year 2009 to be in the range of $10.5 million to $11.5 million compared to $11.2 million in Q4 of fiscal year 2008. We expect GAAP basis diluted earnings of $0.04 to $0.07 per share compared to GAAP basis diluted EPS of $0.04 in Q4 of fiscal year 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 fourth quarter of fiscal year 2009. With that, we expect non-GAAP and fully taxed diluted earnings per share in our fourth quarter of fiscal year 2009 to be $0.05 to $0.08 compared to non-GAAP diluted fully taxed EPS of $0.07 in Q4 of fiscal year 2008. Our non-GAAP effective tax rate for comparative purposes reflects the statutory rate of 34% on pre-tax non-GAAP income.

We anticipate cash flows from operations to be between $1.5 and $2 million for the fourth quarter of fiscal year 2009. Also, as in prior quarters we are no providing specific guidance beyond Q4. For EPS calculation purposes, we expect our GAAP basis and non-GAAP fully diluted share counts for the fourth quarter fiscal year 2009 to be approximately 17.8 million and 18.6 million shares respectively. Note that the share count 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

We executed well during the March quarter in both our core product lines resulting in year-over-year quarterly revenue increase of 21% and our 33rd consecutive quarter of profitable operations. Our integration revenues decreased slightly from the March quarter of last year after posting four consecutive year-over-year quarterly increases. A small decrease occurred in part because we were unable to repeat the same degree of the recent string of exceptional quarters from our professional services group.

Still, it was a good quarter for our integration team in this environment. Our database revenues increased 34% from the March quarter of last year due primarily to a relatively large $3 million transaction. Transactions of this size have been a rarity for Pervasive which is focused on high volume, low price point sales through well developed and well diversified channels. However, we have gotten better at identifying and monetizing past over deployment of licenses and under reporting of royalties.

These compliance issues are generally inadvertent in nature and our customers are as anxious as we are to remedy the situation whenever it might come up. However, it is very difficult to predict if and when these types of transactions will close and consequently we don’t assign a high confidence factor to any such opportunities in our pipelines for forecasting or budgeting purposes.

So, what about the difficult economy in which we presently find ourselves? What has Pervasive been doing over the past few challenging quarters? Well, so far we have grown revenues when others have not, maintained profitable operations and positive cash flow when others have not, grown headcount when other dare not, increased investment and innovation for the future when others cannot and returned millions of cash to shareholders through an active share repurchase program when others have no cash to return.

In short, I am very pleased with the level of execution in our team despite all that goes on around us. We have maintained a strong level of focus in an economy that has caused many others to flinch in fear. In addition to our recent financial and operating results, we have increased our attention to various M&A opportunities. We are not allowing these opportunities to distract us from our core operations but it is true that now is the time for the strong to find opportunity among the weak and less fortunate.

Our approach to M&A over the past several years has been an efficient one in that we watch for companies to show themselves as available rather than looking for and possibly paying a premium for those who are not. In the last nine months the supply of such companies representing themselves to us as available has increased and a few of those companies represent interesting opportunities to enhance our current product set and customer base and we’ll see what happens. If we do hone in on a transaction, it is safe to say that it would be a relatively smallish one. Our share repurchase program will continue to be our primary use of our excess cash.

Now, let me turn to each of the significant elements of our business and give you a quick update. First, the database business, the news in Q3 for our database business was of course the large revenue transaction in addition to the core execution of the team. To our database team whom might be listening to this call, I add my public congratulations to my private one, job very well done.

For you new listeners and as a reminder, our Pervasive PSQL 10 database is designed to help ISVs, VAR and OEMs to successfully embrace new technologies including the current Vista and Windows Server 2008 operating system through Microsoft as well as take advantage of the latest in 64 bit technology for accelerated database performance. With v10 we have continued our proven 25 year track record of delivering lot TCO, reliability, scalability, performance, ease of use and embedability in a secure environment.

Our database engineering team is continually focused on keeping our product up to date with 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 .net release, version 3.5 as well as Windows 7 desktop OS. Our engineering team continues to improve the digital licensing capabilities of our product in order to simplify the deployment and improve reporting of software licenses sold through our ISV and VAR 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 and rapidly commoditizing hardware.

We reviewed our current activities and future road map with some of our key European customers at a recent partners summit in Germany in historic Ettal Monastery where we of course conveyed and received nothing but the truth. I am happy to report that based on our European partner feedback we remain in synch with our customers. We will have another partner summit in Chicago later next month with some of our key North American customers to further validate our plans.

