Add
DWCH to Portfolio
Set Alert
Email to a
Friend
| |||
|
|
Quotes & Info
|
| DWCH > SEC Filings for DWCH > Form 10-Q on 14-Aug-2012 | All Recent SEC Filings |
14-Aug-2012
Quarterly Report
GENERAL
The Company does not provide forecasts of its future financial performance. However, from time to time, information provided by the Company or statements made by its employees may contain "forward looking" information that involves risks and uncertainties. In particular, statements contained in this Quarterly Report on Form 10-Q that are not historical facts may constitute forward looking statements and are made under the safe harbor provisions of The Private Securities Litigation Reform Act of 1995. The Company cautions readers not to place undue reliance on any such forward looking statements, which speak only as of the date they are made. The Company disclaims any obligation, except as specifically required by law and the rules of the Securities and Exchange Commission, to publicly update or revise any such statements to reflect any change in the Company's expectations or in events, conditions or circumstances on which any such statements may be based, or that may affect the likelihood that actual results will differ from those set forth in the forward looking statements. The Company's actual results of operations and financial condition have varied and may in the future vary significantly from those stated in any forward looking statements. Factors that may cause such differences include, without limitation, the risks, uncertainties and other information discussed in Item 1A of the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 2011, as well as the accuracy of the Company's internal estimates of revenue and operating expense levels.
Datawatch is engaged in the design, development, manufacture, marketing, and support of business computer software primarily for the report analytics and business service management markets to allow organizations to access and analyze information in a more meaningful fashion.
The Company's principal product lines are Report Analytics Solutions (including Monarch, Monarch Data Pump, Monarch Enterprise Server, Monarch RMS, Datawatch Dashboards, Monarch Report Manager on Demand and iMergence) and Business Service Management Solutions (including Visual QSM and Visual HD). Included in the above categories are:
· Monarch, a desktop reporting and data analysis application that lets users extract and manipulate data from ASCII report files, PDF files or HTML files produced on any mainframe, midrange, client/server or PC system;
· Monarch Data Pump, a data replication and migration tool that offers a shortcut for populating and refreshing data marts and data warehouses, for migrating legacy data into new applications and for providing automated delivery of reports in a variety of formats, such as Excel, via email;
· Monarch Enterprise Server, an enterprise solution that provides web-enabled report storage, transformation and distribution including data analysis, visualization and MS Excel integration for easy to use and cost effective self-serve reporting and analytics;
· Monarch RMS, a web-based report analysis solution that integrates with any existing enterprise report management or content management archiving solution;
· Datawatch Dashboards, an interactive dashboard solution that provides a visual overview of operational performance as well as the ability to monitor specific business processes and events;
· Monarch Report Manager on Demand, a system for high-volume document capture, archiving, and online presentation;
· iMergence, an enterprise report mining system;
· Visual QSM, a fully internet-enabled IT service management solution that incorporates workflow and network management capabilities and provides web access to multiple databases via a standard browser; and
· Visual Help Desk or Visual HD, a web-based help desk and call center solution operating on the IBM Lotus Domino platform.
The Company offers its enterprise products through perpetual licenses, term licenses and subscription pricing models. Subscriptions automatically renew unless terminated with 90 days notice following the first year of the subscription term. The subscription arrangement includes software, maintenance and unspecified future upgrades including major version upgrades. The subscription renewal rate is the same as the initial subscription rate. During the three months ended June 30, 2012 and 2011, subscription revenues were approximately $75,000 and $78,000, respectively. During the nine months ended June 30, 2012 and 2011, subscription revenues were approximately $229,000 and $228,000, respectively.
CRITICAL ACCOUNTING POLICIES
In the preparation of financial statements and other financial data, management applies certain accounting policies to transactions that, depending on choices made by management, can result in different outcomes. In order for a reader to understand the following information regarding the financial performance and condition of the Company, an understanding of those accounting policies is important. Certain of those policies are comparatively more important to the Company's financial results and condition than others. The policies that the Company believes are most important for a reader's understanding of the financial information provided in this report are described below.
· Revenue Recognition, Allowance for Bad Debts and Returns Reserve
· Income Taxes
· Capitalized Software Development Costs
· Valuation of Intangible Assets and Other Long-Lived Assets
· Accounting for Share-Based Compensation
During the nine months ended June 30, 2012, there were no significant changes in the Company's critical accounting policies. See Note 1 to the Company's condensed consolidated financial statements included in this Quarterly Report on Form 10-Q and in its Annual Report on Form 10-K for the year ended September 30, 2011 for additional information about these critical accounting policies, as well as a description of the Company's other significant accounting policies.
