Datawatch Corporation (NASDAQ:DWCH)
F1Q09 Earnings Call
February 4, 2010 2:00 pm ET
Dan Incropera - Vice President & Controller
Ken Bero - President & Chief Executive Officer
John Kitchen - Senior Vice President & Chief Marketing Officer
Murray Fish - Chief Financial Officer & Vice President of Finance
Greetings and welcome to the Datawatch first quarter 2010 conference call. At this time all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. (Operator Instructions)
It is now my pleasure to introduce your host, Dan Incropera, Controller for Datawatch Corporation. Thank you, Mr. Incropera, you may begin.
Good afternoon, everyone. Thank you for joining us today for the Datawatch Corporation first quarter fiscal year 2010 earnings conference call. I am Dan Incropera, Vice President and Controller of Datawatch. Joining me today is Ken Bero, our President and CEO; John Kitchen, Senior Vice President and Chief Marketing Officer and Murray Fish, Chief Financial Officer and Vice President of Finance.
You can obtain a copy of our earnings release, which was distributed earlier today by emailing us at firstname.lastname@example.org. This release is also available on our website at www.datawatch.com. Let me first outline for you this afternoon agenda. I will present our Safe Harbor statement followed by Ken who will provide some general comments on the business. Murray will then present a summary of our first quarter and fiscal year 2010 financial results. Following our prepared comments we will open up the call for a question-and-answer session.
Before we begin, I would like to review our Safe Harbor statement with you. While we do not share projections of our future performance, we do need to remind you that any statements we make that do not describe historical facts, may constitute forward looking statements as that term is defined in the Private Securities Litigation Reform Act of 1995.
Any such statements including without limitations statements concerning expense savings, market trends, product introductions, acquisitions and general market conditions, are based on our current expectations, but are subject to a number of risks and uncertainties that could cause actual results to differ materially from current expectations.
For more information I refer you to the descriptions of these Risk Factors found in our earnings release as well as the companies Annual Report on Form 10-K for the year-ended September 30, 2009, and other publicly available documents filed with the SEC. Any forward-looking statements should be considered in light of those factors.
I will now turn the call over to Ken for a discussion of business results.
Thanks, Dan, and good afternoon to everyone. I’ll share some opening comments about our Q1 performance and following my remarks, Murray Fish, our CFO, will provide more detailed information regarding our financials for the quarter. John Kitchen, our Chief Marketing Officer is in attendance for the call and following Murray’s remarks we’ll open up the meeting for some questions.
As we reported this morning, revenues for the first quarter were slightly above $4.2 million. Q1 revenues were approximately 19% below the same quarter in fiscal year ‘09. The business experienced a net loss for the quarter of 199,000 as compared to profits of 385,000 one year ago.
During this same quarter a year ago when the economy on a worldwide basis lead by the financial crisis essentially imploded. Unlike many businesses Datawatch did not see the downward impact to our business and now are first quarter, the recession effects for us began to be felt as we enter the new calendar year in Q2.
While the world’s economies have become somewhat stabilized and have begun to show growth in the most recent periods, the overall business climate remains challenging. Unemployment in the U.S., our primary market remains over 10% and during the last 12 months over $7 million jobs have been lost. Q1 business prospects for Datawatch started positively, October and November Monarch sales through Thanksgiving showed reasonable strengthen all of our channels of distribution.
Enterprise sales were also tracking to forecast. We expect Monarch sales to slow during the Thanksgiving period due to the short work week and they did. Based on history we fully expected sales to recover as we moved into December, unfortunately they did not. December Monarch sales particularly through our distribution channels were weak.
As noted in this mornings release this adversely impacted our desktop BI revenues. On the enterprise side revenues were further impacted by the fact that several customers with budgeted procurements and implementation projects delayed their spending, until late in the new calendar year 2010. These deals haven’t gone away. In fact some of the delay deals were actually closed in the month of January.
There are two important points I’d like to make about the business, particularly regarding our desktop BI product sales. Our distribution partners as well as other desktop vendors have faced very similar challenges to their businesses over the past year, and while sales have declined we’re not experiencing a Paradigm Shift regarding competition or technology.
We’re not losing business to new lower cost technologies nor have new competitive entities entered our business space. Q1 results did not meet our expectations; however we are seeing some positive signs. The adoption of Microsoft’s new v7 Operating System appears to be strong. This should help drive Monarch upgrades. We also continue to see interest in our new Datawatch dashboard product.
This is an emerging market that we believe shows significant potential. Using Monarch technologies to quickly and in expensively source data for dashboard display provides a significant competitive alternative to the difficulties of extracting information from database sources that are faced by other dashboard vendors. We continue to proactively manage the business as expenses.
The uncharacteristic and unexpected December slowdown in sales particularly for Monarch impacted our ability to take action which could have impacted Q1 results. In response to our results, appropriate expense action has been implemented. Datawatch continues to have a solid cash position, currently we have almost $6 million and there continues to be no debt on our balance sheet.