Our database business continues to be a fantastic 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. Next, let me update you regarding the integration business, our investments in the integration business have enabled us to achieve year-over-year quarterly revenue growth over the prior four quarters of approximately 10% to 19% by both expanding both existing relationships with large companies as well as continue to develop ISV, SAS, and system integrator partnerships.

However, as I previously stated our integration revenues decreased slightly from the prior year March quarter due in part to the softening of the recent strength we have had in our professional services group. Still, it was a good quarter for our integration team in this environment. In the March quarter we signed six new ISV and [inaudible] partners, one example, Data Motion provided the industry’s most robust, easy to use, easy to integrate and interoperable intelligent information transport platform.

They use Pervasive’s data integrator to pull files in different formats, transform that data in to the determined format and push it to the client’s backend. They use Pervasive for something as simple as Quickbooks or as complex as SAP integration. We won this new partnership as a result of our innovative agent technology and our [inaudible]. Also, while others in the market are cancelling or scaling back their customer events, Pervasive is forging ahead.

On April 30th we will host our invitation only Metamorphosis 9 Integration Summit in Boston. We have invited ISVs, SAS providers and system integrators to hear our value proposition from us as well as industry analysts and our customers including speakers from Gartner, Adaptive, Exact Software, Forefront, PeopleForce, [Quick RO] and SalesForce.com. Attendees will hear about real world experiences plus leading edge approaches to SAS and [inaudible] based integration. Registrations to date are over 150 individuals representing more than 100 unique companies and are on track to equal or perhaps surpass all of our prior Metamorphosis events. These events continue to be very productive in advancing the sales cycles of new partner prospects.

Our integration products received industry recognition during the quarter. Pervasive Data Integrator version 9.0 earned a product of the year award in the data integration category and Pervasive Data Profiler 4.2 earned a product of the year award in the data quality category in searchdatamanagement.com’s 2008 product of the year program. Pervasive was one of only two companies to receive awards in multiple categories in this year’s program.

Products were evaluated on innovation, performance, ease of integration, ease of use and manageability, functionality and value. Searchdatamanagement.com’s products of the year awards are judged by a team of industry analysts and consultants. Pervasive Data Integrator 9.0 received the highest marks for value and ease of use in the data integration category by providing scalable extract, transform and load capabilities for rapid design and maintenance of transactional process, SAS and legacy data stores. Pervasive Data Integrator enables companies to integrate desperate data sources in applications in real time as well as volume aggregation.

It’s open architecture solution enables customers, partners and developers to more easily build customer adapters and SAS vendors and ISVs to quickly extend applications for more rapid integration capabilities. In the data quality category Pervasive Data Profiler 4.2 earned high marks for integration and value and judges noted the importance of data profiling in data management projects.

Designed to profile large volumes of complex data Pervasive Data Profiler enables users to audit all types of data and automate data quality monitoring particularly important for organizations concerned with compliance and reporting. Data Profiler differs from competitor offerings in three major areas: the intuitive user interface; connectivity to various applications and technologies; and extreme speed. Because Pervasive Data Profiler is built on the next generation massively parallel Pervasive DataRush engine it scales automatically on commodity multi core machines and it crunch through all data at lightening speeds to deliver metrics we talked about.

Now, an update on Pervasive’s innovation initiatives; our Pervasive Data Solutions initiative is significant in that it represents the first time we have focused on selling our integration offering as a solution as opposed to a tool. The initial solution delivered by our Data Solutions team when it was formed in June 2007 is called Pervasive DataSynch for Quickbooks and SalesForce CRM. In the September quarter we introduced Pervasive DataSynch for Quickbooks and Microsoft dynamics CRM.

The DataSynch solution delivers users reliable real time synchronization of data between Quickbooks and either SalesForce CRM or Microsoft Dynamics CRM whether it be for use on premise or for use on demand delivered via our Pervasive DataCloud. Pervasive DataCloud is our platform for 24 by 7 on demand multitenant hosting of our Pervasive Data Solutions spanning the full range of integration scenarios including SAS to SAS, on premise to SAS and on premise to on premise.

With more than 20 net subscribers added in the March quarter, total DataSynch subscribers have now grown to more than 130 plus with related annual subscriptions amounting to more than $120,000. This team continues to innovate, our innovative Pervasive DataCloud delivery platform is attracting the attention of more traditional ISV customers. We are having conversations right now with ISVs in our install base to see how they too can benefit from our Pervasive DataCloud on demand integration as a service delivery capabilities.

