PVSW Pervasive Software Inc. (MM)

Pervasive Software® Inc. (NASDAQ: PVSW), a global leader in cloud-based and on-premises data innovation, today announced financial results for the fourth quarter ending June 30, 2011.

For the fourth quarter ended June 30, 2011:

• Revenue was $13.7 million, consistent with updated expectations communicated on July 13, 2011, and compared to $11.7 million for the fourth quarter of last fiscal year.
• Net income was $1.2 million, or $0.07 diluted earnings per share, consistent with updated expectations communicated on July 13, 2011, and compared to net income of $0.8 million, or $0.05 diluted earnings per share, for the fourth quarter of last fiscal year.
• On a non-GAAP basis, as described below, Pervasive realized net income of $1.4 million, or $0.08 diluted earnings per share, consistent with updated expectations communicated on July 13, 2011, and compared to net income of $1.2 million, or $0.07 diluted earnings per share, in the fourth quarter of last fiscal year. Non-GAAP results exclude amortization of purchased intangibles and stock-based compensation expense, and assume a non-GAAP effective tax rate of 34%.

Pervasive continued to generate positive cash flow from operations with $2.8 million in the fourth quarter of fiscal 2011, ending the quarter with approximately $38.5 million in cash and marketable securities. Pervasive acquired approximately 255,000 shares of Pervasive common stock on the open market at a total cost of approximately $1.6 million, or approximately $6.43 weighted average price per share, during the quarter ended June 30, 2011. The Company has approximately $3.2 million authorized repurchase funds remaining under its $10.0 million stock repurchase program announced in July 2010. Depending on market conditions and other factors, such purchases may be commenced or suspended at any time without prior notice. Issued and outstanding shares of common stock as of June 30, 2011 totaled approximately 15.9 million.

"We executed well in the June quarter, resulting in our 42nd consecutive quarter and tenth consecutive year of profitability," said John Farr, president and CEO, Pervasive Software. "I'm particularly pleased that our core integration products team and database products team each grew revenue from the March quarter and from the June quarter of prior year. In addition, the company closed one relatively large transaction with a database customer representing approximately $0.9 million in revenue near the end of the June quarter. For the coming fiscal year 2012, we remain committed to profitability while also continuing our strategic investments both in our core database and integration product lines as well as in our emerging Pervasive DataCloud® and Pervasive DataRush™ businesses."

Business Outlook

As previously stated in guidance provided on July 13, 2011, Pervasive expects revenue for the first fiscal quarter ending September 30, 2011 to be in the range of $11.2 million to $12.2 million and GAAP-basis diluted earnings per share of $0.00 to $0.03, compared to $11.0 million revenue and $0.03 diluted earnings per share for the September quarter of the previous fiscal year. The expectation for revenue for the quarter ending September 30, 2011 reflects the potential for a sequential decrease from the quarter ended June 30, 2011. The September quarter is typically a challenging quarter due to the seasonality generally associated with the summer months, and Pervasive is not presently assigning a high level of probability to closing another relatively large database customer transaction in the September quarter.

GAAP-basis profitability is expected to include amortization of purchased intangibles and stock-based compensation expense representing approximately $0.6 million, pre-tax, in the first quarter of fiscal year 2012. The company expects non-GAAP adjustments to result in non-GAAP diluted and fully taxed earnings per share of approximately $0.02 to $0.05 in the September quarter, compared to $0.05 non-GAAP diluted and fully taxed earnings per share for the September quarter of the previous fiscal year.

Regularly Scheduled Earnings Release Conference Call - July 26, 2011

Pervasive will provide the full financial results for its fourth quarter ending June 30, 2011 in its regularly scheduled earnings release conference call on July 26, 2011 at 5:00 P.M. Eastern time. The dial-in numbers for the call are 877-808-2426 (toll-free) or 973-200-3975 (international). The conference name is "Pervasive Software Inc." The conference call may also be accessed live over the Web at http://investor.pervasive.com/events.cfm. Check the Web site before the call for login information. Replay will be available 8:00 P.M. Eastern Tuesday, July 26, to midnight, Tuesday, August 2, by dialing 800-642-1687 (toll-free) or 706-645-9291 (international), and selecting Conference ID 77427412. Additionally, the Webcast will be archived on Pervasive's Web site at http://investor.pervasive.com/events.cfm.

