Pervasive Software Inc. (NASDAQ:PVSW)
F4Q09 Earnings Call
July 21, 2009; 05:00 pm ET
John Farr - Chief Executive Officer
Randy Jonkers - Chief Financial Officer
Kevin Louve - Riley & Co
Brian Schwartz - Piper Jaffray
Bryan Wallis - Broadpoint Capital
Good afternoon, my name is Nicole and I will be your conference operator today. At this time I welcome everyone to the fiscal year 2009 fourth quarter financial results conference call. All lines have been placed on mute to prevent any background noise (Operator Instructions). Mr. Jonkers, you may begin your conference.
Good afternoon and thank you for joining us. I am Randy Jonkers, Chief Financial Officer for Pervasive Software. While we wait for others to join, I’ll go over the standard disclaimer regarding the remarks on this call. This conference call may contain forward-looking statements within the meanings of the Federal Securities laws, including statements regarding the companies or management’s intentions, hopes, beliefs, expectations and strategies for the future.
Forward-looking statements may include without limitations, statements regarding the following; future acquisitions, future investments, sales, market growth and direction, competition, revenue growth, operating margins and profitability. A detailed discussion of risks and uncertainties that could cause the actual results and events to differ materially from such forward-looking statements 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 June 30, 2009 and 2008 exclude the amortization of purchased intangibles and stock based compensation expense and presents income taxes at a statutory tax 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 operation and to assist 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 broadcasted 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 fourth fiscal quarter and then John will update you on the significant elements of our business as well as the summary of items we will be focused on in fiscal year 2010.
Now for the financial results; today we have released financial results for the fourth quarter of fiscal year 2009. Revenue and earnings were in line with our guidance provided on April 21. Pervasive’s revenues totaled $11.2 million in Q4 consistent with $11.2 million in Q4 of last fiscal year. Our GAAP basis net income was approximately $1 million in Q4 and diluted earnings per share were $0.06, representing an increase from GAAP basis net income of $0.8 million and diluted EPS of $0.04 in Q4 of last year.
Our effective tax expense rate in Q4 was 31% as compared to a tax rate of 30% in Q4 of last fiscal year. Our Non-GAAP net income in Q4 before amortization of purchase intangibles and stock based compensation expense and tax of 34% was $1.2 million compared to $1.3 million in Q4 of last fiscal year.
Our Non-GAAP earnings per share was seven sets consistent with Q4 of last fiscal year. We ended the quarter with approximately $43.4 million in cash and marketable securities and had 18.1 million shares issued and outstanding. During the fourth quarter we purchased approximately 216000 Pervasive shares on the open market at total cost of approximately $1.1 million or approximately $5.04 per share.
Our revenue in Q4 was a bit more skewed to the third month of the quarter than it’s customarily the case for Pervasive. This was reflected in our cash flow and DSO metrics for the quarter. We generated approximately $0.6 million of positive cash flow from operations and our DSOs or Day Sales Outstanding were 64 days of 19 days in Q4 of last fiscal year.
By geography, our Q4 revenue was as follows. Domestic revenue totaled $6.7 million in Q4, up 3% from Q4 of last fiscal year. Our international revenue principally in Europe and Japan totaled $4.4 million in Q4 down 6% from Q4 of last fiscal year. At a product level, our database and our integration products represented approximately two-thirds and one-third of our business respectively in Q4.
Turning to operating expenses; our operating costs and expenses totaled $9.8 million in Q4 including stock based compensation expense of approximately 440,000 or Non-GAAP expense of $9.4 million as compared to Non-GAAP expense of $10 million in Q3 and $9.5 million in Q4 of last fiscal year.
The amounts from prior period exclude, not only stock base compensation, but also the amortization of acquired intangibles. We had 217 employees at the end of Q4, which represents a decrease of six employees from the end of the third quarter, a decrease of two from Q4 of last fiscal year.
Now, looking forward; we expect revenues in our first quarter of fiscal year 2010 to be in the range of $10.5 to $11.5 million compared to $11.9 million in Q1 of fiscal year 2009, which included one relatively large database customer transaction representing approximately $0.7 million in revenue. We expect GAAP basis diluted earnings of $0.03 to $0.06 per share compared to GAAP basis diluted EPS of $0.07 in Q1 of fiscal 2009.
