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GlobalSCAPE Inc (NYSEMKT:GSB)

Q4 2007 Earnings Call

March 26, 2008 5:00 pm ET

Executives

Kelly Simmons - CFO and Interim President

Tom Brown - Chairman of the Board

Jeff Gehring - Vice President, Sales and Marketing

Greg Hoffer – Vice President of Technology

Earl Posey – Vice President of Investor Relations/Business operations

Analysts

Greg Newman - Newman Agency

Fred Ziegel - Soleil Securities

Taylor Tompkins - Anderson and Strudwick

George Gardner - GEJ Investments

Ed Antoian - Chartwell

Catharine Trebnick - America’s Growth

Operator

At this time I would like to welcome everyone to the fourth quarter 2007 earnings release conference call. (Operator Instructions) Thank you, Mr. Posey. You may begin your conference.

Earl Posey

Thank you, Mark. Good afternoon. This is Earl Posey for GlobalSCAPE. Joining me on the call this afternoon is Kelly Simmons, GlobalSCAPE’s CFO and Interim President along with Tom Brown, GlobalSCAPE’s Chairman of the Board, Jeff Gehring, our Vice President, Sales and Marketing, and Greg Hoffer, our VP of Technology.

Before we begin, I would like to remind everyone that today’s call including the question-and-answer session includes forward-looking statements regarding expected revenue, earnings per share, future plan, opportunities and expectations of the Company. These precautions, estimates, and other forward-looking statements involve known and unknown risk and uncertainties that may cause actual results to differ materially from those expressed or implied in the call. These risks are detailed in today’s press release as well as in the SEC Form 10-K which GlobalSCAPE filed today, March 26.

The statements included in this conference call are based upon the information known to GlobalSCAPE as of the date of this call and GlobalSCAPE assumes no obligation to update the information contained in this call.

Now that we have gotten all that material out of the way I would like to turn the program over to Tom Brown, our Chairman of the Board who would be followed by Kelly and then we will come back for additional comments and then we will open up the lines for questions-and-answers. Tom?

Thomas Brown

Thank you Earl and good afternoon and thank all of you for your interest in GlobalSCAPE.

Since March 7 when we announced the retirement of Randy Poole, there have been many questions about the timing and circumstances surrounding that event. Before I provide you more detail on that let me state clearly that the Board has great respect for Randy and we are very grateful for his contributions to GlobalSCAPE.

Randy will continue to serve as consultant to the Company through 2008 and on the Board through June of ’09 which enables us to benefit from his insight even as he begins to enjoy his retirement.

The Company has a wonderful track record of growth and revenues and earnings and Randy deserves a great deal of the credit for leading the Company through this period. Randy was instrumental in helping us of our former Company that sold it’s products primarily over the internet to one with a robust direct sales force in reselling network. This is helped us grow significantly over the past several years.

Yet the board believes that the future success of this business will be dependant upon our ability to introduce, improve versions of our current products and new products and through research and development and innovations, other innovations by our employees and through strategic partnerships and acquisitions. The board began to focus our attention on these areas in the fall 2007 and formulated its strategy to pursue these initiatives during the first two months of this year.

At the same time during the fall of ’07 Randy began to express an interest in either retiring or at least reducing his day-to-day role at the Company. During this time the board also began discussing Randy’s pending change in status and our process of success in planning. At the beginning of 2008 Randy began leaning more towards retiring rather than a role reduction. It became apparent to the board that as a result of the longer term nature of the board’s areas of focus for 2008 and Randy’s wishes to slow down that it would be in the best interest of the Company and its share holders that Randy not spearhead the Company’s more product focused initiatives if you were not going to be able to see them through to implementation. As a result on March 7, we accepted Randy’s decision to retire early and appointed Kelly Simmons is interim President.

Kelly has a full confidence of the board and while we are conducting a search for a CEO through our own contacts it is fair to say that Kelly is currently the leading candidate. We have no set time table or deadline for making a final decision, but we believe the Company is in very good hands currently.

