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Bitstream Inc. (NASDAQ:BITS)

Q2 2009 Earnings Call

August 11, 2009 04:30 PM ET

Executives

Anna M. Chagnon - President and Chief Executive Officer

James P. Dore - Vice President and Chief Financial Officer

Operator

Good day, ladies and gentlemen and welcome to year Earnings Release Conference. At this time, all participants will be in a listen-only mode. But later, we will conduct a question and answer session which instructions will be given at that time. (Operator Instructions). And as a reminder, this conference call is being recorded for replay. And now it's my pleasure to announce your host Anna Chagnon.

Anna M. Chagnon

Hello and welcome to the Bitstream Inc second quarter 2009 conference call. I am Anna Chagnon, President and Chief Executive Officer of Bitstream.

James P. Dore

And I am James Dore, Bitstream's Vice President and Chief Financial Officer.

Anna M. Chagnon

We will begin this conference call with highlights for the quarter followed by a question and answer session. During this conference call, we may make forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 as amendment and Section 21E of the Securities Exchange Act of 1934 as amendment.

Investors are caused that forward-looking statements are inherently uncertain. Actual performance and results of operations may differ materially from those projected or suggested in the forward-looking statements due to certain risks and uncertainties including without limitations, market acceptance of the company's product, compensation and the timely introduction of new product.

Any forward-looking statements made during this conference call represents the company's judgment as of today and we caution listeners not to place undue reliance on such statements.

James P. Dore

A short time ago, we recorded our results for the second quarter of 2009 with the following financial highlight. Our cash position at June 30th 2009 was $17.67 million, an increase of 10,000 from the balance of $17.57 at March 31st 2009 and an increase of 905,000 from the balance of 16.162 million at December 31st 2008.

Second quarter revenue decreased 1.259 million or 19% to 5.249million for the quarter ended June 30th 2009as compared to 6.518 for the same period last year, but increased 248,000 or 5% sequentially as compared to the first quarter of 2009.

Results for the quarter were affected by global economic concerns and a decrease in consumer spending. On apparent size, revenue may vary quarter-to-quarter due to the timing of license agreements.

Cost of revenue as a percent of revenue for the quarter ended 30th 2009 was 41%, an increase of 3% from 38% for the same period last year, so a decrease of 2% from the first quarter of 2009.

Cost of licenses as a percentage of revenue increased year-over-year and decreased sequentially from the first quarter as our product mix fluctuated between products bearing various royalty rate.

Cost of services as a percentage revenue remained constant as compared to the prior year with half with cost held inline with decreased services revenue by the deployment of consulting personal onto research and development projects.

Our services infrastructure has remained relatively unchanged from second quarter of 2008. Our product lines continue to experience cyclicality, which may cause fluctuations in cost of revenue as a percent of revenue quarter-to-quarter.

Gross profit decreased 962,000 or 24% to 3.108 million for three months ended June 30th 2009 as compared to 4.70 million for the three months ended June 30th 2008.

Our cash income from operations decreased 434,000 or 55% to 358,000 for the three months ended June 30th 2009 as compared to 792,000 for the three months ended June 30th 2008.

Net income decreased 494,000 or 61% to 319,000 or $0.03 per diluted share for the three months ended June 30th 2009 as compared to net income of 813,000 or $0.08 per diluted share for the three months ended June 3oth 2008.

Our non-GAAP income from operations, not including the effect of stock based compensation expense, decreased 416,000 or 42% to 564,000 for the three months ended June 30th 2009 and compared to 980,000 for the three months ended June 30th 2008

Net income decreased 476,000 or 48% to 525,000 or $0.05 per diluted for the three months ended June 30th 2009 as compared to netincome of $1,001,000 million or $0.10 per diluted share for the three months ended June 30, 2008.

Anna M. Chagnon

Although revenue remained down compared to 2008, we did see increases in revenue compared to first quarter and a return to profitability during the second quarter. We also had some deals delayed at the end of the second quarter that was close to early July, giving us very strong start to the third quarter.

During the second quarter, we closed new long-term deals for OEM font technology that will increase our revenue in 2010 as products begin to shift, the overall long-term arrangements in which our technology is embedded into the hardware or software of out top tier manufacturer. Once to point in early 2010, the revenue from these placements is expected to grow as shipments increase. We are excited to see resurgence for deals for this part of our business that will position us well for future growth.

On the e-commerce front, we are continuing to see a record number of new users per month. So far in 2009, our average number new users per month is approximately 20,000. About 95% of MyFonts orders come through our new site, which was released at the beginning of 2009. We see this is a vote of confidence for our new site design.

We continue to maintain our large user base and will tend our new quarters to over 600,000 users as obtained to receive this information.

For Pageflex, we increased our market focus and continued our expansion into direct corporate market. One indication of our inroads into this market was the closure of the loan software place in the insurance industry during the second quarter. We also made our first page with sale into China. These recent successes point to be opportunities for future revenue growth in the new emerging markets.