We anticipate that our effective tax rate for the year will be approximately 30%. Non-GAAP profitability is expected to exclude stock based compensation expense representing approximately $450,000 in the fiscal year 2010. With that, we expect non-GAAP and fully taxed diluted earnings per share in our first quarter of fiscal year 2010 to be $0.04 to $0.07, compared to non-GAAP diluted and fully taxed EPS of $0.09 in Q1 of fiscal year 2009.
Our non-GAAP effective tax rate, for comparative purposes reflect a statutory rate of 34% of pre-taxed non-GAAP income. We anticipate cash flows from operations to be between $1 and $2 million for the first quarter of fiscal year 2010. Also, as in prior quarters we have not providing specific guidance beyond Q1.
For EPS calculation purposes, we expect our GAAP basis and our Non-GAAP fully diluted share counts for the third quarter fiscal year 2010 to be approximately 18 million and 18.7 million shares respectively. Note that this 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.
Thanks Randy. We are pleased to report results for the fourth quarter and fiscal year ending June 30, 2009 representing our 34th consecutive quarter and 8th consecutive year of profitability. We are also pleased to report revenue growth for the full fiscal year of 11%.
Our solid results allow us to capitalize on acquisition opportunity such as, the ChanneLinx’s business mentioned in our press release earlier today. ChanneLinx based in Greenville, South Carolina is a privately held business-to-business, web based data interchange or web DI Technology Company. With ChanneLinx innovative web DI technology and loyal customer base, we will add a compelling solution to our Pervasive Data Solutions product family.
The ChannelLinx assets to be acquired, generate approximately $2 million in revenue over the 12 months ended June 30, 2009 and will include 16 dedicated software professionals. The transaction is expected to be completed during the quarter ending September 30, 2009, for total consideration of approximately $2.6 million in cash.
Like Randy, I especially want to welcome our new listeners today, for which I expect there are quite a few given Pervasive addition to the Russell 2000 Stock index in June. I look forward to meeting with as many of you and as many of our new investors as possible over the coming year.
In this call, I will give you an update on our significant elements of our business as well as the summary of the items and we that will be focused on in fiscal year 2010.
First the database business: Our investment in the database business had enabled us to achieve year-over-year revenue growth of 13% and 3% in fiscal year 2009 and 2008 respectively by both marketing of Pervasive PSQL version 10 database to our large install basis of loyal ISV customers, and by properly identifying situation where perhaps Pervasive will do some additional royalties, for unreported or underreported license fees and then working with those customers remedy any inadvertent license compliance matters.
Now, for you new listeners and as a reminder our Pervasive PSQL Version 10 database is designed to help ISPs, VARs and OEMs successfully embrace new technologies including the Windows Server 2008 operating system for Microsoft as well as take advantage of the latest in 64-bit technology for accelerated database performance.
With Version 10 we continue our 25-year track record of delivering low TCO, reliability, scalability, performance, ease of use and embedability on a secure environment. Our database engineering team is continually focused on keeping our product up-to-date with the ever changing environment and, a known or anticipated need of our ISV customer base.
The team is presently working on a future product, which will include support for Windows 7 desktop OS when it is released later this fall by Microsoft. An 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 ISP and VAR channels and used by their end user customers, and we continue to work on multi core enablement of our database engine for a future release, to support the latest in multi core processors in a rapidly commoditizing hardware environment.
We reviewed our current activities and our future roadmap for some of our key European customers at our partner summit in the March quarter, and then again with some of our key North American customers over the past several months, to further validate our plans.
Our database business continues to be a great franchise primarily because of the work we have done year-end and year out to maintain and improve our product relevance with inherent stall based customers.
Next, let me update you on the integration business. Our investments in the integration business has enabled us to achieve year-over-year revenue growth as 8% and 6% in fiscal year 2009 and 2008 respectively by both expanding existing relationships within large companies as well as continuing to develop new ISP, SAS and systems integrator partnerships.
On April 30 we hosted our Invitation Only Metamorphosis Nine Integration Summit in Boston where we invited ISP, SAS providers and systems integrators to hear our value proposition from us as well as from industry analysts and our customers including, speakers from Gartner, Adaptive, Exact Software, Forefront, People Force, QuickArrow and Salesforce.com.