About Pervasive Software

Pervasive is a global data innovation leader, delivering software to manage, integrate and analyze data, in the cloud or on-premises, throughout the entire data lifecycle. Pervasive products deliver value to tens of thousands of customers worldwide, often embedded within partners' software, with breakthrough performance, flexibility, reliability and return on investment. For additional information, go to www.pervasive.com.

About Non-GAAP Financial Information

This press release includes non-GAAP financial measures. For a description of these non-GAAP financial measures, including the reasons management uses each measure, and reconciliations of these non-GAAP financial measures to the most directly comparable financial measures prepared in accordance with Generally Accepted Accounting Principles (GAAP), please see the section entitled "About Non-GAAP Financial Measures" and the accompanying tables entitled "Reconciliation of GAAP Measures to Non-GAAP" and "Reconciliation of Forward-Looking Guidance."

Cautionary Statement

This document contains forward-looking statements that involve risks and uncertainties concerning the company, including the company's expected performance for the first quarter ending September 30, 2011, and the company's strategy and profitability going forward. Actual events or results may differ materially from those described in this document due to a number of risks and uncertainties. These risks and uncertainties include, among others, the company's ability to attract and retain existing and/or new customers; the company's ability to issue new products or releases of solutions that meet customers' needs or achieve acceptance by the company's customers; changes to current accounting policies which may have a significant, adverse impact upon the company's financial results; the introduction of new products by competitors or the entry of new competitors; the company's ability to preserve its key strategic relationships; the company's ability to hire and retain key employees; and economic and political conditions in the U.S. and abroad. All of these factors may result in significant fluctuations in the company's quarterly operating results and/or its ability to sustain or increase its profitability. Additional information regarding these and other factors can be found in Pervasive's reports filed with the Securities and Exchange Commission, including its Form 10-Q for the fiscal quarter ended March 31, 2011. Pervasive is not obligated to update these forward-looking statements to reflect events or circumstances after the date of this document.

All Pervasive brand and product names are trademarks or registered trademarks of Pervasive Software Inc. in the United States and other countries. All other marks are the property of their respective owners.

            Pervasive Software Inc. Condensed Consolidated Balance Sheets (in thousands)             June 30, June 30, 2011 2010

(Unaudited)

 

ASSETS Current assets: Cash and cash equivalents $ 8,280 $ 7,086 Marketable securities 30,226 33,267 Trade accounts receivable, net 8,374 8,051 Deferred tax assets, net 944 650 Prepaid expenses and other current assets   1,602   1,443 Total current assets 49,426 50,497   Property and equipment, net 1,322 1,333   Purchased intangibles, net 1,613 2,140 Goodwill 38,508 38,508 Deferred tax assets, net 1,833 1,301 Other assets   483   786   Total assets $ 93,185 $ 94,565     LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable and accrued liabilities $ 5,654 $ 4,308 Deferred revenue   7,757   7,266 Total current liabilities 13,411 11,574   Stockholders' equity   79,774   82,991   Total liabilities and stockholders' equity $ 93,185 $ 94,565               Pervasive Software Inc.

