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GlobalSCAPE, Inc. (NYSEMKT:GSB)

Q2 2013 Earnings Conference Call

August 07, 2013 04:30 p.m. ET

Executives

Craig Robinson – President & CEO

James Albrecht – CFO

Analysts

Greg Newman – Newman Agency

Lewis Medina

Operator

Good afternoon. My name is Sheila and I will be your conference operator today. At this time, I would like to welcome everyone to the Second Quarter Earnings 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)

I would now like to turn the call over to your host, Mr. Jim Albrecht. GlobalSCAPE’s Chief Financial Officer, sir, you may begin.

James Albrecht

Thank you, operator. Good afternoon and thank you for joining our earnings call today. With me this afternoon is Craig Robinson, GlobalSCAPE’s President and Chief Executive Officer.

Before we begin, just a reminder that today’s call including the question-and-answer session might include forward-looking statements regarding expected revenue, earnings per share, future plans, opportunities, and expectations of the company. These estimates and plans and other forward-looking statements involve known and unknown risks and uncertainties that may cause actual results to differ materially from those expressed or implied on this call. These risks are detailed in our latest 10-K filed with the Securities and Exchange Commission on March 28, 2013, and in other statements made by the company. The statements made during this conference call are based upon information known to GlobalSCAPE as of the date and time of this call. GlobalSCAPE assumes no obligation to update the information we present in this call. With those Safe Harbor statements presented, I will move to summarizing our latest financial results.

We are pleased to report Q2 ‘13 up $5.9 million, which is a 4% increase over Q2 ‘12 revenue of $5.7 million. We are further pleased to report that our revenue for the six months ended June 30, 2013 of $11.8 million with 6% increase over our revenue of $11.1 million for the comparable six months period in 2012.

We believe our preferred revenue which results primarily from advanced bookings of maintenance and support services to be provided in the future is a key indicator of our potential future revenue trends. We obtained the bookings when we sell software licenses to our customers which is an indicator of their front end commitment to our product and as renewals of the existing maintenance support agreement which is an indicator of our customers ongoing confidence and satisfaction with our solutions and services based on their personal experience.

In particular we are pleased that during Q2, the US army exercised year one of a two-year option for our maintenance and support services for previously purchased software used in the standard army maintenance system enhance logistics program. These services will yield $1.45 million of revenue over the next 12 months.

Due to satisfied customers especially with the army, our deferred revenue increased to $11 million at June 30, 2013 as compared to $9.8 million at December 31, 2012 and $8 million at June 30, 2012. Our net income for Q2, '13 was $381,000 or $0.02 per share which is a notable improvement compared to our net loss of $140,000 or $0.01 per share in Q2,'12.

Likewise, we achieved net income for the six months ended June 30, 2013 of $898,000 or $0.05 per share as compared to net loss of $393,000 or $0.02 per share for the comparable six months period in 2012. Our adjusted EBITDA excluding infrequent items is also trending in a positive direction.

For Q2, '13, it was $997,000 compared to $478,000 for Q2, ’12 and for the six months ended June 30, 2013 was $2.2 million compared to $658,000 for the comparable six months period in 2012.

We are pleased with these financial results and the continued strength of our financial position. They provide a solid foundation upon which to build for the remainder of the year.

I will now turn the call over to Craig Robin.

Craig Robinson

Thank you, Jim. Good afternoon everyone and thank you for joining the call today. As Jim mentioned we have delivered results to underline our continued profitability and position us for further growth. We have emphasized increase earnings to the primary business objectives for 2013 and are pleased with our performances in area during the first half of the year.

Our earnings to the first six months of 2013 are the second highest in our corporate history. They were exceeded only during the same period in 2007 which included an exceptional multi-million dollar sale of software licenses to the US army. This earning performance demonstrates the bank profitability and puts us in a strong position for the remainder of the year. Our revenue during the quarter also stands out as the second highest Q2 in our history with that same part of army order yielding of only previous second quarter entire revenue.