Attendees heard about world experiences plus leading edge approaches to SAS and Cloud based integration. Over 110 individuals representing more than 80 unique companies attended Metamorphosis 9.
These events continue to be very productive in advancing the sales cycle with new partner prospects, and this year we also had a significant interest attendance and coverage from industry analysts.
In the June quarter we signed nine new ISV and business service provider partners. Two examples, San Francisco Health Plan is a city sponsored health plan providing health insurance to more than 55,000 San Fransciscans.
The San Francisco health plan is replacing several cumbersome and expensive systems with Pervasive in saving hundreds of thousands of dollars per year, and Evitar International provides quality improvement services to the healthcare industry. Their products, we integrate patient surveys, employ surveys and physician surveys. They will save between 7000 and 22,000 per month by using Pervasive software.
Both of these examples were new relationships one by virtue of our Pervasive Integrations Hub, we call it iHub Solution, which we first announced in the December 2008 timeframe. Pervasive Integration Hub enables developers, IT personnel and analysts to easily manage and quickly configure the processing of many diverse disparate data feeds and multiple methods of communication, while also incorporating data quality analysis in managing constantly changing business rules while avoiding costly restarts. The Pervasive integration hub is built on Pervasive Data Integrator Platform for scalability, extensibility and customizability.
Now, an update on Pervasive’s innovation initiatives; our Pervasive Data Solutions initiative is a significant and that it represents the first time we had focused on selling our integration offering as a solution as opposed to a tool. The initial solution delivered by our Pervasive data solutions team when it was formed back in June of 2007 has got Pervasive DataSynch, QuickBooks and Sales Force CRM, and in September 2008, we introduced Pervasive DataSynch for QuickBooks and Microsoft Dynamics CRM.
Pervasive 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 the Pervasive DataCloud. Pervasive DataCloud is our platform for 24/7 on demand multi-tenant hosting of our Pervasive expanding the full range of integration scenarios from application integration using Pervasive DataSynch to on demand data profiling.
We have more than 130 Data Solution subscribers with related annual subscriptions amounting to more than $120,000. We have learnt a lot about our data solutions products and the needs of our customers while winning our current subscriber base essentially one customer at a time.
We increased our investment in sales and marketing in this team during the June quarter with the addition of a business development resource, so it has been focused on building relationships and initiating sales conversations with potential channel partners that will allow us to win customers many at a time, for more effective return on our investments.
Our innovatives, Pervasive DataCloud delivery platform is also attracting the attention of some more traditionalized big customers. We are having conversations right now with ISVs in our install base to see how they too can benefit from the Pervasive DataCloud on demand integration as a service delivery capabilities and at the end of June, we successfully moved our entire Pervasive DataCloud infrastructure to Amazon’s Elastic Cloud for more cost effective capacity and virtually limitless capability, in terms of customer and data volumes in range of integration scenarios and types, and this team continues to innovate.
Our Data solutions team is building prototypes of other solutions that we’ll talk about in the coming months or quarters that we expect to contribute to our product line in fiscal 2010. For more information on Data Solutions please visit www.prevasivedatasolutions.com.
Another of our integration initiatives involves our work on Pervasive DataRush. We have discussed this initiative in the past, but I want to be sure that new listeners have the advantage of some background. We believe that in this digital world, data volumes are doubling every 18 months. Organizations need to analyze and act on exploding data volumes for timely insights and knowledge and new technologies are needed to efficiently process the ever increasing massive amounts of complex data.
No organization can succeed if it can’t effectively classify, analyze and interpret its data efficiently to reveal patterns, anomalies, key variables and relationships accurately. At the same time, multi-core processors are rapidly proliferating.
In the multi-core equivalent to Moore’s law, the hardware vendors are beginning to double the number of cores on every 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 continues to dabble.
Finally, the pressure for regulatory oversight risk management and transparency are at all time high, driving the need to maintain data and extract high quality timely knowledge. 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.
So, enter Pervasive DataRush. DataRush is a groundbreaking 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 the commercial applications, to exploit multi-core hardware and efficiently extract useful intelligence from massive data sets.
Pervasive DataRush is an emerging business, with an outstanding engineering team and pertinent technology positioned at the beginning of an emerging market with referenceable used cases and referenceable partners, and 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. We basically doubled the team in the last six months, ending the June quarter with 12 employees in the DataRush team including, six technical personnel and six in sales and marketing.