Our Data Solutions team is also building prototypes of other solutions that we expect will contribute to our product line in fiscal 2010. For more information on Data Solutions please visit PervasiveDataSolutions.com.

Another of our innovation initiatives involves our work on Pervasive DataRush. We have discussed this initiative in the past but I want to make sure that new listeners have the advantage of some background. We believe in this digital world data volumes are doubling every 18 months. Organizations need to analyze and act on exploding data volumes for timely insight and knowledge and new technologies are needed to process the ever increasing massive amounts of complex data. No organization can succeed if it can’t effectively classify, analyst and interpret its data efficiently to reveal patterns, anomalies, key variables and relationships accurately.

At the same time multi core processors are rapidly proliferating and the multi core equivalent to Moore’s law, the hardware vendors are beginning to double the number of cores on a processor every 12 to 18 months or even faster. Existing software applications in most cases don’t effectively leverage the additional cores and performance of existing software technologies will continue to deteriorate as the number of cores on a processor continue to double. Currently the pressure for regulatory oversight, risk management and transparency are at all times highs driving the need to maintain data and extract high quality timely knowledge.

So this software is desperately needed to provide solutions to tap the capacity of multi core processors in order to deal with the ever increasing data volumes in an environment of increasing regulatory oversight and attention to risk management and transparency, enter Pervasive DataRush. Pervasive DataRush is ground breaking technology that addresses the gap between available hardware processing power, exploding volumes of data and what the software industry has been able to deliver in terms of commercial applications to avoid multi core hardware and efficiently extract useful intelligence from the massive data sets.

Pervasive DataRush resolves the parallel programming challenge and unlocks the power of multi core processors by closing the gap between available processing power and performance starved applications needed to manage and process those massive data sets. Pervasive DataRush opens the door to data discovery by enabling organizations to discover data relationships that were previously hidden or impossible to detect.

Pervasive DataRush revolutionary data processing engine and software platform with a growing family of high performance embeddable software solutions for data intensive applications and analytics. Finally, Pervasive DataRush is an emerging business with an outstanding engineering team and proven technology positioned at the beginning of an emerging market with referenceable use cases and referenceable partners in a company willing and able to invest significant resources in the market development effort, a perfect storm if you will for sales and marketing.

In December we began to invest in sales and marketing initially with the hire of our general manager of DataRush Mike Bryars. Mike immediately began the important effort of laying out our go to market strategies for Pervasive DataRush while also recruiting a handful of experienced business development, sales and marketing talents to the team. We basically doubled the team in the last four months ending the March quarter with 12 employees on the DataRush team including six technical personnel and six in sales and marketing.

During the March quarter the team has announced general availability of Pervasive DataRush, determined its go to market plans initially focused on the analytics market to deal with exploding data volumes and addressing the need for speed. Data that must be often analyzed and acted upon in near real time. They’ve announced our first DataRush solution, Pervasive DataMatcher, a highly accurate and lightening fast high performance data matching solution and announced Pervasive DataRush global channel partner program.

We are being noticed. One indicator, Pervasive DataRush is presently the most viewed software listing by a margin of more than three to one to the second most viewed listing on the Intel Business Exchange Software and Project Directory. The team is working hard to determine our next steps so that we can be best positioned to capture the opportunity DataRush represents to Pervasive and its shareholders. For more information please see PervasiveDataRush.com.

Our innovation doesn’t stop with Pervasive Data Solutions and Pervasive DataRush. We are also funding three other projects with at least one person each to explore opportunities in related areas. In conjunction with one of those projects, our own Dr. Nina Marin along with Professor Ghosh of the University of Texas here in Austin recently successfully partner to develop and test Pervasive DataRush powered co-clustering technology in specialized algorithms for a high performance recommender system based on Netflix data.

The joint project resulted in a scientific paper Pervasive Parallelism in Data Mining, Co-Clustering Netflix’s Data with Data Flow, that has been selected for presentation at the 15th Annual SIGKDD conference on knowledge discovery and data mining 2009 taking place June 28th to July 1st in Paris France. Nina’s paper is one of what we assume will be only a couple of dozen others accepted from among 686 total submissions and will undoubtedly increase the awareness of Pervasive and Pervasive DataRush in the data mining community.

In closing, all of our teams have begun the very important exercise of developing their operating plans for next fiscal year, the fiscal year ending June 30, 2010. Our annual operating plan will be submitted to our board for approval later this summer and as we go through this process, I can say that we remain committed to a strategic balance of investment in both our flagship and emerging products while also maintaining a tenacious focus on profitability.

