Vignette Corporation Q1 2009 Earnings Call Transcript

Apr.28.09 | About: Vignette Corp (VIGN)

Vignette Corporation (VIGN) Q1 2009 Earnings Call Transcript April 29, 2009 5:00 PM ET

Executives

Jennifer Baker - Investor Relations Manager

Michael A. Aviles - President and Chief Executive Officer

Thomas Patrick Kelly - Chief Financial Officer

Analysts

Mark Schappel - The Benchmark Company

Andrew Lee - Roth Capital Partners

Brian Murphy – Sidoti & Company

Operator

Good afternoon. My name is Jason and I’ll be your conference operator today. At this time, I would like to welcome everyone to the Vignette Corporation Q1 2009 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) Thank you.

I would now like to turn the conference over to Jennifer Baker, Investor Relations Manager. Ma’am, you may begin your conference.

Jennifer Baker

Thanks Jason. Good afternoon and welcome to Vignette’s first quarter 2009 financial results conference call. I’m joined today by Mike Aviles, President and CEO; and Pat Kelly, our Chief Financial Officer.

I’ll begin today by reading our required risk disclosure statement. Our comments today may include forward-looking statements related to Vignette that involve risk and uncertainty, including but not limited to quarterly fluctuations and results, management of growth, market acceptance of certain products, integration of acquisitions, general economic conditions and other risks.

These risks are discussed in the Company’s Form 10-K, and in our quarterly reports filed from time-to-time with the Securities and Exchange Commission. Please be cautioned the forward-looking statements are not guarantees of future performance and actual results may differ materially from management’s expectations. In addition, unfavorable changes in economic conditions may affect the company’s current expectations.

Furthermore, our discussion includes certain non-GAAP financial measures in an effort to provide additional financial information to investors. All non-GAAP measures have been reconciled to their related GAAP measures in accordance with SEC rules. Such reconciliation is included with our results and is in our earnings press release available on our website as well as in the Form 8-K filed with the SEC.

I will now turn the call over to Mike.

Michael Aviles

Thank you, Jennifer. And welcome everybody to the Vignette Q1 earnings call. We posted this script and our results about an hour ago. You can access those via our website.

As we outlined back in February, we are exploring a new approach to our earnings calls. We will publish our results and remarks in advance, start the call with a few summary statements and then move quickly into Q&A. We think this will be a more productive use of your time. Q1 was a sluggish quarter with a lot of customer activity put on hold due to the economic environment.

However, we were able to manage through the uncertainty by delivering $6.1 million of cash flow from operations and $1.4 million of non-GAAP net income. License revenue was above the analyst expectations and EMEA was a bright sport, so is new customer activity and partner involvement. More than 50% of our Q1 license bookings came from new customers and five of our six largest deals were attained with partner involvement.

We continue to invest in our business and in our products. In Q1, we launched the next iteration of our social media product, Vignette Community Applications 7.1. We also worked to improve our overall go-to-market, as we outlined during our February call. Vignette is committed to good fiscal management during these economic times. We will plan conservatively, invest prudently and make the operational adjustments necessary to remain profitable and cash flow positive in 2009.

Operator, will you please now open the bridge for Q&A.

Question-and-Answer Session

Operator

(Operator Instructions). Your first question comes from Mark Schappel from The Benchmark Company.

Mark Schappel – The Benchmark Company

Hi, good evening this is Mark Schappel and first question goes to Pat. I was wondering if you could just run us through real quick the impact of the foreign currency on roughly this quarter?

Thomas Patrick Kelly

Sure Mark. If we look at the year-over-year impact of foreign currency in and try to understand sort of line by line, what impact FX had. On the license side, it was a pretty significant impact, in terms of the year-over-year decline in license. We can attribute about 50% of that to the significant change in the strengthening in the dollar

Maintenance, the vast majority still of the year-over-year decline in maintenance, we can attribute to strengthening dollar. And then in professional services, actually was not impacted very significantly, you’ll see I’m sure in the numbers that we have a significant drop off year-over-year in professional services. Most of that really driven in North America and being driven more by the economy and sort of soft license sales in North America. But in terms of maintenance and license, FX had a much more significant impact.

Mark Schappel – The Benchmark Company

So, according to my calculations there are about 1,400 or about $1.4 million of the license fall off would have been of actually, something on that order?

Thomas Patrick Kelly

Yeah.

Mark Schappel – The Benchmark Company

Okay. All right. Good thank you and on international revenue, what was the international revenue mix, as a percentage of total sales?

Thomas Patrick Kelly

40%.

Mark Schappel – The Benchmark Company

40% North America?

Thomas Patrick Kelly

No 40% international.

Mark Schappel – The Benchmark Company

Okay, thank you. And Mike in your prepared comments, you mentioned that EMEA was a bright spot and I was just wondering if you did anything meaningfully different in the first quarter than in prior quarters?