The board of directors of GlobalSCAPE represents a large percentage of the ownership of the Company and we are completely aligned with desire of all share holders to see a steady rise in the stock price. We are excited about the opportunities ahead of us. We are confident in the team driving the Company and we are very convinced of the skills and dedication of our employees. We’d like the future prospects of our investment and we hope to communicate to you why we believe we’ve can become a larger more successful enterprise going forward.

Now at this time I would like to turn the call over to Mr. Kelly Simmons.

Kelly Simmons

Thanks Tom. I would like to hit the highlights of 2007 and speak to how we see 2008 shaping up and tell you what we are focused on for the near future. Revenues for year end 2007 were $18,360 million compared to $10,974 million for year end 2006 or a 67% increase year-over-year.

Net income for 2007 was $3.9 million or $0.21 per share fully diluted compared to approximately $2 million in 2006 or $0.12 per share. This is a 100% increase in net income and a 75% increase in EPS year-over-year. For the fourth quarter 2007 we had revenues of $4.4 million compared to $3.5 million in Q4, 2006 or 26% increase from a year ago. Net income was 631,000 or $0.03 per share compared to Q4, 2006 with net income of $375,000 and $0.02 per share for increases in net income of 68% to an increase of 50% for EPS.

On the balance sheet, you will also notice that we completed the evaluation of the Availl assets which created new intangible assets of $5.2 million that are reclassified from goodwill. This consists primarily of WAFS and CDP software valued at $5 million. This new intangible will be amortized over a ten year period.

To sum up we are in excellent financial condition with approximately $5.7 million of cash in the bank today, no debt and running a profitable operation. We have also spent over $1.5 million since August 2007 through today to acquire 423,581 shares of our own common stock. So we are equipped financially to do whatever we need to do to grow this business.

Now let me address 2008 for a minute. In previous conference calls, we said that most of the fundents who follow our industry have said that spending for these products will expand by about 30% per year. However, it’s recently become clear to us that our revenues were not growing. Our sales department still has a healthy pipeline of potential sales but we are seeing some customers postponing the implementation of IT projects and some customers using more caution in their cost evaluation and selection of more expensive and advanced features.

We do not see any new levels of competition from any one just more hesitation on the part of prospects. Consequently, we believe that our revenues for Q1, Q2 and Q3 will remain in a range of $4 million to $4.5 million. For Q1 2008, this is a 10% growth over the same quarter in 2007. By Q4 of this year, we believe that we will break the cycle with new products and features that we are working on and which I will discuss broadly in a moment.

This guidance is heaving weighted to our core server products but we do see wildcard in the first three quarters of this year in the prospects for growth in the WAFS sales. Our last release in January has created a lot of positive feedback from our existing customers and we have a number of new potential sales over 200,000 each that would create some overall revenue growth if we can close more than one of these sales in any one quarter.

Now let me tell you how we reacted to this current situation and why we are excited about our future. The first thing we have done is to reorganize our business and our people around the products themselves. We are now organized by product units instead of by traditional department disciplines. So our four new product units are for the Cute products, server products, WAFS products, and new technology. We believe that this structure will create a greater focus on the specific issues that are unique to each product set which will make us quicker to market and more responsive to our customers.

As you know the Company began over a decade ago with a client based utility named CuteFTP. Millions of users have tried and adopted this product and as a result we have been able to launch more successful products on the strength and reputation of CuteFTP.

In fact, we have about 65,000 visitors to our website every day, many we believe are due to CuteFTP and its lasting value. In short, there has been a unique and significant marketing value that’s been created in a simple brand that is known worldwide. So we are going to refresh this product and present it to the emerging Internet communities that are in a very similar stage of development that existed when CuteFTP was first introduced over a decade ago. This will involve localizing the product in the language of these emerging economies for the software, for the website, for the shopping cart and for marketing.

Part of this effort is simply doing a better job of helping non-English speaking countries get through our shopping cart. We believe that we make these simple changes to CuteFTP that we get out another $1 million to $2 million per year with very little additional cost. More importantly we are doing this as a marketing vehicle, a force through sales of our server products to other countries, just like we have done with U.S and Europe. So this is important to us and we are going to reinvest in it by improving our translations industry to India, Brazil, Mexico and Russia and by locating more born resellers in these areas. Ted Marshad the former project manager for WAFS will help us out for us.