Condensed Consolidated Statements of Income

(in thousands, except per share data) (Unaudited)                     Three months ended Twelve months ended June 30 June 30   2011 2010 2011 2010   Revenues: Product licenses $ 9,151 $ 7,484 $ 30,481 $ 30,764 Services and other   4,507     4,236     17,912     16,449   Total revenue 13,658 11,720 48,393 47,213   Costs and expenses: Cost of product licenses 336 325 1,352 1,199 Cost of services and other 1,333 1,173 5,108 4,767 Sales and marketing 6,073 4,839 21,265 18,887 Research and development 3,059 2,962 11,778 11,775 General and administrative   1,299     1,229     5,174     4,948   Total costs and expenses   12,100     10,528     44,677     41,576     Operating income 1,558 1,192 3,716 5,637   Interest and other income, net 16 26 64 208 Income tax provision (404 ) (387 ) (899 ) (1,773 )         Net income $ 1,170   $ 831   $ 2,881   $ 4,072         Diluted earnings per share: $ 0.07   $ 0.05   $ 0.18   $ 0.23       Shares used in computing diluted earnings per share 16,218 17,197 16,086 17,549               Pervasive Software Inc. Condensed Consolidated Statements of Cash Flows (in thousands) (Unaudited)                           Three months ended Twelve months ended June 30 June 30   2011 2010 2011 2010   Cash from operations Net income $ 1,170 $ 831 $ 2,881 $ 4,072 Adjustments to reconcile net income to net cash provided by operations: Depreciation & amortization 337 333 1,344 1,296 Non-cash stock compensation expense 370 438 1,665 1,754 Non-cash changes in deferred tax assets (267 ) 123 (826 ) 37 Other non-cash adjustments 324 51 562 229 Changes in current assets and liabilities: Trade accounts receivable 540 28 (820 ) (388 ) Prepaid expenses and other current assets (367 ) (178 ) 124 (323 ) Accounts payable and accrued liabilities 995 (637 ) 1,265 (976 ) Deferred revenue   (273 )   136     481     862   Net cash provided by operations 2,829 1,125 6,676 6,563   Cash from investing activities Purchase of property and equipment (293 ) (208 ) (793 ) (582 ) Sales and purchases of marketable securities, net 474 702 3,060 (8,013 ) Purchased intangibles - - - (2,611 ) (Increase) decrease in other assets   2     (535 )   22     (505 ) Net cash provided by (used in) investing activities 183 (41 ) 2,289 (11,711 )   Cash from financing activities Proceeds from exercise of stock options 107 38 692 370 Acquisition of treasury stock   (1,645 )   (2,448 )   (8,577 )   (6,122 ) Net cash used in financing activities (1,538 ) (2,410 ) (7,885 ) (5,752 )   Effect of exchange rate on cash and cash equivalents   31     (1 )   114     (43 ) Increase (decrease) in cash and cash equivalents 1,505 (1,327 ) 1,194 (10,943 ) Cash and cash equivalents at beginning of period   6,775     8,413     7,086     18,029   Cash and cash equivalents at end of period $ 8,280   $ 7,086   $ 8,280   $ 7,086          

About Non-GAAP Financial Measures

The company provides non-GAAP measures for net income and net income per share data as supplemental information regarding the company's core business operational performance. The company believes that these non-GAAP financial measures are useful to investors because they exclude certain non-operating or non-recurring charges. The company's management excludes these non-operating or non-recurring charges when it internally evaluates the performance of the company's business and makes operating decisions, including internal budgeting, performance measurement and the calculation of bonuses and discretionary compensation. In addition, these non-GAAP measures more closely reflect the essential revenue generation activities of the company and the direct operating expenses (resulting in or from cash expenditures) needed to perform these revenue generating activities. Accordingly, management excludes the amortization of purchased intangible assets related to acquisitions and stock-based compensation related to employee stock options.

The company believes that providing the non-GAAP measures that management uses is useful to investors for two primary reasons. First, it provides a consistent basis for investors to understand the company's financial performance on a trended basis across many historical periods, particularly given the adoption of ASC 718 (formerly SFAS 123R) at the beginning of fiscal year 2006 and the changes it has introduced for calculating stock-based compensation expenses relative to prior periods. And second, it allows investors to evaluate the company's performance using the same methodology and information as that used by the company's management.

Non-GAAP measures are subject to material limitations as these measures are not in accordance with, or a substitute for, US GAAP and therefore the company's definition or interpretation may be different from similar non-GAAP measures used by other companies and independent financial analysts. However, the company's management compensates for these limitations by providing the relevant and detailed disclosure of the items excluded in the calculation of non-GAAP net income and non-GAAP diluted earnings per share, which should be supplementally considered when evaluating the company's results. In addition, items such as amortization of purchased intangibles, stock compensation charges and significant and non-recurring items that are excluded from non-GAAP net income and non-GAAP diluted earnings per share can have a significant impact on earnings. Management compensates for these limitations by evaluating the non-GAAP measure together with the most directly comparable GAAP measure. The company has historically provided non-GAAP measures to the investment community as a supplement to its GAAP results, to enable investors to evaluate the company's core operating performance the way management does. The non-GAAP adjustments, and the basis for excluding them, are outlined below:

Amortization of Purchased Intangibles

The company has recorded amortization of acquired intellectual property intangibles, included in its GAAP financial statements, related to the acquisitions of Data Junction and assets of ChanneLinx, Inc. Management excludes these items for purposes of calculating non-GAAP net income and non-GAAP diluted earnings per share. The company believes that eliminating this expense in determining its non-GAAP measures is useful to investors because doing so provides a consistent basis for investors to understand the company's financial performance on a trended basis across many historical periods, it allows investors to evaluate the company's performance using the same methodology and information as that used by the company's management, and it allows a comparison with other peer companies in the software industry, many of whom use similar non-GAAP financial measures to supplement their GAAP results. Finally, the company believes that non-GAAP measures of profitability that exclude amortization of acquired intellectual property intangibles are widely used by analysts and investors in the software industry.