With the addition of our sales and marketing resources beginning in January, the team has announced general availability of Pervasive DataRush. The team has 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 most often be analyzed and acted upon in near real time.
They’ve announced a DataRush based solution, Pervasive DataMatcher, a highly accurate and lightning fast high performance data matching solution. The team has announced Pervasive DataRush Global Channel Partner program, and most recently announced our first two ISV partnerships with Aha! software and Infoglide software.
We are partnering with Aha! software, a recognized innovator in breakthrough business analytics, to introduce and deploy next generation high performance business analytics. Though the combination of Aha!’s proven an advanced business analytic platform and a Pervasive DataRush cutting edge massively parallel data processing engine and analytics software, organizations of all sizes will be able to develop, implement and manage whole new classes of analytics, to help drive intelligent profitable growth and ensure efficient utilization of data assets.
The partnership is expected to enable Pervasive and Aha!, to unlock the constraints to large scale adoption of analytics that the market now demands and has the potential to ultimately transform business analytics, providing easy to use practical high performance analytics applications that are affordable.
We are partnering with Infoglide software on a joint go-to-market strategy, based on combining Infoglide’s Identity Resolution Engine with Pervasive DataRush. Together we plan to offer an integrated identity resolution solution for several application areas, including fraud detection, money laundering, national security and retail.
Infoglide software is a technology and services supplier to TSA’s secure flight program, and has had recent successes in detecting worker’s comp, fraud and lottery retailer fraud for state and provincial governance. With these two partnerships we continue our proven tradition of partnering with application ISV’s, to bring enhanced application solutions to market and were being noticed.
Pervasive DataRush is the most viewed software listing on the Intel business exchange software and partner directory. We have held this position, this number one position now for more than four months in a row. For more information please see www.pervasivedatarush.com.
That brings it to a close, the fiscal year 2009. It’s been a really good year and we are all looking forward to fiscal 2010. In 2010 we will be focused on a continued marketing of our embedded database product, Pervasive PSQL Version 10.10 and the development of our next version release, Version 11, scheduled for release in the second half of Calendar 2010.
Growing the sales of our integration product line, both through direct sales and through highly leveraged indirect channels and continuing our investment in new product and services innovation, including further advancement of our innovation initiatives from fiscal 2009 in Pervasive Data Solutions and Pervasive DataRush and we were increasing our innovation investments again in 2010.
Of course we look forward to closing our transaction to acquire the assets, the business of ChannelLinks. We are making strategic investments for the future, while also maintaining our intense focus on profitability.
In closing, we recently completed and very important exercise of developing our operating plans for next fiscal year, the fiscal year ending 2010. Our annual operating plan was submitted to our Board for approval earlier this month. While we don’t publicly communicate the details of our financial plans, I can’t say that we remain committed to the strategic warrants 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 very strong balance sheet, a serious focus on innovation and consistent profitability and positive cash flow.
One quick investor relations note, we are scheduled to present America’s growth capital, emerging growth conference to be held in Boston on October 6 through October 8. We hope to see many of you at this and any other events that we may participate in the near future.
I’ll now open the floor for questions.
(Operator Instructions). Your first question comes from [Kevin Louve] - Riley & Co.
Kevin Louve - Riley & Co.
Just first off on the ChannelLinks acquisition, I was wondering if you could kind of go through the strategic rationale in terms of how they’re offerings kind of tie in with your existing product portfolio as well as some of the new initiatives you’re working on? Then also kind of discuss how they generate their revenues. From their website it looks like it might be kind of a hosted software model, so I just wanted to confirm that.
Those are great questions. Fist of all, I’d start with the last part first. The ChannelLinks business model is exactly that, a hosted model. In fact they deliver no software. You think about trading partners; imagine large oil and gas companies who have trading partners throughout their system, their network, whether they’re pumpers or field personnel or pipelayers, whatever.
There are trading partners throughout that particular large hubs network, and so what ChannelLinks does is provide the internet connection or internet interface to allow those trading partners to exchange data, exchange documents with their hubs, and vice versa. It is all internet based, it’s all subscription, fees or monthly usage fees, and as you can imagine, they’ve got a number of different ways to deal with those sub partners. Small companies can be flexible as are we.
