Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message| ()  

Executives

Jochen Witte - CEO

Jerry Wong - CFO

Analysts

Jack Ripstein - Potrero Capital Research

Manoj Nadkarni - Chip Investor Group

Marcel Herbst - Herbst Capital Management

Versant Corp. (VSNT) F3Q09 (Qtr End 07/31/09) Earnings Call August 25, 2009 4:30 PM ET

Operator

Welcome to the Versant Corporation third quarter 2009 conference call. During today's presentation, all parties will be in a listen-only mode. (Operator Instructions). As a reminder, this conference is being recorded on Tuesday, 25 of August, 2009.

I will now turn the conference over to CEO Jochen Witte, CEO of Versant. Please go ahead.

Jochen Witte

Good afternoon. My name is Jochen Witte, CEO of Versant Corporation. Welcome to our Q3 earnings call. With me here today is our CFO, Jerry Wong. We will commence today's proceeding with Jerry reading the Safe Harbor provision.

Jerry Wong

Good afternoon. This press release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, and is subject to the Safe Harbor created by those sections. These forward-looking statements include the statements in this release that changes in Versant's financial results for the quarter ended July 31, 2009 over the quarter ended April 30, 2009, may possibly indicate some improvement in the software market.

Investors are cautioned that any such forward-looking statements are not guarantees of Versant's future performance or other matters, and involve significant risks and uncertainties. There are many important factors and risks that could cause our actual results to differ materially from those anticipated in the forward-looking statements.

These factors, risks and uncertainties include without limitation, the impact of the ongoing downturn in the global economy, which may reduce our customers’ revenues, profits and cash reserves, and thus dissuade them from making strategic capital purchase decisions for our products and services; our inability to achieve revenue expectations or projected net income levels as a result of the foregoing factors, delays in the sales cycles for our products and services or failures to close key sales transactions; changing market demands or perceptions of our products and technologies; failure to develop new customers; the fact that our results of operations are highly dependent on sales of our Versant Object Database product; the performance of our resellers; the possibility that existing value added resellers may not remain committed to our software or that their sales activity may not keep pace with their historical results; the timing of larger customer transactions, which may tend to result in significant variations in quarterly revenues and operating results; potential reductions in the prices we charge for our products and services due to competitive conditions or the general economic downturn; changes in currency exchange rates; the Company’s ability to successfully manage its costs and operations, any failure of our efforts to capitalize on, or successfully integrate, the recently acquired db4o database business or to ultimately make that business profitable; and the capabilities of our recently appointed Vice President of Sales of North America.

The forward-looking statements contained in this press release are only made as of the date of this press release, and the Company assumes no obligation to publicly update any forward-looking statement. Investors are cautioned not to place undue reliance on forward-looking statements. Additional information concerning factors that could cause results to differ can be found in the Company’s filings with the Securities and Exchange Commission, including without limitation the Company’s most recent Annual Report on Form 10-K for the fiscal year ended October 31, 2008, its reports on Form 10-Q and its reports on Form 8-K.

Now I will turn it back to the Jochen.

Jochen Witte

I would like to begin our discussion by reading to you the major contents of today's earnings release. For the quarter, Versant reported revenues of $4.4 million from its continuing operations, compared to $6.3 million for the same quarter of last fiscal year. The 30% decrease in revenues for the quarter is compared to the same quarter of last fiscal year was primarily attributable to 49% decrease in license revenues in the quarter relative to the same period in the prior fiscal year.

Additionally, the increase in the dollar-euro exchange rate, during the quarter, contributed to approximately 6% of the decrease in revenues for the quarter ended July 31, 2009 over the same period last year.

In the quarter ended July 31, 2009, there were fewer license transactions and no customer accounted for more than 10% of total revenues in the quarter, whereas two customers contributed approximately 33% of total revenues in the quarter ended July 31, 2008.