Fairly our server products have driven the growth of the Company over the past three years. We added thousands of customers during this time and every new customer can add feedback in the potential for new products and features. We will continue to solidify our lead in the managed file transfer space by adding new features to our server products including Enterprise Protocols such as AS-2, enterprise scalability including more clustering options and better integration into the service oriented architectures that some of our current customers are utilizing.

We want to invest more in our customer feedback process to capture and accelerate the delivery of new customer ideas and requests through our products. We are adding a number of new technical resources to do this and reinvesting once again in an area that we have already had some success on. Tim Barton our former VP of operations will lead this team.

As I mentioned earlier we believe that WAFS is beginning to get the attention of large companies, larger than we’ve sold to in the past, although it’s still a mace in technology. It appears that we have made as much progress for that of some of our much large competitors. Some of the applications for this product are becoming more complicated which affords us new opportunities to advance its capabilities. This is also a product that has a tremendous potential for partnerships and resale arrangements with some significant technology companies. So we will continue to build out WAFS and Dough Conyers our former VP of Professional Services is going to lead and manage this product unit.

Greg Hoffer, our Chief Technology Officer has been a driving force behind our server products for several years. We guys seem to add up our new products unit that will bring focus to new technology and new products. One of his first challenges is to design and build a standalone transfer product that works seamlessly with e-mail servers, but there are a number of companies that are selling this product today. We believe that this is some low hanging fruit for us since we already have this feature in our EFT product. We also believe that we can differentiate ourselves with a new product offering that will compete nicely with the plug-in hardware than to dominate the space. There are number of other projects that we have identified for Greg and will begin addressing them in 2008. I will deliver this first one during the summer of this year.

Finally we have been visiting with other companies, some large, some small about combining our respective efforts at some. None of these discussions are as simple as reselling agreements and some conversations are more complicated along the lines of a merger. Sitting here today there is nothing immediately eminent, so I won’t go into any detail about these discussions and the reason I am telling you this now is to highlight the fact that other companies in the Tech industry recognize our leadership in file transfer technology. They see networking technology growing in complexity not becoming more simpler. They understand that we have grown our business profitably and successfully and they appreciate our expertise and talents.

GlobalSCAPE has established great value in its products, in its brand trust and in its public company platform. We are in excellent financial condition with plenty of cash, no pressure from vendors and we are running a profitable operation and we believe that our opportunities will continue to grow despite these freefalls in our growth rates. So we have sharpened our focus, we have ramped up our intensity level and we believe the best is yet to come.

With that, we will open it up for questions.

Earl Posey

So, Mark we are ready for questions and answers.

Question-and-Answer-Session

Operator

(Operator Instructions) Your first question comes from the line of Catharine Trebnick with America’s Growth.

Catharine Trebnick - America’s Growth

Good afternoon.

Kelly Simmons

Hi, Catherine.

Catharine Trebnick - America’s Growth

Hi. I have actually three different questions. First, could you go back over fourth quarter numbers again? You went fast I didn’t catch net income.

Kelly Simmons

You know I have never been accused of going rapidly.

Catharine Trebnick - America’s Growth

Sorry Kelly.

Kelly Simmons

For the fourth quarter of 2007, we had revenues of $4.4 million.

Catharine Trebnick - America’s Growth

Right.

Kelly Simmons

And for net income, that was $631,000 or $0.03 per share. Is that what you were looking for?

Catharine Trebnick - America’s Growth

Yeah, thank you and then my second one is basically to ask a couple of questions around the process -- where you are in the process with your -- I actually kind of want to separate out the resellers versus the M&A. Where are you -- any discussions with the resellers because that was a conversation that was talked a lot on other previous conference calls before? I picked up coverage and then on the last one and -- I just would like to have a better understanding or some more clarity around that.