Pervasive continues to enjoy many 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 cash flow. A couple of quick investor relation notes, we are schedule to present at the AeA Micro Cap Investor Conference in Monterey on May 4th and then at the RBC Capital Markets 2009 Technology Media & Communications Conference in San Francisco on June 10th.

We hope to see many of you at these events. I will now open the floor for questions.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from Kevin Liu – B. Riley & Company, Inc.

Kevin Liu – B. Riley & Company, Inc.

First question just in terms of this compliance deal, can you give us a sense of what the normalized run rate might look like in terms of this particular customer on an annual or quarterly basis?

Randall G. Jonkers

Kevin I would say that this transaction with this one customer is for all practical purposes a one-time transaction so it had not been in our run rate in the recent past nor do I expect it to be in our run rate for the foreseeable future. So, consider it a one-time kind of transaction. Now, that’s not to say that we won’t have other compliance related transactions. Some of them may be large. I mean, we have had compliance related transactions in the past.

We had a fairly good sized one back in the September quarter as well that we talked about on this call. We will continue to have compliance related transactions in the future and as I said on the call, they really do tend to be kind of inadvertent in nature and everyone involved wants to get them compliant as soon as possible but, they’re really hard to predict. So, as we sit here and try and come up with our guidance for the next quarter or for that matter our plans for the coming fiscal year, we don’t generally count on these kinds of transactions coming in to the mix.

Kevin Liu – B. Riley & Company, Inc.

It sounds like you guys have put together a nice team around the DataRush product. I was just kind of wondering if you could speak to the pipeline a little bit maybe in terms of the number of new customers that might be looking at it as well as maybe the transactional sizes that are being considered? Then also, talk about what your expectations might be for the length of the sales cycle?

John E. Farr

I’d be a whole lot more comfortable answering that question once we have a few closed and under our belt. I’d say that we are actively in discussion with probably two handfuls of accounts, some of which are in our integration installed base and some of which are new parties sourced by the DataRush team themselves. Transaction sizes, TBD. The DataRush team is working hard here presently to go test the pricing models that they’ve devised over the last couple of months and testing them in real life customer situations.

Part of their motivation to get answers to those very questions very, very quickly is that it’s only a couple of months from now before the DataRush team has to put up a solid operating plan, financial and operating plan together for next fiscal year and one that we review and approve and put in front of the board for their approval and live by for the next 12 months. So, I think that we will certainly have more concrete answers to those very questions ourselves in the coming three months or so as we get through this initial customer set.

Kevin Liu – B. Riley & Company, Inc.

Then just lastly, I know you don’t want to give too much guidance in to the next fiscal year yet but, it looks like for the past few quarters you guys have consistently delivered within this $0.05 to $0.08 range. You’ve guided to that often to most of these past few quarters as well. Any reason to think that if the trends you’re seeing on the database side as well as the integration side continue on for the next few quarters, anything you’re seeing in terms of investment needs or anything else that would suggest that EPS could fall below that range?

John E. Farr

I think you said if the revenue line continues to grow would my investment needs that might cause my EPS to decline in a growing revenue environment? Well, the answer to that question is I don’t know because a lot of it will depend on how DataRush does. If DataRush is doing well, I may reinvest a good portion of the revenue that it brings and put it back in to the DataRush initiatives.

But, Mike Bryars and I had many conversations as he joined the company and we are both planning presently that we are investing enough now to get to the point of producing revenue and that it will be future revenue production that will cause us to decide to ramp up spending. From a financial planning standpoint of 2010, my commitment, Randy’s commitment, the board’s commitment is profitability.

Operator

Your next question comes from Analyst for Mark Murphy – Piper Jaffray.

Analyst for Mark Murphy – Piper Jaffray

Can you just comment on the customer behavior in this quarter versus last quarter? What are you hearing from your ISV partners regarding the state of ISV spending? Just anything that you sensed in the quarter for you?

John E. Farr

As we’ve said in prior calls, you really can’t look at Pervasive as a barometer for the broad market because the impact of broad market swings to the positive or to the negative, by the time Pervasive sees it, it is so muted in its degree is difficult to discern. That’s the beauty of our business model, our business model being so well levered through so many ISVs and system integrators and VARs throughout the world, that there’s no single disruption, single geode or single market that really shows up dramatically in our business.