There’ll be some of the hubs in their network, who basically pay for all of their trading partners to utilize the service from ChannelLinks. There will be other hub partners who officially mandate that their trading partners will subscribe and use the ChannelLinks service, and then there are others who simply say that they would like for their trading partners to participate. ChannelLinks goes and deals with all of those scenarios.
I would say to you that ChannelLinks has continued in the $2 million kind of revenue scenario. They throw off about a 10% profit, and that profit being before tax, let’s think of that as an EBITDA number. That number though is relatively void of any marketing, investment and their sales investment is relatively limited, relative to the technology investment.
So we will going forward, add to some of the budget for spending on sales and marketing for ChannelLinks, essentially breaking them; even for a little bit for a little while here, so they can see how they do with a little bit more sales and marketing dollars to invest themselves, but also making available to them the relatively large sales and marketing foundation infrastructure that we have here at Pervasive.
Now to mention a bit about the synergies, the synergies can be primarily with three of our present divisions. We think about ChannelLinks a bit strapped on the budget. They provide the web-to-web interface.
Often they get asked questions about “So what are you going to do for me behind the Web? Are you going to help me connect to my various systems in my hub environment or connect to my accounting system if I’m a trading partner?” And often they have to say no, given their resources and being an integration company, we will allow ChannelLinks to say yes, and say yes very often; as they look to acquire additional trading partners in the given hub or in fact go out and acquire new hub partners, with whole trading partner networks around them.
The main thing is that we will allow ChannelLinks to say yes, by making available and participating through our integration division with last mile integration to help them complete the cycle, or the web-based data interchange that they are providing. That kind of last mile integration with our integration division tools and professional services are most likely to end up at the hub end of the trading partner network.
By the same token, our Pervasive DataSolutions team, meaning everything they’re about is about solving for the simpler low end connections, a lot of QuickBooks to sales force, QuickBooks to Microsoft, so your going to do so in a relatively automated way; high-volume, low-priced point, self served.
It’ll be the DataSolutions team that will help ChannelLinks improve their ability to say, yes to the trading partner and the trading partner network, where you may be talking about talking about a lot of mom-and-pop type shops that might have QuickBooks, might have Peachtree, might have any accounting system.
Lastly, I can’t say a whole lot about the customers of ChannelLinks just yet. I would expect to talk, well, lets say a little bit more about who. Some of their customers are when we get to announcement at the close, but quite frankly we are extending the proper courtesy to their customers by waiting until transaction closed and asking for permission basically to name their names.
I can say that a number of those large hub partners are in the oil and gas space and as you can imagine, when I think about oil and gas I think from a data perspective, I think about large data, big data, massive data, those kinds of environments that our Pervasive DataRush team will be able to go into and make a difference.
I probably didn’t mention it earlier, but the revenue streams at ChannelLinks, well, I said $2 million in the last trailing 12 months; it’s been from $21.9 million, $2.1 million for the last three and a half years. They’ve got a pretty stable, very loyal customer base that have been with them through a number of years, and we look forward to being able to enhance that with the rest of our Pervasive product family.
Kevin Louve - Riley & Co.
That’s helpful. Then in terms of the sales and marketing spend actually, I was kind of surprised to see that come down from the prior quarters, just given some of the opportunities you guys have been investing in. So I was wondering what drove that and if we should expect that number to tick back up over the course of the next few quarters as you have these other opportunities to target?
Remember, in the March quarter we had a really big deal, and ended up with more revenue than normal and more revenue generally means more commissions. That Pervasive there Q3, the March quarter was the anomaly; Q4 is more normal.
Kevin Louve - Riley & Co.
Okay great. So we should expect this to kind of be the run rate.
Relative to the sales and marketing dollar, but as you heard me say, I do want to spend a little bit more, provided the challenge acquisition does close and I have every reason to believe it will; that we will increase a little bit of spend there, which is a relatively small number, but just to reinforce that point.
Also if we achieve our revenue plans in the DataRush team, increased revenue will probably be met with increased sales and marketing investment in the quarter falling. So we’ll just have to listen to what I say there about revenue out of the DataRush division as far as what we might be likely to do as far as increasing sales and marketing spend in that team.
Kevin Louve - Riley & Co.