I believe we are well positioned to build upon these results with faster revenue growth during the remainder of 2013. As Jim stated in his remark our deferred revenue has increased by approximately $3million compared to a year ago, an increase of more than 35%. This substantial increase in deferred revenue reflects ongoing customer satisfaction with our solutions. This customer satisfaction is a necessary ingredient for sustaining and increasing our revenue growth to the benefit of our shareholders.

Our enhanced file transfer solution continues to power the business representing almost 80% of total revenue in the second quarter and with (inaudible) accounting for most of our revenue growth during this period. We are committed to continually involving and enhancing the EFT platform as demonstrated by the release earlier this year of the EFT 2013 with integration of our Mail Express solution and our subsequent announcement of big data connector for EFT in the second quarter.

CuteFTP also has performed well in the market to release version 9 last November. I am often asked about asset, but specifically about financial results from our OEM relationship with Seagate given their announcement and release of Seagate Central with Tappln integration in the first quarter.

As we have mentioned on prior calls, revenues from Seagate shipment initially goes into deferred revenue and factors into revenue for us over a three year period where the early stages of this process and profit is not yet a material contributor to our revenue.

Along those lines, we also ask about Seagate production volume and other Seagate related plan. Seagate is a public company that is responsible for managing any board with stations regarding their operation. Although we understand our investor in our business areas we appreciate Seagate position on this topic and recommend any questions about Seagate operations and plans be more appropriately directed to Seagate.

In addition to Seagate, we have other CAP and OEM relationship at varying stages in the business development pipeline and also are working on other non OEM sales including through our online card. Overall, we have a relatively broad portfolio for company of our size at many potential points of market leverage. We are working these as part of our manage growth strategy which balances revenue and earnings growth with highly focused expert management building response foundation we have built through the first half of 2013.

I am pleased with our sustained profitability through Q2 and optimistic about our growth prospect and how increased revenues might have played into additional earning given our current profitability. I will look forward to providing updates on future calls.

At this point I will turn the call back over to Jim to start our question and answer session.

James Albrecht

Thank you, Craig. We filed our Form 10-Q for the second quarter shortly before this call began. That report we will provide you a comprehensive look at the financial results we just reviewed as well a discussion of the various elements of our business.

We are now pleased to take your questions, so operator, please open the call for questions and answers.

Question-and-Answer Session

Operator

Thank you, sir. Ladies and gentlemen, at this time we will begin the question and answer session. (Operator Instructions) And our first question comes from the line of Greg Newman with the Newman Agency, please go ahead.

Greg Newman – Newman Agency

Thank you. Hi Jim, hi, Craig, congratulations. First question although most shareholders would have to agree the direction of solid, we were having a hard time understanding or others outside they will know about it and how do you change that?

James Albrecht

Well, Greg, great question. I think as a micro cap company that this is the common issue. I think largely that changing that on driving further growth that's growth in term of earnings and also revenue and I think that there is also a revenue take care also. So you definitely see further focus there.

Greg Newman – Newman Agency

All right. And following on that, we know that our former CEO was happy with how GlobalSCAPE was trading on MX, but the typical volume is much heavy on NASDAQ at global market then MX and seem very close to meet the shareholder equity requirement which is 15 million, I think, I have close to 30.5 million equity right now, could you give us your thought on all that?

Craig Robinson

Well, the other thing that I would comment on that is NASDAQ has multiple listing requirements. And so, that's really not something we would choose to do. That's something we would be able to do. So, we don't qualify as you have mentioned today.

Greg Newman – Newman Agency

Okay.

James Albrecht

Greg, this is Jim. Just to build upon that, we do keep a steady eye on that. We talked to both the New York Exchange as well as occasionally NASDAQ they certainly say, NASDAQ certainly would like to have us as part of their exchange and they are keeping an eye on us as well. And when the time is right, we certainly will give that a due consideration.

Greg Newman – Newman Agency

Thank you. I appreciate to know that.