Thomas Patrick Kelly

I think the EMEA was a bright spot and I think part of it is many of the go-to-market changes, particularly around the sales force got an early jump in EMEA, so they got new leadership there. They’ve got some better adherence to some of the main initiatives, so that are running start going into Q1 and that plus a couple of large transactions really helped move things for EMEA. So I don’t think its anything huge Mark, in terms of the state of that market versus the state of the market in North America particularly. I think we just executed better in Q1 in EMEA.

Mark Schappel - The Benchmark Company

Then finally what was the headcount at the end of this quarter?

Thomas Patrick Kelly

Our headcount was 687.

Mark Schappel - The Benchmark Company

Thank you.

Thomas Patrick Kelly

And just one thing, I’d just to add on that Mark around the headcount is that we are sort of midway through this in sourcing in project in India in Hyderabad. And so our headcount is actually up some from the end of the year, but that’s mostly driven by this bringing on about 85 to 90 new employees in India, and as I said we are about halfway through that. We’ve got a bit more work to do on that migration and that will be unfolding over the balance of Q2 and little bit into Q3.

Operator

Your next question comes from Nathan Schneiderman of Roth Capital.

Andrew Lee - Roth Capital Partners

Hi. This is actually Andrew Lee covering for Nathan Schneiderman. Hi Mike, Hi Pat?

Michael Aviles

Hello, Andrew.

Andrew Lee - Roth Capital Partners

Hi. A few questions. Could you quantify the impact of the Autonomy acquisition of Interwoven? In other words, how much of the $6.9 million of license fee was incremental less due to the impact of the acquisition?

Michael Aviles

So the answer is no. Not because we won’t, we won’t really don’t have that information Andrew. So, we really can’t point to Q1 activity that we can attribute to the IO Autonomy integration.

Andrew Lee - Roth Capital Partners

Okay, in last quarter you made a comment that generally results will improve as the year progresses. Should we think that Q1 was the bottom for license fees and results will improve going forward or is that not the right assumption to make?

Michael Aviles

That’s a tricky question, Andrew but I’m not going to answer that one. So that’s kind of like a guidance question. I think what we said back in Q1 as we laid out the full year, we said that the second half is traditionally stronger than the first half and Q4 is historically been our strongest quarter. So we expect that to happen again.

Andrew Lee – Roth Capital Partners

Okay.

Michael Aviles

Pat, can you elaborate on that?

Thomas Patrick Kelly

No, I think that was as perfect.

Andrew Lee - Roth Capital Partners

Okay, thanks. How was the linearity for license fees in the quarter? How much of the business as a percent of revenue approximately closes in the months of January, February, and March? And then can you talk more about the close rates in the last weeks of March and could you just talk to anything that you’ve seen so far in the month April?

Michael Aviles

Yes. So, we haven’t disclosed linearity before and I think, so I can’t really give you the detail you’re looking for there in terms of January, February and certainly not April but, I think it’s safe to say that we’re back-end loaded and that really hasn’t changed significantly. So, we are still closing a lot of our business towards the tail end of the quarter.

Andrew Lee - Roth Capital Partners

Okay, with the restructuring cost made in the quarter towards the beginning of the quarter, the mid or towards the end, what areas were the cost made and do you think the expense structure gets lower in Q2 relative to Q1? Is Q1 the basis for operating expenses, do you think?

Michael Aviles

Yeah, so lot of questions in there Andrew. We had very little in the way of restructuring cost that hit in Q1. No, we really had a lot more in Q3 of last year and Q4, and so it was a pretty small number, I think it was 110,000 or something like that so, not a very significant number there. In terms of our cost structure going forward, I think without sort of providing specific guidance around that I’d just say kind of reiterate some of the points we’ve made in the script, which is that we are managing the businesses in an uncertain environment ,we are managing it with a cautious eye towards how events unfold. We very aggressively managed our cost structure in Q1. I think that turned out well for us. We will generated some decent cash flow and the non-GAAP operating income and we are going to continue to try and strike the right balance between the investments we are making and the revenue outlook, the short-term revenue outlook.

Andrew Lee - Roth Capital Partners

You know the number of large deals that closed in the quarter?

Thomas Patrick Kelly

Two.

Andrew Lee - Roth Capital Partners

Two?

Thomas Patrick Kelly

Yes, so remember Andrew, we considered large deals above $1 million.

Andrew Lee - Roth Capital Partners

Great.

Thomas Patrick Kelly

So, two transactions during the quarter.

Andrew Lee - Roth Capital Partners

And last question. Your guidance, do you reiterated the license revenue to be flat to up 20% year-on-year but your professional services revenue declined 20% year-on-year. What did you expect professional services to be at least flat or up if license revenue is flat 20% up year-on-year? What are the dynamics you’re seeing there?

Thomas Patrick Kelly

Well I think what we are highlighting there is that the professional services tends to lag the license a little bit, so obviously professional service has taken a pretty significant hit in Q1. We think we can rebuild that over the course of the year but I think it’s still, our guidance is still but that number could be down despite license revenue been able to be flatter or a little bit up. So I think you make a good point. Professional services should try to trend with license but because we are recognizing most of our license upfront in deals we would expect it to lag a little bit.