All right, and then just lastly; I think Randy touched on this in his comments, but you mentioned that the linearity in the quarter was much more back end weighted this time around. I was wondering if you could just kind of give us an overview of what was going on within your customer base and kind of what led to that and if we should expect that to continue here in the near term.
Yes, you can work that as two ways that things were really bad in April, May and got better in June. Being better is what’s going to carry us forward or you can say the whole quarter was tough and we just really put on the efforts there in the last 30 days. If you timed that every 90 day time frame, we recorded the sales, the sales were there.
I would say that in this environment, certainly customers that are paying us dollars have sized. They understand how to play the game. We are not your basic enterprise software company that’s booking million of dollars in the last week of the quarter, but for us being traditionally a very linear business, it was a little more back ended and showed up in our cash flow ops and showed up in our DSOs.
Quite frankly, I think similar dynamic always happens in the September quarter, because of our database business and other businesses in Europe. Europe pretty much goes on vacation in August and consequently a lot more of that business will occur naturally in the September quarter. So we always have a little more pressure DSO wise and cash flow ops wise in the September quarter.
So I just want to point that out, because we will probably seasonally experience that anyway and I wouldn’t want it to be viewed as a reoccurrence if you will, in Q4 of the June quarter. So I’m not worried about it, and of course we’re watching it and we’ve given our guidance for the Q1 September timeframe and that guidance is as we have given for the last several quarters in a row. So we are not seeing anything that is systemically different about our business, going into the September quarter.
Your next question comes from the line of Brian Schwartz - Piper Jaffray.
Brian Schwartz - Piper Jaffray
This is Brian Schwartz for Murphy. John I just want to follow-up on the ChannelLinks acquisition here a little bit. I’m wondering if you could give us a little more information, possibly how may customers they have or if there’s a vertical concentration.
Then two other questions. I was interested; I had noticed that they had a cataloguing business too. I’m wondering if you had purchased that with the acquisition, and then is management from ChannelLinks, are they planning to join the Pervasive team over there.
Alright. So first of all, maybe I will go, it’s always easy to go in the reverse order and then my team can help me if I forgot your first. Management; so Steve Pridemore is President of ChannelLinks and has been onboard for a little over three years if I recall. He will head up the Greenville team with Pervasive, where they keep the whole thing intact.
The ownership of ChannelLinks, two of which were more involved in the business than the others, really are not active participants in the day-to-day operations. So they are mainly more passive investors than that. They will not be continuing on obviously as they’ve sold the assets. So, the people involved in the day-to-day operations from top to bottom are going to be a part of the Pervasive team, ChannelLinks team located in Greenville, South Carolina.
We did acquire the cataloguing business as part of the acquisition, but the WebDI business inside ChannelLinks is the primary business. Catalogue business was developed a number of years ago and there are a handful of customers who are actively using it and certainly generating revenue and we will continue to support them and continue on with that product line, but I’d say that as you can tell from the website too that the focus is on WebDI.
As far as the industry verticals, I mentioned oil and gas earlier, building supply has a little bit of concentration, given some of the ChannelLink’s heritage, but beyond that, we’d call it any particular vertical specialization. If we went to customers because of referenceability within a vertical, it would most likely be in their oil and gas business.
As far as customer numbers, there’s an 80-20 rule here, and actually not even in terms of percent. I mean the top 20 customers generate probably close to 80% of the revenue. A lot of those top 20 represent the hubs and in some of those cases the hubs are paying for and on behalf of their entire training partner network.
So the paying customers I guess, is probably in the 1000 range that includes a bunch of, it’s relatively a long tail of trading partners that pay $400 to a $1000 a year at the low end of that tail, but then I would say if you add up all the trading partners that are in the network that maybe paid for by the hub partners, the number would get up a couple of 1000 more than that.
Brian Schwartz – Piper Jaffray
Just following up now on the Pervasive business, and following up on Kevin’s questions, it was interesting to hear you guys make commentary that the quarter was more back-end loaded. I am just wondering again if there is additional color.
Was the business doing, any additional promotions or discounting or possibly a sound step budgets maybe loosened up a little bit in the last month and they were a little tied over. We are all just kind of sitting back here and trying to get a better understanding what the demand environment is out there right now for software. So any additional color would certainly be helpful.