Net income for the quarter was $0.9 million, and diluted net income per share was $0.25 compared net income of $2.7 million, and diluted net income per share of $0.70 for the third quarter of fiscal 2008.

Versant's cash and cash equivalent balance remained unchanged from the second fiscal quarter ended April 30, 2009 at 26.8 million. Since the announcement of our stock repurchase program in December 2008, under which the company is authorized to repurchase up to $5 million worth of its outstanding common shares, Versant has acquired 206,377 of its common shares in the open market for a total price of approximately $3 million on average purchase price of $14.47 per share, leaving a balance of approximately $2 million in funds available for future repurchases of stock under this program until its expiration on October 31, 2009.

In the current quarter, we have witnessed an increase of approximately 12% in revenues, and 19% in diluted net income per share when compared to the prior quarter. We view this as a possible signal of stabilization, although the software market certainly remains very difficult.

This concludes the reading of our press release. Let me now give you a few details on the business and then Jerry will provide some additional data on the financial.

In this quarter, we have seen increased revenues and income compared to the prior quarter. Our new sales team in the US is in place and fully functional. We are seeing growing interest from the db4o community for our VOD product offerings. We feel that Versant is putting the necessary pieces into place to benefit from this interest, and we should be well positioned particularly when the economic recovery occurs.

Versant has continued its software purchase program during Q3 by acquiring an additional 48,000 shares, bringing the number of shares repurchased under this program to a total of 206,000 shares or approximately 5% of our shares outstanding when we announced the repurchased program in December 2008.

The company plans to continue its stock repurchase program under which it is authorized to repurchase up to $5 million worth of its outstanding common shares from time to time on the open market and block trades or otherwise.

Now, let me turn it over to Jerry who will provide us with some more basic details on the financial data.

Jerry Wong

Versant's statement of operations in the third quarter reflect a net income margin of 20%, consistent with our second quarter but down from last year's net income margin due to weaker top-line. Our DSOs for trade accounts receivables remained essentially unchanged from the prior quarter at 55 days. Our allowance for doubtful accounts remained at a de minimis amount of $8000 at July 31, 2009.

The company's overall cash position is essentially unchanged from the prior quarter at $26.8 million as of July 31, 2009, and is it slightly lower than the balance of $27.2 million at fiscal year-end 2008. Larger expenditures made by Versant since fiscal year-end 2008 include the acquisition of db4o for approximately $2.4 million and stock repurchased expenditures amounting to $3 million.

The distribution of revenues in our third quarter was as follows. European customers generated $2.7 million or approximately 64% of total revenues, US customers generated $1.6 million or approximately 35% of total revenues, and Asia-Pacific customers generated $0.1 million or approximately 1% of revenues.

As of July 31, 2009, Versant had a total of 84 employees, of which 18 were employed in the United States, 37 in Europe and 29 in India.

The total non-cash stock-based compensation expense in accordance with FAS 123(R) was 263,000 for the three months ended July 31, 2009.

Our consolidated income statement for our third quarter 2009 reflects a 24,000 net expense for interest and other income expense. This net expense was created by certain transactions in our European operations, in which the currency exchanged between the parties was in US dollars, and with the relative strengthening of the Euro against the US dollar from the billing date of the sales invoices to the date of collection of the proceeds, create a currency exchange loss of approximately $66,000 in the quarter. This exchange rate loss was only partially compensated by interest income of approximately $42,000.

Versant recorded income tax expense of $61,000 for the three months ended July 31, 2009 due primarily through German tax code limitation related to utilization of our German net operating loss carried forward against taxable income earned in 2009.

Thank you for your attention. We would now like to open up this call for any questions.

Question-and-Answer Session

Operator

(Operator Instructions). Our first question is from the line of [Lily Lu with CGI Capital]. Please go ahead.