Kelly Simmons

Well, I can tell you that we have conversations almost daily with resellers and we have also had conversations about us reselling other products and typically what happens is when we sign a reseller, we don’t always announce that and so it’s going to be somewhat -- it’s not going to be so visible to the outside world when that happens, but I can tell you that it’s -- the activity itself is very robust. We probably had more phone calls that tell me over the last 30 to 60 days about not just reselling but other sort of conversations than this company has ever had and that’s the point I try to make here. Did that answer your question?

Catharine Trebnick - America’s Growth

So, in terms of resellers then, can I get a little bit more granular because at some point Randy was saying in other conference calls -- would look like a large reseller partner and then -- so I just need -- and I understand that there might be some resellers like you just said that, just comes through and obviously we pick them on our press release or whatever. So are you looking for a big nugget somewhere or now where are you in that part of the process.

Kelly Simmons

But when we talk about our revenues being the same for Q1, Q2 and Q3, we don’t include any large deals in those numbers. We are only talking about our base business and in those numbers and the way we have approached that is consistent with the past and I think when the army order hit obviously there was a lot of discussion about that but really during most of last year, I doubt that there were any names named about...

Catharine Trebnick - America’s Growth

No I don’t think there were names. I always -- my impression was might be a larger one and in fact I even recall on the last call even international partnership, so if that still in the cart just looking at the international partners?

Kelly Simmons

Absolutely! We are going to aggressively pursue the international front with resellers and we are going to do that with CuteFTP and our server products. I am not sure how to build that into your numbers though.

Catharine Trebnick - America’s Growth

No, no. I understand that. I mean like I said I am trying to take my model and say what did I build into my forecast based on my knowledge and what the market still needs and then go back and try and kill away where partners are part of that process correct and that’s where I am trying to get to, that’s my line of questioning and then on another subject that’s related to partners, so how are you -- can you say at what percent of your overall sales are related to government sales?

Kelly Simmons

Jeff do you know that number.

Jeff Gehring

I don’t know it off the top of my head. I want to say it’s probably about 10% to 15% at this point.

Catharine Trebnick - America’s Growth

Alright, is that pretty -- the government rent revenues been lumpy. I mean is there roughly around 10% or has it is always being around that or am I too early in asking that question.

Kelly Simmons

I don’t think there is anyway of knowing Catherine. I think one thing that we are convinced of is that we will never be able to anticipate what the governments going to do and -- but I think the baseline we’ve given you here is something we are very comfortable with that and so any new large deals that come through here can be added to that.

Catharine Trebnick - America’s Growth

Okay and then another question that’s more along the sale organization is that -- it was the integration of the Company at a (inaudible) from the veil and now you are at some point and then I know there was a discussion on the last earnings call such as one organization we are talking to one group and than another group, so there wasn’t as close a synergy maybe in getting the two product for you want them to get, so that there would be cross selling effectiveness and you will see those efficiency. How has that being going? I mean is there -- have you seen any change in that?

Kelly Simmons

Well, I think the direction we have taken actually so convince that idea and we are setting the organization up in a way that it really brings focus to the different product sets so that WAFS is receiving a -- getting some management with Dough Conyers and receiving the sort of focus that we think it needs from a management standpoint and from the sales standpoint, we are not -- we have a very good sales group in Andover. So we are not trying to get the guys here in San Antonio to do something they don’t want to do and our sales group is -- it takes a while to learn these products. Once you learn those products, it’s -- a sales person who is working for commission likes to sell what he knows. So we have again a very good group in Andover and at this point, I don’t think they need the help from the guys in San Antonio.

Catharine Trebnick - America’s Growth

Okay. Then the next question and I’ll finally quit asking questions. The next one is regarding the search -- where are you in the process? What are the Board’s thoughts? I guess that’s more to Tom.

Thomas Brown

It’s going to be another 30 to 60 days most likely. There is -- the search is still going on. I know that our Board is still interviewing and they want to make sure they are making the right decision and they are approaching it in a real fiduciary sort of way. So it’s going to be a little while long.

Catharine Trebnick - America’s Growth

Alright. I will stick around later and I’ll yield the floor. Thank you.