Again, it’s the model but it’s also the price points. Our average sales prices are in the thousands of dollars not the hundreds of thousands or millions. So, we are a fairly nice place to reside when you’re in a difficult economy. I’m not hearing that much directly from our ISVs about how challenging the economy is but they all have been in an environment quite frankly for the last eight years that has been challenging.

We’re talking about ISVs serving small businesses in an environment for the past eight years that has not been ripe with new business starts or other major catalysts driving upgrades of their small business packaged applications. So, we’ve been in that kind of environment for a long time so it’s really kind of not new to our ISV customers.

Analyst for Mark Murphy – Piper Jaffray

Just moving on to another topic, given ORACLE’s acquisition of Sun Microsystems, what do you think will happen to [inaudible], any thoughts?

John E. Farr

Well, I’ll tell you quite frankly, I don’t spend a lot of time worrying about Microsoft, IBM, ORACLE. I love it when they have the holy wars against each other because good business sometimes falls out of that and we go pick it up. So, what do I think, I have been asked that question before. I don’t know what ORACLE might do with MySQL as any different than what Sun might have done with MySQL.

It’s clear to me that ORACLE is interested in the many, many, many MySQL developers out there and they all represent customers to all infrastructure providers just like us. So I’m sure that was part of the interest. But, as you may know ORACLE has a lot of other databases already. I mean they acquired several over the past five to six years, InnoDB, SleepyCat a couple of others I can’t recall. But, who knows I’m not laying awake at night thinking about what ORACLE might do with MySQL. MySQL is just not in our space. We don’t run in to them hardly ever.

Analyst for Mark Murphy – Piper Jaffray

Last question, could you just share what you could, what type of M&A opportunity are you currently evaluating?

John E. Farr

The kinds of M&A that we would do, and thank you for that question, I meant to speak to it in my prepared remarks. The first criteria that I put on anything that comes across my desk, and these are the themes that holds everything that we do together, that it must be about data, it must be channel capable as we look to leverage those channels and it needs to be value in its orientation, low total cost of ownership in its orientation to the market.

If it hits on all three of those criteria then it gets to the next step and they I look to see if it’s a good fit or not. When I said smallish, I wouldn’t expect us to be doing $10, $20, $30 million deals. I mean, we don’t have a dedicated acquisition team here so it’s kind of just the rest of us doing that job in our spare time and so as a part of this team I think our first one would be certainly less than $10 million.

We want to continue to use our excess cash and cash flow in our buyback program that’s been very productive over the past three years. So, that gives you some sense. I think if we do something it would very likely be something that would add to our capabilities in the Pervasive Data Solutions area or we might buy technologies or customer bases that would be useful in the DataRush market development effort.

Operator

The next question comes from [Brian Wallen – Broadpoint Amtech].

[Brian Wallen – Broadpoint Amtech]

John, I was wondering if you could possibly just discuss the volatility that you are seeing in the professional services part of the business in the integration area? Then, just your level of confidence in turning that around in Q4?

John E. Farr

First of all, we’re talking about a piece of our business that is roughly a fourth to a third of our already third of our business. It’s not a huge part of our business. I felt obligated to mention something about PSG because we have mentioned the great success of PSG the last three quarters in a row but we’re not talking about the largest concentration of our revenue in the company.

So, the volatility in absolute dollars is not probably as great as the directional comments that I felt obligated to make. Q4 versus Q3 I think that based on what we’re seeing in the forecast and what we’re using as our measure to give guidance to the market, I think what we expect in Q4 in PSG would be similar to Q3.

[Brian Wallen – Broadpoint Amtech]

I was wondering if you could provide an update on the SAS part of the business, do you have the new net subscriber additions there?

John E. Farr

In March we had over 20 new ones in the quarter, net new. So, the total count now is over 130. I will continue to give those numbers over time but as we get in to the planning process for next fiscal in that Pervasive Data Solutions is not going to be necessarily how many – Pervasive DataSynch Quickbooks to sales force subscribers that we can get. It may be that we top out at 200 or 300, 400, whatever. It’s going to be more about the large number of solutions that we can bring to market and get 100, 200, 300, 400 subscribers for each of them.

So we are in fact actually planning several new product introductions out of Pervasive Data Solutions for the coming fiscal 2010 planning that I hope to be able to be able to tell you more about as time goes on.

Operator

I have no further questions at this time.

John E. Farr

Well, thanks a lot for everyone giving me a part of your afternoon or evening as the case may be. Have a great night.

Operator

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

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