Murray Fish is now going to provide some additional information regarding our financials. Murray.
Thank you, Ken. Good afternoon. For those of you who may not have seen our results released earlier today, our total revenues for the first quarter fiscal year 2010 were $4.2 million as compared to $5.2 million for the fourth quarter of fiscal year 2009. Revenue decreased by 967,000 or 19% quarter-over-quarter.
For the first quarter of fiscal year 2010, revenues from licenses and subscriptions were $2.2 million as compared to $2.8 million for the first quarter of fiscal year 2009. As a percentage of revenue, software license and subscription sales were down 51% of revenue for the first quarter of fiscal year 2010 and 55% of revenue for the first quarter of fiscal year 2009.
For the first quarter of fiscal year 2010, revenues from maintenance and services were $2.1 million as compared to $2.4 million for the first quarter of fiscal year 2009, as a percentage of revenue, maintenance and services accounted for 49% of revenues for the first quarter of fiscal year 2010 and 45% of revenues for the first quarter of fiscal year 2009.
Business Intelligence Solutions, Content Management Solutions and Service Management Solution, product revenues were 69%, 19% and 12%, of total revenues for the first quarter of fiscal year 2010 as compared to 70%, 18% and 12% for the first quarter of fiscal year 2009. Domestic revenues and international revenue were 75% and 25% of total revenues for the first quarter of fiscal year 2010 as compared to 77% and 23% of the first quarter of fiscal year 2009.
Gross margins for software licenses and subscriptions were 74% for the first quarter of fiscal year 2010 as compared to 81% for the first quarter of fiscal year 2009. The decrease in gross margin of software licenses and subscription is primarily due to increase in amortization of capitalized software costs resulting from product releases.
A gross margin for maintenance and services was 63% for both the first quarter of fiscal year 2010 and 2009. Overall, total gross margins were 69% for the first quarter of fiscal year 2010 and 73% for the first quarter of fiscal year 2009. Sales and Marketing expenses decreased by 114,000, or 7% in the first quarter of fiscal year 2010, over the first quarter of fiscal year 2009.
Sales and Marketing expenses as a percentage of revenues were 37% for the first quarter of fiscal year 2010 as compared to 32% for the first quarter of fiscal year 2009. This decrease is primarily attributable to lower headcount and related costs such as commissions, travel, and the timing of marketing costs related to new product releases.
Engineering and Product Development expenses decreased by $4000, in the first quarter of fiscal year 2010 over the first quarter fiscal year 2009, engineering and product development expenses as a percentage of revenues were 17% for the first quarter of fiscal year 2010 as compared to 14% for the first quarter of fiscal year 2009.
General and Administrative expenses decreased by 330,000 or 28% in the first quarter of fiscal year 2010 over the first quarter of fiscal year 2009. General and Administrative expenses as a percentage of revenue were 20% for the first quarter fiscal year 2010 and 22% for the first quarter of fiscal year 2009.
The decrease in general and Administrative expenses is primarily attributable to lower employee related costs, lower professional services and consulting fees and lower bad debt expense, other income expense decreased by 172,000 in the first quarter of fiscal year 2010, over the first quarter of fiscal year 2009.
This decrease is primarily attributable to lower foreign currency gains primarily due to the favorable foreign exchange rates and British pound denominated transactions in the first quarter of fiscal year 2009. The provision for income tax expense decreased by 35,000 in the first quarter of fiscal year 2010 over the first quarter of fiscal year 2009 due to the elimination of the deferred tax expense related to the companies goodwill which was determined to be fully impaired and was written off in the second quarter of 2009.
The net loss for the fiscal year 2010 was 199,000 or $0.03 per share as compared to net income of 385,000 or $0.06 per fully diluted share for the first quarter of fiscal year 2009. As of December 31, 2009, the company had 5,880,000 in net cash and cash equivalents an increase of 231,000 or 4% as compared to September 30, 2009. Ken?
Thanks, Murray. Let me now open up the call for any questions.
(Operator Instructions) There appear to be no questions at this time. I would like to turn the floor back over to management for closing comments.
I’ll make a couple of closing summary remarks. The Q1 results were below expectations, primarily the result of a poor December. The companies constantly held back spending even for budgeted purchases, opting to delay procurements into the new calendar year, this impacted both the Monarch and Enterprise business, while the economy remains challenging we do see some bits of progress, purchases continue however to be tightly monitored and renewed.
We continue to be proactive regarding expense management and continue to invest in our products providing functionality and ease of installation and use required by our customers. We remain optimistic and have confidence that we will effectively weather this economic period and be in a strong position to take advantage of the expected future opportunities. Thank you for your continued interest in Datawatch.
This concludes today’s teleconference. You may disconnect your lines at this time.
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