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Will Pervasive Software Top Estimates Tonight?

|Includes:Pervasive Software Inc. (PVSW)

Pervasive Software Inc. (NASDAQ:PVSW) will be releasing its Q3 earnings report Today, April 24, 2012. Analysts are expecting revenue of $12.2 million and non-GAAP EPS of $0.04. In last quarter's earnings release, management provided guidance "in the range of $11.5 million to $12.5 million", with "GAAP-basis diluted earnings per share of $0.01 to $0.04". For comparison to Wall Street estimates, GAAP earnings will likely translate into non-GAAP EPS of $0.03 to $0.05.

Cash flow from operations guidance was set at "between $1 million and $2 million" for fiscal 2012 Q3. This compares favorably to $824,000 in the year-ago period.

Operating expenses were also projected to increase due to greater investments in Marketing. However, this was obviously baked into their guidance. Also, last quarter's balance sheet metrics (i.e. Q2 accounts receivable down $404,000 versus Q1; Q2 deferred revenue up $300,000 versus Q1) appeared healthy. In contrast, last year's accounts receivable had increased by $465,000 and deferred revenue had decreased by $100,000. Yet, the company still delivered a penny of upside in its March 2011 results.

In short, management's guidance doesn't appear to be facing any obvious headwinds.

Despite hitting a speed bump in the middle of last year, management seemed very confident on last earnings call. CEO John Farr indicated that business adjustments enabled Pervasive to quickly rebound from its soft patch. He also highlighted that the integration team had contributed to record deferred revenue, stating that "a portion of which will be recognized in the March quarter, adding to our confidence level - our high confidence level in this business."

He went on to discuss several wins, partnerships, and business drivers, leading to his assertions that "every single product group in the company is poised to do something really special in the March quarter and beyond". Mr. Farr also hinted that PVSW is poised for significant increase in profitability due to their strategic investments and innovating new features for existing products.

All things considered, the company seemed to be sticking its neck out regarding its prospects for the March quarter. When combined with Wall Street estimates that leave room for upside, the table should be set for the company to meet or beat expectations. Considering the tone of last quarter's call, failure to do so would be a blow to the company's future credibility.

We'll see how things played out tonight.

UPDATE: PVSW did indeed post strong results. Management lived up to its prior-quarter assertions, which will hopefully result in a nice reward for investors who took the time to listen to the last call (or read our preview).

Looking ahead, the tone of the call was positive on its prospects for the June quarter. We'll reassess our position as the call approaches depending on how we feel September guidance might look.

Disclosure: I am long PVSW.

Stocks: PVSW