Although, we have seen some very long approval cycles from customers, we are working with a very asset pipeline of qualified accounts for the volume process from us to fuel the future of their business.

At the very end of the second quarter, we also released the side of our ability in design based product line. We believe that this product line will further grow our business and appeal to users with heavy in design base workflow. This release represents the combination of the three year long partnership estimate between Pageflex and our ability. The in design based products have been very well received and we expect to see some significant sales in the months ahead to go fluid into the same customer.

Of most exciting developments have been with our new Bolt browsing technology. We are now serving between 1.4 and 1.5 million pages everyday. We have over 1.5 million in sold of our software which is growing by over 50% since the release of Data 3 at end of June.

We have also served over 124 million pages since our data released. We have received many positive of press comments on the latest technology. On June 30, 2009, Wap Review statedboth statuses three is now serious challenge to offer many right now and the new support from Cyrillic force through will target each in Europe and offer strong hold.

On July 28, term loan lease stated also seeing a steady stream of growth in a 100 million pages in six months is on fire. Offer has been around a lot longer and trended more, but that isn't the point. Both is fresh, new and fast. Whereas, we often only get one chance of success and offer sales to render GoMo News the first five times, were both nailed between the first to 10.

Our both development team is working on finalizing the first release of the profit this fall. As part of that release, we will have the ability to modify the value of the user base and we hope to make some announcements about some of the new relationships we are working on in the near future.

In addition, we are working hard on securing some long-term deals for both annually basis. Given the sensitive nature of these deals, announcements will take some time and will probably not be official until after the release of version one Bolt later this year, and or the offering by the OEM after that.

We also have the both library SGK for enabling web access and third party application. Potential customers or anyone that does a cell phone J2ME application and who wants to allow the user to see web content within their application without leaving it. This product will develop through from mobile application developer.

As many of you know, the lease for a turnoff is in Cambridge, Massachusetts expires at the end of this month and we will locate our offices to the Marlborough Technology Park in Marlborough, Massachusetts. We believe this move will be very beneficial to the company. It will allow us to better attract qualified research and development personnel, as new price technology software companies are located outside the city. The lease way starts at $80 per square feet as compared to our current lease rate of $30 a square feet. This has allowed us expand our say significantly without increasing our cash outflow, giving us the needed space to grow our team especially with the necessary expansion of our team supporting the Bolt process and technology (ph).

We also projected the micro CAS technology (ph) event in June and received very positive feedback and increased interest in the stock. We will be continuing to move ahead with other industry event as well as improving our Investor Relations program overall.

Thank you for your continued support. We are now happy to answer your questions you may have.

Question-and-Answer Session

Operator

(Operator Instructions). And it looks like we just have one question coming from George Gavi (ph), please go ahead sir.

Unidentified Analyst

Yeah. Hi Anna, how are you?

Anna Chagnon

Good. How are you George?

Unidentified Analyst

Fine. Six months ago, you mentioned that as far as the border or a technology that there would something very soon in your message to analyst. Three months ago, you said that there would be within three to six months should have an announcement. Now today, you are saying very soon again, but even hedging that saying that there won't be any announcements in the near-term level, what is it on this thing? I can't quite figure it out.

Anna Chagnon

WellI think just to clarify, I didn't say there was going to be no announcements in the near term. I said we are working on those announcements now. The types of announcements that may come first are the types of announcements about relationships that help us monetize the current user base. And any deployment we'veexampled with OEM may come behind those because those are deals where the OEMs want to not leave that they're our technology until they are actually ready to release. So, I think what we see along has been consistent. We're working very diligently on those relationships that we need to get them solidified to move ahead.

Unidentified Analyst

Are you saying Anna that there are things that are signed or you just cannot report right now?

Anna Chagnon

There are things in process that we're working on and some are in the contractual phase, but that's all I can say.

Unidentified Analyst

You can't give a timeframe on that?

Anna Chagnon

No, again George it really depends on when a joint announcement is agreed to. What we're saying right now is that a number people don't want to talk probably and so we -- because they want to know that our software has been officially released and our timeframe from coming out of data is in the fall. So, we're very active with the -- most active we've ever been with this product and the relationships are happening. It's just a question of when the announcements will happen.

Operator

(Operator Instructions). And our next question comes from William Barn (ph).

Unidentified Analyst

Hey Anna, how are you?

Anna Chagnon

good and how are you Bill?

Unidentified Analyst

Good. Can you just walk through what the ideal carrier customer looks like for you? Who were you talking to the type of carriers?

Anna Chagnon

Any carrier is ideal for us.

Unidentified Analyst

It's not more emerging markets focused or that kind of bifurcation?