Stock-based Compensation Expense

The company has incurred stock-based compensation expense as determined under ASC 718 (formerly SFAS 123R) for the quarters ending on or after September 30, 2005, and under APB 25 for earlier comparable periods in its GAAP financial results. Since stock-based compensation is a non-cash charge, the company excludes this item for the purposes of calculating non-GAAP net income and non-GAAP diluted earnings per share. In addition, the exclusion of stock-based compensation from the non-GAAP measures is done to allow a consistent basis for investors to understand the company's financial performance on a trended basis across many historical periods, allow investors to evaluate the company's performance using the same methodology and information as that used by the company's management, and allow a comparison with other peer companies in the software industry, many of whom use similar non-GAAP financial measures to supplement their GAAP results. The very nature of the stock-based compensation expense also makes it very difficult to estimate prospectively, since the expense will vary with changes in the stock price and market conditions at the time of new grants, varying valuation methodologies, subjective assumptions and different award types, making the comparison of current results with forward-looking guidance potentially difficult for investors to interpret. The tax effects of stock-based compensation expenses may also vary significantly from period to period, without any change in underlying operational performance, thereby obscuring the underlying profitability of core revenue-generating operations relative to prior periods (including prior periods following the adoption of ASC 718, formerly SFAS 123R). Finally, the company believes that non-GAAP measures of profitability that exclude stock-based compensation are widely used by analysts and investors in the software industry.

Income Tax Adjustment

Income taxes represent a complex element of any company's income statement and effective tax rates can vary widely from year to year and from company to company, especially in periods in which adjustments are made to a company's valuation reserve for deferred tax assets. The company uses a statutory tax rate of 34% to reflect income tax adjustments in presentation of its non-GAAP net income and non-GAAP diluted earnings per share. Utilization of a statutory tax rate for presentation of the non-GAAP measures is done to allow a consistent basis for investors to understand the company's financial performance on a trended basis across many historical periods, allow investors to evaluate the company's performance using the same methodology and information as that used by the company's management, and allow a comparison with other peer companies in the software industry, many of whom use similar non-GAAP financial measures to supplement their GAAP results. Finally, the company believes that non-GAAP measures of profitability that are based on more standardized statutory tax rates are widely used by analysts and investors in the software industry.

            Pervasive Software Inc. Reconciliation of GAAP Measures to Non-GAAP (in thousands, except per share data) (Unaudited)                       Three months ended Twelve months ended June 30,   June 30, 2011 2010 2011 2010 Net Income Net Income Net Income Net Income   GAAP $ 1,170 $ 831 $ 2,881 $ 4,072 Amortization of intangible assets - cost of product licenses 130 130 520 477 Stock-based compensation - cost of services and other 16 12 53 46 Stock-based compensation - sales and marketing expense 133 138 531 539 Stock-based compensation - research and development expense 71 77 254 252 Stock-based compensation - general and administrative expense 221 233 898 939 Income tax adjustment for non-GAAP

 

(325 )

 

(228 ) (1,152 ) (980 )         Non-GAAP $ 1,416   $ 1,193   $ 3,985   $ 5,345     GAAP net income per share - diluted $ 0.07 $ 0.05 $ 0.18 $ 0.23   Non-GAAP net income per share - diluted $ 0.08 $ 0.07 $ 0.24 $ 0.29  

Shares used to compute GAAP net income per share - diluted

16,218 17,197 16,086 17,549  

Shares used to compute non-GAAP net income per share - diluted

16,795 17,869 16,628 18,206               Pervasive Software Inc. Reconciliation of Forward-Looking Guidance (Unaudited)             Diluted Earnings per Share Range Three months ended September 30, 2011   GAAP expectation $ - $ 0.03   Adjustment to exclude amortization of purchased intangibles * *   Adjustment to exclude stock-based compensation expense $ 0.02 $ 0.02   Adjustment to tax non-GAAP results at a consistent 34% rate * *     Non-GAAP expectation $ 0.02 $ 0.05  

* rounds to zero