Thomas Brown

Thanks Catherine.

Operator

Your next question is from the line of Ed Antoian from Chartwell.

Kelly Simmons

Hello Ed.

Ed Antoian - Chartwell

Hi guys, how are you?

Kelly Simmons

Good, how are you?

Ed Antoian - Chartwell

Good. First question, have you filed the press release with the detailed earnings or the K yet?

Kelly Simmons

Well, the press release should have gone out right at 4’o clock.

Ed Antoian - Chartwell

Got that but I mean it’s literally in paragraphs with no financial statements.

Kelly Simmons

The 10-K will be filed here right after the conference call.

Ed Antoian - Chartwell

Is the press release that I have the right one? It’s just three paragraph; no financial table.

Kelly Simmons

That’s right.

Ed Antoian - Chartwell

Okay. So you are prepared to give me those details now on the phone or how do you want to do that?

Kelly Simmons

I think it’s better just to look through the K and feel free to call me after you receive it if you have any questions.

Ed Antoian - Chartwell

Alright. Let me just maybe hit on one or two areas though instead of waiting and that would be the WAFS area. What kind of revenues did you recognize in the quarter from that area?

Kelly Simmons

It was somewhere around 700 to 750.

Ed Antoian - Chartwell

So up a little bit from Q3 and is that the area where you see when you look out into ’08 that you just don’t see a progression there yet?

Kelly Simmons

Well, I think that what we have experienced with WAFS is that it’s -- right now, it’s selling at about $250,000 a month and what we really don’t see is a real scramble in the market to find this product. We have got a couple of larger competitors as you probably know but we don’t really see them beating the drum either, but we are very excited about the product and we think at some point that it will become something that other companies want. But today we just don’t see a big demand for it but we see a steady demand for it.

Ed Antoian - Chartwell

In the past especially times like post the acquisition, there were realizations that the product just wasn’t up the stuff and kind of the party line was always in the next release and the next release and I heard you comment about the January release being of significant, so I guess I will have to question is it really an issue of -- is it still an issue of the product having the appropriate functionality and to gain traction and is there another release that we are working on for June or August that more significant to get you over the hump.

Kelly Simmons

Well it’s -- there is a new release coming out in May. The January release really stabilized the products. In other words it was almost and an open knife sort of phenomena where our customers showed this group was busy answering the about WAFS issues and then the new release came out and things have been very calm since then, so that’s why we are encouraged about the next release and the next release. Its not unlike I think any sort of new software product where you have to -- it’s got to go through a period of betting and that’s happening with this product now. The exciting things is that some of the calls that we get now are much larger deals by more sophisticated companies and so we’ve got a lot of hope for WAFS and even though it’s probably developed slower than anybody had wanted we still feel that we are at the cutting edge with this product.

Ed Antoian - Chartwell

Just back to some of the other questions that were asked about partnerships, frankly potential mergers, focus centered around the WAFS product instead of reselling your CuteFTP. I mean those are nice -- I don’t think that was the real home run that people were excited about four, five, six months ago. I should assume that those would stand a partnership arrangement, that were being discussed are really just done for now, is that correct?

Kelly Simmons

No, I have got to tell you we have conversations constantly and…

Ed Antoian – Chartwell

Are you -- I mean in the past, were you literally negotiating terms on how much equity a partner could buy and I mean that you are not at -- I mean having conversations and having lawyer drafting documents and…

Kelly Simmons

No that was -- it never got to that point. It never got to the point were it made it to the lawyers.

Ed Antoian – Chartwell

But it did get to the point to where it was -- how much equity they could invest or not in the Company so.

Kelly Simmons

The deal Ed never really -- there had been several conversations, one with a very large company and those deals just never progressed to the point that it looked like it was eminent.

Ed Antoian - Chartwell

Yeah, so those players they are gone.

Kelly Simmons

I wouldn’t say that and I am not trying to lead you on here.

Ed Antoian – Chartwell

Yeah, that’s what I am trying to make sure you are not, so I am asking more questions, I apologize.

Kelly Simmons

That’s okay.