Lily Lu - CGI Capital

I was wondering you didn't mention anything about the guidance for the full year. I guess last call or a couple of calls ago revenue was expected to be $17 million to $19 million for the year with $14 million completed in the first three quarters. Is $3 million to $5 million range for the fourth quarter your expectation? It sounded as if you were guardedly optimistic that certain things were picking up, US pipeline strengthening, possible VOD contracts from the db4o pipeline, so does that translate into a slightly higher guidance for the year or how do you see that?

Jochen Witte

If we look at our Q4 outlook, we kind of feel that it would still put us within the range of the guidance, not necessarily within the arithmetic middle of the guidance, but still within the range of the guidance. Therefore, we saw no need to update the guidance.

Lily Lu - CGI Capital

Okay. Specifically, do you expect contribution in the fourth quarter in terms of db4o pipeline interest signing on to VOD licenses or services? Is that pipeline something close at hand?

Jochen Witte

We do have people evaluating VOD that have come through the db4o channel, let me say. I do not know if that will close in time for Q4, because some times these sales cycles can be relatively lengthy, so I wouldn't want to forecast it. I also don't think that this component alone will be too material. However, in general, it is true that we have customers, VOD prospect, evaluating our technology that come out of db4o and we are quite happy with kind of the way it's coming together.

Lily Lu - CGI Capital

All right, and so the third quarter of $4.4 million revenue, that's primarily our existing core base of customers basically, and [IVR] channel partners basically ordering more sequentially than the second quarter. That doesn't really include materially new clients. Is that a good way to see it?

Jochen Witte

Yes. The vast majority of that revenue comes from our existing ISV channel partners, and there is only a very small portion of revenue coming from completely new accounts.

Lily Lu - CGI Capital

The last thing is from the operating cash flow. So, with the cash balance basically unchanged from April 30, but the $3 million spent on buyback in the quarter, I guess the operating cash flow was very strongly positive in the quarter. Can we get an exact number on that?

Jerry Wong

Well, we didn't purchase all of the common stock in Q3. We have purchased 3 million really through the first nine months of the year. Basically, with the amount of stock buybacks that we did in Q3 what’s approximated about $700,000 and if one takes a look at our bottom-line on the statements of income, they are fairly close. So, in other words, the net income number pretty much matched up with the non-operating spending related to the stock buybacks.

Lily Lu - CGI Capital

Okay. Okay. I'm sorry. I thought that $3 million was in those quarter alone, I didn't catch that it was year-to-date.

Jerry Wong

Yes.

Operator

Our next question is from the line of Jack Ripstein with Potrero Capital Research. Please go ahead.

Jack Ripstein - Potrero Capital Research

Hi. Can you talk a little bit about linearity in the quarter in terms of sales, was there anything unusual and it sounds like from the press release you are feeling, a little more confident than say you were in Q1. Is there any change in state linearity? How sales are shaping up in this quarter?

Jochen Witte

What I think the linearity is typical I would say for a software company that does a large portion of its revenue with licenses, especially in difficult economic times. I mean by that I mean that a lot of the license revenue comes in the last month, and it just happens to be that way. Obviously, maintenance revenue is evenly spread basically but license revenue you would typically see a majority of the license revenues to coming in the last months of the quarter.

Jack Ripstein - Potrero Capital Research

It is up and fairly typical as we've progressed into this current quarter, I mean if you look at your pipeline how it's kind of maturing.

Jochen Witte

Yeah, I would say so.

Jack Ripstein - Potrero Capital Research

Okay. Great, thank you.

Jochen Witte

Sure.

Operator

Next is a question from the line of Manoj Nadkarni with Chip Investor Group. Please go ahead.

Manoj Nadkarni - Chip Investor Group

Hi. Congratulations on sequential improvement in sales and earnings.

Jerry Wong

Thanks.

Manoj Nadkarni - Chip Investor Group

Is it possible for you to give some color on revenue across different end markets like telecom, defense and other markets?