Yes, I’ll tell you that, first of all, I mean, it would be dangerous to extrapolate what I say to the broad software market, but I will tell you what I see in our own business. The back ending relative to our norm happened both in the database business, with respect to the deals that we customarily transaction we customarily do in the database business beyond the normal month to month relative reporting out of our OEM partners.
So that deal volume that we customarily do every quarter, that was a little more back ended that it would normally be for June quarter, as well as the larger transaction part of the integration business.
I have asked the same questions that you just asked. I’ve asked them about my sales management and we don’t take the revenue guidance setting lightly. Here we are going into the September quarter and we’ve seen enough high flying and enough confidence in the sales guys and gals eyes to be happy with holding the guidance constant, and again going into the September quarter.
So, I take all of that to mean that while there is not enough data to probably say it a trend of negativity based on the back ending nor is a trend of optimism based on the ability to do what we did in June. We’ll have to see how the next several months unfold. Sorry it’s a long note answer, but trust me, I have got same questions and we are looking for all of the measures that would be indicative of the true answer.
Brian Schwartz – Piper Jaffray
And John may be leading into the guidance here. So it looks like for the next quarter here the revenue could be an up or down quarter depending on how the business flows and the quarter finishes. I know you are not guiding for the fiscal year, but is the internal plan that you are developing and presenting the Board, is the plan to grow the business on the top line for next year?
John E. Farr
The plan is absolutely to grow the integration business, to grow the DataRush business, to grow the Data Solutions business and to acquire and grow the ChannelLink’s business.
Now, I have to remind you that the database business in fiscal 2009 had a stellar year and we called out specifically a transaction back in the September quarter that was worth about 750,000. We called out specifically a transaction in the March quarter that was $3 million. Those transactions were given their size and their nature were relative and they were not more anomalistic inside of our database business and I don’t count on those kinds of things to recur.
So given, I don’t count on those kinds of things to recur than I am planning expenses rather around the probability that the database business would decrease slightly given the absence of those large kinds of compliance deals.
Now with that said, we do have other compliance deals in our pipeline. I just am not going to try to predict the timing and extent, the size or the timing of those kinds of transactions. They are just harder to predict and I’m not going to plan expenses around them.
Brian Schwartz – Piper Jaffray
That’s fair enough. Then just the one final question here is, it possible just to update us how much left is authorized for share buybacks?
I think that’s in the press release. It should be about $8.9 million; that in dollars.
Your next question comes from the line of William Wallis - Broadpoint.
Bryan Wallis - Broadpoint Capital
Thank you. This is Bryan Wallis for Brad Witt. I was wondering, most of my questions have been answered already, but in terms of the database and integration businesses, I noticed in the press release, they grew 13% and 8% respectively for the year. If you could just break those out on how they performed in the fourth quarter?
The June quarter compared to prior year June quarter. We came down; as you can see in the press release, we came down less than 1%. It’s like a 70K reduction in total and the integration business was slightly more in this June quarter than it was in the prior year June quarter and consequently the database business was slightly less.
By that I mean, maybe probably less than 100K growth in the integration business in the June quarter in what I would add is a completely different environment in the economy.
Bryan Wallis - Broadpoint Capital
Okay. Then just the other question I have is on the profitability. You mentioned that’s going to continue to be a strong emphasis of yours in fiscal 10, and assuming that the compliance deals in the pipeline where you’re not depending on those, is margin expansion going to be prohibitive, because of those large deals that we had in fiscal year ‘09 or do you think that’s going to still happen?
Certainly when we come around the next March quarter, it’s prohibitive. A $3 million transactions and the only cost associated was some incremental in the accelerator commissions.
So if you neutralize the whole year for that March quarter, I think that we can continue to at least maintain our margins in the other quarters, I am not saying that we are looking to expand our margins, we have pretty good margins as they are, and we have a number of very exciting things to invest in.
So I’m not trying to in this coming year expand our operating margins so much that my focus is on expanding our revenue, and investing in some really great opportunities that we have, but continue to maintain a profitable business. I have not seen anything that would cause me yet or have not seen anything that would cause me to invest so heavily in some of these futures that it would cause us to be anything but a profitable company.
There are no further questions at this time.
All right. Well, we thank you all for joining us today and have a great evening. Thanks.
This concludes today’s conference call, you may now disconnect.
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