Ed Antoian - Chartwell

Well, because you got to take it from our perspective. The market -- at least the market thought deals were happening as they were being coaxed into thinking hey were happening and may be coaxed is an improper tern, but because maybe management really felt they were going to happen and as you know the stock was three fourth or more higher than it is now. So needless to say, some people thought things were happening.

Kelly Simmons

Well, I think that was -- I think those comments and that information was absolutely the best information available, but things change constantly. What we will really attempt to avoid doing is trying to get everyone start off over a potential deal when something is imminent and something is going to change, then we will talk about it but we have got to get closer to closing something before that happens..

Ed Antoian - Chartwell

In the last quarter, management talked on the conference call about three large deals being pushed into 2008. Obviously, I don’t know if they were non-government deals, they said. I don’t know what those deals were, who they were with, but are those deals alive or dead?

Kelly Simmons

Well, I can tell you, we have got at least that many at various stages in different conversations. Are any of those going to close, I don’t know.

Ed Antoian - Chartwell

But the three deals that management was speaking about in particular at the end of Q3, are those particular deals gone?

Kelly Simmons

I can't speak for what those exact three deals are. I was brand new at the time. I don’t know exactly what the three was but…

Ed Antoian - Chartwell

Is Tom on the call? Can Tom reply to that?

Kelly Simmons

No.

Ed Antoian - Chartwell

He is not on the call?

Kelly Simmons

No, he is not. But I think the point here is that -- we are having these conversations, are they going to be real deals or not, I don’t know and we have just got to be careful about how we speak about those conversations, that they are right now.

Ed Antoian - Chartwell

The other comment on the last call was deals involving -- and I don’t know if I pronounce it right, Santarus and in fact the last two quarters, they were referred to as the potential opportunity for large business. Were they in the pipeline of generating business for the company?

Kelly Simmons

They have been very quite.

Ed Antoian - Chartwell

Okay.

Kelly Simmons

That potential still exists but they have been very quite.

Ed Antoian - Chartwell

Why do you think potential still exists?

Kelly Simmons

Because there is activity there but it’s slow.

Ed Antoian - Chartwell

Alright and can you talk about profitability at a $4 million level? What’s going on with SG&A and R&D? Can the Company be profitable at a $4 million quarterly run rate?

Kelly Simmons

Yes, but you were right to ask that question. We are hiring technical people. We are cutting costs in some other areas but at $4 million, we are still profitable. We still don’t dig into our war chest. So we just have to be careful of that spending as you are alluding to. Ed? I think Ed’s left. Are there any other calls?

Operator

Your next question comes from the line of Fred Ziegel with Soleil Securities.

Fred Ziegel - Soleil Securities

Hi guys.

Kelly Simmons

Hi Fred.

Fred Ziegel - Soleil Securities

So, a follow-on to Ed’s question. Are you consciously going to accelerate R&D spending to get some of the things done you need to get done or…

Kelly Simmons

Absolutely.

Fred Ziegel - Soleil Securities

So, well, accelerate. Okay. As you think across the product lines and I know you are reorganizing sort of by product unit for lack of a better term. Where do you see the synergies and I’ve asked this question before, is there anything you can do to more tightly couple the FTP client of the server so people kind of take the whole package as opposed to one end or the other.

Kelly Simmons

We do a lot of that today already. I am not sure I understand exactly what that question is. Jeff, you want to answer that?

Fred Ziegel - Soleil Securities

Well, my question is I can mix and match between servers and clients just given the fact that its FTP’s are standard. Are there any hooks you can put into it such that it would be advantageous for a customer to buy the package as opposed to server not the client or by so...

Kelly Simmons

Yeah Fred, Jeff here, hello! As you know Sterling Commerce has their direct connect product that basically forces you to do both of those things. I think one of the things hopefully Greg will be working on shortly is that enterprise type client which will cause us to do that.

Fred Ziegel - Soleil Securities

Okay, are we -- while we are going to accelerate R&D spending are we accelerating sales and marketing programs as well?

Kelly Simmons

We are not accelerating marketing programs.