Jochen Witte

Yes. We can give you a broad outline; it wasn't really very different this quarter from a typical quarter. Our biggest segment typically is Telco, and we had some decent revenues out of the Telco sector. Another important one would be defense; we also saw revenues from the defense base. Our biggest customer in this quarter it was below 10% but our biggest customer was basically Utilities Company. So it was in this quarter our biggest customer was not out of our typical target segment.

So if you look at it in general you would expect over the year and the biggest revenue contribution in total comes from the Telco space. Second, these things varies a little bit. Some times it's defense and some times it's other sector.

Manoj Nadkarni - Chip Investor Group

Okay. Secondly, can you comment on what you expect for licensing revenues for the next six months either qualitatively or quantitatively if you can comment?

Jochen Witte

Well, quantitatively, we do not give that information. We have given annual guidance, which currently stands at $17 million to $19 million. That guidance was issued in April I believe. In general, we hope that license revenues would slowly begin to pick up. I mean, that's what we've seen in Q3. We hope this will continue to be the case. Beyond that, like I said, with a lot of revenues being in the last month, it remains to be seen, but we are, let's say, cautiously optimistic, I would say.

Operator

(Operator Instructions). Our next question is from the line of Marcel Herbst with Herbst Capital Management. Please go ahead.

Marcel Herbst - Herbst Capital Management

Most of my questions were answered, but, the one last. I did watch some of your videos on your website. A few new technologies were kind of mentioned, such as cloud computing and LTE. How far is your product demand influenced by the market embracing these next generation technologies?

Jochen Witte

That's a good question. I would think that it's to a certain extent a little bit [foregone] now to those markets. I mean, you can use our technology, whether it's in the cloud environment and or basically in a non-cloud environment. It doesn't really matter. I don't think we can expect significant uptick, I would say, from these technologies, but they also don't mean a threat to us. I think they are basically, these at least the two you mentioned are kind of [foregone] I would say in to our sales.

Operator

Our next question is from (inaudible) with B. Riley. Please go ahead,

Unidentified Analyst

Just a real quick question. On your maintenances, you have managed to keep that pretty level during the year, as your license revenue has diminished. How long before the diminished revenues in the licensing area have an impact into maintenance?

Jerry Wong

Well, I wouldn't think really that that the influence is too strong there. I mean, obviously, maintenance is being paid on licenses are deployed, but, in typical, it's accumulative, right? So I mean even if the customer sells fewer new licenses in the quarter, it still adds to the pool of licenses under maintenance.

This has obviously sometimes been compensated by, let's say, some customers maybe not renewing maintenance or we have some special maintenance options for obsolete software and hardware where customers move to newer versions and don't have to pay obsolescence maintenance. In general, I mean, you could expect that any additional license being sold in the quarter would potential trigger new maintenance revenues.

Unidentified Analyst

Your sales and marketing expense, I would imagine that's increased due to the db4o transaction?

Jochen Witte

Yes. Well, it is partially db4o, but we have ramped up our sales team in the US and as you may recall, we hired a VP of Sales North America who came on Board, I believe it was in March and then we ramped up our sales team by two additional people there in the US I believe beginning of May. So these three additional headcounts have certainly increased our sales and marketing expenses, plus to a certain extent db4o as well.

Unidentified Analyst

Is there any room to cut in the G&A or are you pretty well down to the bone?

Jochen Witte

No. I think we are more or less down to the bone.

Operator

(Operator Instructions). There do not appear to be any further questions at this time. Gentleman, please continue with any closing commentary you may have.

Jochen Witte

Thank you everyone. Thanks for your interest and support of Versant. I am looking forward to speaking with you again at our next quarters' conference call.

Operator

All right. Thank you. Ladies and gentlemen, this does conclude the Versant Corporation third quarter 2009 conference call. We thank you very much for your participation. You may now disconnect. Have a pleasant rest of your day.

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

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

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

Source: Versant Corp. F3Q09 (Qtr End 07/31/09) Earnings Call Transcript
This Transcript
All Transcripts