Operator

(Operator Instructions) And our next question comes from the line of Lewis Medina, please go ahead.

Lewis Medina

Yeah, thank you for letting me ask a question here. I wonder if you can address the software license revenue even though you have, I think, you told us that the revenue is sort of a record for the second quarter. But nonetheless, we saw decrease in the software license revenue and I am wondering if you can give us more color on that?

Craig Robinson

Sure. Thanks Lewis. The license revenue dropped in the first six months and I think that license revenue one more time really goes back to a marketing push. So, I think that turning that story into marketing and to stay tuned there, but again the key factor is that the overall revenue grew.

Lewis Medina

Okay. And just another question, we did see an increase also in R&D. I am wondering if you can give us some more color on that and what you are focusing on, where that money is going?

James Albrecht

Sure. This is Jim. Another good question and we are always looking to develop and improve our products to stay abreast of a competitive market place. Fortunately, we are able to do that by keeping our R&D spend at a level commensurate with a company of our size, with the level of revenue that we generate, all allow keeping our eye on the need to remain profitable and have positive earnings per share for our shareholders.

So, we emphasize development of all of our product lines whether it would be EFT product line, our Mail Express product line, Tappln and many others and we find that our spending level is very effective and efficient relative to our size and relative to our need and our ability to keep up with the market place and not only keep up, but stay ahead in the market.

Lewis Medina

Okay. If I may ask another question regarding the other revenue I guess we were kind of expecting an increase in that from tax and revenue and we actually saw decrease in that revenue as well from the first quarter and I am wondering again if you can address that?

James Albrecht

From a product line advantage point other revenue includes various items. The last year included in that other revenue while there were some non-recurring engineering item and Lewis I think that is the overall change.

Lewis Medina

Okay. Thank you.

James Albrecht

You are welcome.

Operator

Thank you. And our next question comes from the line of Greg Newman with the Newman Agency.

Greg Newman – Newman Agency

Hi again, I know this you are hiring a senior marketing manager for Tappln responsible for all types of things related to Tappln including the website, their content, the pages, purchasing promotions, everything that kind of do with that trails and conversions, you know, from a marketing point of view with the search engine optimization, the new director or this position manager that he would have some real expertise to share, radically improve the website, its visibility and different search engines, you know, along with that it would be pleasing to know he was somewhat of an expert in outside media, besides own line but outdoor advertising been big on looking into three months, six months, Billboard campaigns, like the Los Angeles market with $14 million adults over 18 and another 10 million from 12 to 18, that was Chicago and Atlanta, and you could something like that for three months for about 50,000 well placed sign so…?

James Albrecht

Greg, this is Jim, those are all great thoughts and some and others we thought about is there a question that we can answer for you?

Greg Newman – Newman Agency

Well, if you are looking at that and why not consider that in – it seems like 50,000 or 70,000 that could draw in a lot of business as well as salesman salary, I guess something you would have to take a look at, but well placed Tappln and CuteFTP or whatever would be a sign coast to coast in that case, Atlanta on one side, LA on the other and Chicago in the middle also three huge markets and the cost is only to three to five thousand for a month depending on location. I just, maybe I look at that or priced it or had anything on your desk to analysis about that?

James Albrecht

Greg, the cap end marketing person has not been hired yet, but I think that we would agree that Tappln marketing presence has certainly improved and you would visit our site. I mean, it's a much larger topic to really go into the ins and outs of media ad and absolute physical ads. So, I will pass on that today, but I’ll say that we always look at various ways of marketing that we don’t roll in any items or roll one out any either.

Operator

Thank you. Mr. Albrecht, there are no further questions at this time.

James Albrecht

Well thanks to everybody for joining in the call. We are pleased with the success that we have enjoyed during 2013 and we look forward to continue in that track during the remainder of the year and visiting with you again at the end of the third quarter. Everyone have a great afternoon, thank you very much.

Operator

Ladies and gentlemen this concludes the conference for today. We thank you for your participation. You may now disconnect.

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