Fred Ziegel - Soleil Securities

Okay

Kelly Simmons

We just don’t feel like we need to at this moment. Towards the end of the year as really in the third quarter we will start to ramp up marketing again as some of these new products start to come out.

Fred Ziegel - Soleil Securities

Okay last question what’s left on the share repurchase program, how much?

Kelly Simmons

On the employee or the repurchase program? About $1.5 million.

Fred Ziegel - Soleil Securities

Okay, alright. Okay thanks.

Kelly Simmons

Alright Fred, Thank you.

Operator

Your next question is from the line of George Gardner with GEJ Investments.

George Gardner - GEJ Investments

Good evening gentleman.

Kelly Simmons

Hi how are you.

George Gardner - GEJ Investments

And you create a nice quarter, I need to ask you two questions. One -- and this is more over of an enlightment or an explanation on the IF IPS, the 140-2 system you put in, the new certification you received, will that enhanced the possibility of increased revenue and just how -- what level I guess you might say your security with that certification come with and my second question is I think you mention during the conference call the particular possibility of the slowdown. Will the foreign enhancements or language enhancements and all of the relationships you are developing with foreign countries help with the revenue side.

Kelly Simmons

I will answer the foreign question and we’ll get Greg to answer the FIPS question, but what we got to do on the international front is we have to refresh our products so that things like the installers work in a way that these other languages are useful at and so we got some work to do there, then it’s a matter of finding the right resellers and the amazing thing is that CuteFTP is know worldwide and even in countries like China and certainly Japan and South America, people immediately recognize CuteFTP and there is a great deal of value there. All we have got to do now just as we have done in the States is we have got to take advantage of that brand and start to sell server products into those emerging economies. So that’s what we intend to do. It’s going to take a little work in getting the languages correct but not a great deal of work and the FIPS question, Greg, could you answer that?

Gregory Hoffer

Sure. Hi, this is Greg. I wanted to say that this FIPS certification, FIPS 140-2, we are all very excited by that. It’s a security standard that in particular the government is really keen on and it was our large government wins recently that drove us to make sure that our product was certified. We feel that it really opens up a lot of opportunities in the government sector specifically but at the same time where the government leads, industry follows and having a certification that’s government approved can only open up additional doors in all sector.

George Gardner - GEJ Investments

Thank you.

Kelly Simmons

That’s George.

Operator

Your next question is from the line of Taylor Tompkins with Anderson and Strudwick.

Taylor Tompkins - Anderson and Strudwick

Hey guys, how are you?

Kelly Simmons

Good Taylor, how are you today?

Taylor Tompkins - Anderson and Strudwick

I do alright. If you have seen hesitancy about some of your prospects, how can you be so confident you can do the $4 million $4.5 million in the next two quarters?

Kelly Simmons

Well, that comment is built into the $4 million and the $4.5 million.

Taylor Tompkins - Anderson and Strudwick

Okay, and then you say by the fourth quarter, the new products would bring you out that cycle. Does that mean you are going to be up sequentially in the fourth quarter from the third?

Kelly Simmons

Yes, yes.

Taylor Tompkins - Anderson and Strudwick

Okay. Alright, thanks.

Kelly Simmons

Alright, Taylor.

Operator

You have a follow-up question from the line of Ed Antoian with Chartwell.

Kelly Simmons

Hi, Ed.

Ed Antoian - Chartwell

Hey, just a follow-up on Fred’s question about the buyback. You said you have $1.5 million still authorized, is there any intention of buying that stock or not now with an economic slowdown in front of you?

Kelly Simmons

Well, I think the Board saw that despite our pretty aggressive buying activity in January and February that -- it wasn’t having a great impact on the stock just like everybody in our peer group was suffering. There were some very successful companies out there that had met expectations and upped their expectations for the future and their stock prices have still gone down. So we -- the program itself was $3 million, we have spent $1.5 million and I think the Board will continue to leave its options opened and just see what happens.

Ed Antoian - Chartwell

Okay, thank you.

Kelly Simmons

Alright.

Operator

You have a follow-up question from the line of Fred Ziegel, Soleil Securities.