Andrew Lee - Roth Capital Partners

Okay, that’s it from me. Thanks a lot.

Michael Aviles

Thank you, Andrew.

Operator

(Operator instructions). Your next question comes from Brian Murphy of Sidoti & Company.

Brian Murphy – Sidoti & Company

Hi, thanks for taking my question. Pat, just given the license revenue number that you put up for the first quarter, let’s just back into what you guys need to do for the rest of the year to be flat for 2009. It looks like about 11% for the remainder of the year. Did you guys, do you think you have the pipeline to do that?

Michael Aviles

Yes, I’ll make a comment. This is Mike, Brian first. Yes, we have the pipeline to do it certainly. So if we look at our pipeline and what we are projecting to do the rest of the year, the pipeline is there today. Now what happens with the environment over the next couple of quarters? Everybody is guessing but Pat, you want to add on to that?

Thomas Patrick Kelly

No. I think that’s good. We think that as we go through the year as well, Brian, we’ve got an easier compare. In the first half of the year, we’ve got a little tougher compare to last year and the second half of the year, maybe it’s a little bit easier. As Mike said, we’ve certainly got the pipeline but I think that some of the initiatives we’ve launched are going to start paying off and so we are, that’s where we hold on our guidance where it is.

Brian Murphy - Sidoti & Company

Got it and Pat, I think you said the headcount was up on a net basis. Can you give us some idea of sort of what employee turnover is look like in the first quarter?

Thomas Patrick Kelly

Mike, if you want to talk about that?

Michael Aviles

Yeah sure, I would say very little employee turnover. In this environment that’s one of the benefits, I guess you have there is a lot of stability in the current workforce. So, anyhow that was involuntary turnover.

Brian Murphy - Sidoti & Company

Okay. And it sounds like that we are seeing some changes there in terms of partner involvement. Can you just give us a little bit more color there? The five out of the six largest deals, is that one particular partner you’re working with or anything would be helpful?

Thomas Patrick Kelly

Brian, we talked about early, back in February, we talked about some of the go-to-market initiatives that we were really going to push this year. Channel optimization was a very important area focus for us and in particular, I’ll break it out in EMEA. They are really going out and building the partner community and has signed up a number of new partners in EMEA, in both in the Europe and as well as in South Africa that came to fruition for us. In North America, a lot of initiatives took trend to move more towards a reseller model, and I think we signed several reseller agreements during the quarter during Q1, another set of them it will get done here in Q2. So I think it’s a combination of the effort and the focus we are putting around partner enablement, signing up the resellers that are helping us right now. In in the script as you read five of the top six deals in this past quarter involved a partner. So we were pretty pleased with that and roughly 50% of our license revenue in Q1 came from two partners.

Brian Murphy - Sidoti & Company

Two partners, okay. And let’s see any unexpected strength or weakness in particular verticals in the quarter?

Michael Aviles

The strength that we saw, great question, it was the government sector.

Brian Murphy - Sidoti & Company

Right.

Michael Aviles

Which makes sense with everything that’s going on. So we saw good performance out of government, the vertical that we saw a sluggish performance was financial services.

Brian Murphy - Sidoti & Company

Right. The government has traditionally been one of your strongest verticals. I mean do you see yourself having a leg up there in this environment?

Michael Aviles

We think we are pretty well positioned there. We’ve got a good product offering. We’ve got a good stable of customers especially in the federal space and we think we can leverage that. So between some of the government programs that are going on right now, between our product offerings and our customer base, we should be in a decent position to capture some business there, as the year progresses.

Brian Murphy - Sidoti & Company

And how is the pricing environment?

Michael Aviles

It’s pretty tough. So you saw that in the comments that we posted ASP’s in Q1 were down relative to Q4 and they were also down relative to Q1 of last year. So competitive intensity is still out there, but also deals are just getting smaller in this environment.

Brian Murphy - Sidoti & Company

All right.

Michael Aviles

Lot of budgets are being shrunk. People are holding back. So we’re seeing a lot of smaller deals coming to us but we are also pleased that we are able to close a few large transactions in the quarter.

Brian Murphy - Sidoti & Company

Right, okay, thanks very much.

Michael Aviles

Our pleasure Brian, thanks for the questions.

Operator

(Operator instructions) There are currently no further questions.

Michael Aviles

Great, thank you Jason and thank you everybody for joining our call today. We hope you appreciate the approach to our earnings call. We think it’s a more affective use of your time and our time. So, we’ll continue to publish our results and remarks in advance. Opening our earnings call with summary statements and then moving directly into Q&A and as always we welcome your feedback. 2009 provides us with an opportunity to address some fundamental challenges in our business. We’re taking advantage of it and we are taking specific steps to improve our overall go-to-market. We look forward to updating you on our progress throughout the year. Thank you very much.

Operator

That concludes today’s Vignette Corporation Q1 2009 financial results conference call. You may now disconnect.

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