Anna Chagnon

It really -- it's not a situation where there is a core ideal carrier out there for us. I think we try to make the technology ambiguous and works on all types of phones. So for us, really any relationship is important. We have been appealing to the emerging markets that are out there and partly trya lot of the emerging market user phone and to so forthof browsing. For example, give you some quick statistics on that front. So for example, one in five of our users are based in India.

We have users, significant user base in Indonesia. We have a significant user base and a growing user base in a number of African countries. So, those types of statistics tell us with our free user base anyway that we're having in lot of success in those emerging markets and that's where our carrier plays probably the strongest player. The users are going to go whenever the carrier puts up there and because we work in those markets and because we have been very heavily adopted by the free user base because it's a right off going forward.

Operator

(Operator Instructions). And we have another question coming from William Martin (ph).

Unidentified Analyst

And I was just curious if you could talk about what you're doing to defend that intellectual property and some of the opportunities there?

Anna Chagnon

Well a part of your question was not completely heard, is the full question what are we going to protect our intellectual property for both?

Unidentified Analyst

Yeah. Given that you have four sheet patents and I noticed the browser on the PalmTree has kind of reflects the approach to browsing and laundering, just curious how you're approaching in the intellectual property portfolio there?

Anna Chagnon

Well basically we as with all of our products, we filed for patents, we have a number of patents that has been granted to our company overall, we have a number of patents that are in the pending phase or in the applied for and waiting for response phase.

Soas we have patentable invention, we go ahead and patent them. In terms of our stance on what we'll do for enforcement going forward at this point, these are defensive patents and offensive patents in our mind and our focus is on getting the technology out there that we have created rather than going defensibly after others who are crating technology. But of course patent that gives us a lot of option.

Operator

One more questions. Our next question comes from Rick Crumbly (ph).

Unidentified Analyst

Anna how you're doing?

Anna Chagnon

Good and how are you?

Unidentified Analyst

I'm just PG (ph), thanks. Kind of follow-up on the question I kind of posed earlier and you may have touched on that and I may have missed it, I noticed there has been kind of a newer investor that over the last year or so has been quite some of your stock and just curious to what if anybody has ever met with Mr. Stedman? And if what his intents are since he probably has-- was that the 20% of your outstanding stock at the moment?

James Dore

No, I checked he was closer to the 17%, that something like that yes.

Unidentified Analyst

Does anybody have any ongoing conversations with them? Is he a passive investor? This is kind of now his -- doesn't seem be his MRO being out of the real estate business, just curious how you came upon your stock and if he's close and friendly to your company?

Anna Chagnon

Basically, we've know Trent for several years. We talk to him very regularly, we have for that entire time. We consider them to be a friendly investor to our company.

Unidentified Analyst

and there is any investor who did attend our annual meeting, our last annual meeting we have seen the few investors there, talked with investors at time as well including Trent.

Operator

Next question from George Gavi (ph).

Unidentified Analyst

Anna I didn't quite understand what do you have coming out in the fall that so much henge's on?

Anna Chagnon

The actual release of the software George, right now both is data product, released Data 3 at the end of June. So we have to of course to live with it as the fully released version of the product and that we're expecting to happen in the fall.

Unidentified Analyst

I see. And that's when you except things to happen?

Anna Chagnon

Well no, things are happening now, George it's just that we expect that we will have announcements once we release the product, because again people want to see there is a released product before we do any announcements.

Unidentified Analyst

I see. Thank you.

Operator

Thank you. (Operator Instructions). One final question from Mr. William Barn (ph).

Unidentified Analyst

Hey Anna just one more question. Just regarding your spend on marketing, I noticed that that was down quarter-over-quarter and year-over-year. You have obviously a lot of great products moving forward here, where are those calls coming out and how can we be talking if that you're not cutting in the bone?

James Dore

Hi,Jim Dore. The decrease in Q2 and six months, last year during our Q2 we did pay it throughput which is a large show every full year in Europe and we currently in 2008 approximately $200,000. So, we did not have that show this year. We are doing other shows and we also did last year. So, the overall the expense for the trade show have gone down. For the first six months, the expense will be closer to what it was last year for the next six months.

We also had a decrease in salaries and commissions with a decrease in revenue and that will just be going on, fluctuating with whatever our commission plans are and the revenue that we're generating.

Anna Chagnon

So basically there is no pull back on marketing expense on our behalf. Its just the question of the cyclicality of some of the shows we do are not ending more shows and when they appear our significant and they affect one year's results or one quarter's results.

Operator

Ladies and gentlemen for your questions and comments, it seems our question and answer session has concluded. Anna, do you any closing comments or remarks you would like to make?

Anna Chagnon

So just again, thank your for interest. We of course will let you know as things happen and progress and we look forward to speaking with you soon.

Operator

Thank you, ladies and gentlemen for your participation and thank you for joining for today's teleconference. You may now disconnect and have a great day.

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