Fred Ziegel - Soleil Securities

Between FIPS certification and AS2, which of those should we think is going to end up to be the more important?

Kelly Simmons

Greg, you have a sense of that?

Gregory Hoffer

Fred, I definitely think AS2 is going to open up. The FIPS is very nice for us and it actually has opened up some other things into the government obviously and that’s closed yet but it’s opened up some doors because we are in a fixed certified, but AS-2 is -- really takes us to the next step and what I mean by that is it takes us into EDI, gets us closer to EDI and it also -- I think it will enhance a great deal our professional services department because AS-2 is going to bring us into the back end of a lot of different companies and I firmly believe that AS-2 will do quite a bit more.

Fred Ziegel - Soleil Securities

Okay thanks.

Kelly Simmons

Let’s take one more.

Operator

Your last question comes from the line of Greg Newman with Newman Agency.

Greg Newman - Newman Agency

Hi gentleman, good quarter, good questions everybody. I was looking at some of the questions and wondering the reasons why, like when you answered about the deals that didn’t reach the larger state, yet why that didn’t happen, could you give us a feel, so that we have some idea what off sites we are looking at, end partners and why this activity is also slow with the centers as well and so we know that you are on top of it working these things out give us some field advice.

Kelly Simmons

Well, I think its just the normal course of business to have large deals pop up and you consider those deals and if they make sense than you move forward, if they don’t, then you don’t move forward, so I don’t think anything that’s happened here is particularly unusual to other businesses and maybe the -- what we need to do is just be careful about how we talk about big deals. I think its important that we tell the public that there are these kind of conversations hovering over us, but at the same time I think we’ve been clear about what we think our numbers are going to be and if one of these big deals pop, that’s great and we -- I can tell you as far as our response to these deals, we are very responsive and I think the activity that I have witnessed has been just as cohesive as it could have been and -- but to have a big deal fall in your lap and make your Company is going to be rarity. It’s not going to be norm and so the norm for us is what we’ve described today and -- but we are talking to these companies and we are entertaining other sort of deals, but I think we are going to pretty much stop talking about them as something that our investors can depend on.

Greg Newman - Newman Agency

And on the acquisitions, were you thinking about having average shorter acquisitions because we talked about the little bit of delays with the availed acquisitions and I was wondering how the acquisition process is going on? What type of companies? If you can tell us what you are looking for in acquisitions and mergers, if you are kind of stepping back from that right now or that’s included with these deals that they could also go that day from just to deal our reseller to a partnership or even a merger, so -- but I figure you’ll must have learned quiet a bit from integrating the two companies and that you are looking not to repeat any delays that happened in the past and try to have a success very successful next acquisition. How you are looking at the acquisition picture right now compared to how it was before. I mean we knew we were looking for acquisitions.

Kelly Simmons

Well there is more activity today I think when you -- and but we are going to be cautious and

Greg Newman - Newman Agency

That’s fine.

Kelly Simmons

It’s got to make sense on a number of fronts. It’s got to make sense with the products, it’s got to make sense immediately that is accredited to earnings, it’s got to make sense from our management stand point and from our board point of view and we will have to do a good job in due diligence and have a plan on integration before we close the deal, but the activity is robust but I am not going to sit here and say we are going to have one in the next few months, I don’t know.

Greg Newman - Newman Agency

Okay that’s good and are you going to fill both positions here on President with one person or two have you all decided on that?

Kelly Simmons

I don’t think they have decided yet.

Greg Newman - Newman Agency

Okay, have a great day.

Kelly Simmons

Thanks Greg.

Greg Newman - Newman Agency

You are welcome.

Kelly Simmons

Is there anyone else waiting?

Operator

At this time there are no further questions.

Earl Posey

Why don’t we close it up? Ladies and gentleman we thank you for participating with us today. Should you have additional questions feel free to call Kelly Simmons or myself. Thank you very much from GlobalSCAPE.

Operator

And this concludes today’s conference call. You may now disconnect.

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Source: GlobalSCAPE Q4 2007 Earnings Call Transcript
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