RESULTS OF OPERATIONS
The following table sets forth certain statements of operations data as a percentage of total revenues for the periods indicated. The data has been derived from the unaudited condensed consolidated financial statements contained in this Quarterly Report on Form 10-Q. The operating results for any period should not be considered indicative of the results expected for any future period. This information should be read in conjunction with the Consolidated Financial Statements and Notes thereto included in the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 2011.
Three Months Ended Nine Months Ended
June 30, June 30,
2012 2011 2012 2011
REVENUE:
Software licenses 66% 54% 66% 54%
Maintenance 29% 35% 28% 35%
Professional services 5% 11% 6% 11%
Total revenue 100% 100% 100% 100%
COSTS AND EXPENSES:
Cost of software licenses 7% 12% 9% 13%
Cost of maintenance and 10% 15% 10% 15%
services
Sales and marketing 45% 34% 45% 33%
Engineering and product 10% 14% 10% 14%
development
General and administrative 18% 21% 18% 26%
Total costs and 90% 96% 92% 101%
expenses
INCOME (LOSS) FROM 10% 4% 8% -1%
OPERATIONS
Interest (expense) income -2% 0% -1% 0%
and other income, net
INCOME (LOSS) BEFORE INCOME 8% 4% 7% -1%
TAXES
Provision (benefit) for 0% -1% 0% 0%
income taxes
NET INCOME (LOSS) 8% 5% 7% -1%
|
Three Months Ended June 30, 2012 Compared to
Three Months Ended June 30, 2011
Total Revenues
The following table presents total revenue, total revenue increase (decrease)
and percentage change in total revenue for the three months ended June 30, 2012
and 2011:
Three Months Ended
June 30, Increase Percentage
2012 2011 (Decrease) Change
(In thousands)
Software licenses $ 4,699 $ 2,400 $ 2,299 96 %
Maintenance 2,106 1,527 579 38 %
Professional services 368 486 (118 ) -24 %
Total revenue $ 7,173 $ 4,413 $ 2,760 63 %
|
Software license revenue for the three months ended June 30, 2012 was $4,699,000 or approximately 66% of total revenue, as compared to $2,400,000, or approximately 54% of total revenue for the three months ended June 30, 2011. The increase in software license revenue of $2,299,000 for the three months ended June 30, 2012 consists of an $2,314,000 increase in Report Analytics Solutions (including Monarch, Monarch Data Pump, Monarch Enterprise Server, Monarch RMS, Datawatch Dashboards, Monarch Report Manager on Demand and iMergence products) and a $15,000 decrease in Business Service Management Solutions (including Visual QSM and Visual HD products). The Company attributes the increase in software license revenue to its new product positioning and the investments the Company has made in its sales and marketing organization which has resulted in both increased desktop and enterprise license sales during the quarter.
Maintenance revenue for the three months ended June 30, 2012 was $2,106,000 or approximately 29% of total revenue, as compared to $1,527,000, or approximately 35% of total revenue for the three months ended June 30, 2011. The increase in maintenance revenue of $579,000 consists of a $616,000 increase in Report Analytics Solutions offset by a $37,000 decrease in Business Service Management Solutions. The overall increase in maintenance revenue is primarily attributable to increased maintenance on the Monarch product line.
Professional services revenue for the three months ended June 30, 2012 was $368,000 or approximately 5% of total revenue, as compared to $486,000, or approximately 11% of total revenue for the three months ended June 30, 2011. The decrease in professional services revenue of $118,000 consists of a $79,000 decrease in Business Service Management Solutions and a $39,000 decrease in Report Analytics Solutions.
Costs and Operating Expenses
The following table presents costs of sales and operating expenses, increase
(decrease) in costs of sales and operating expenses and percentage changes in
costs of sales and operating expenses for the three months ended June 30, 2012
and 2011:
Three Months Ended
June 30, Increase Percentage
2012 2011 (Decrease) Change
(In thousands)
Cost of software licenses $ 509 $ 530 $ (21 ) -4 %
Cost of maintenance and
services 668 655 13 2 %
Sales and marketing 3,244 1,513 1,731 114 %
Engineering and product
development 730 600 130 22 %
General and
administrative 1,289 921 368 40 %
Total costs and operating
expenses $ 6,440 $ 4,219 $ 2,221 53 %
|
The decrease in cost of software licenses of $21,000, or approximately 4%, is primarily due to lower software amortization costs associated with previously capitalized software and a reduction of royalty costs attributable to the acquisition of intellectual property underlying the Company's Monarch Report Analytics platform on March 30, 2012. As a result of this acquisition, the Company is no longer charging royalty expense to cost of software licenses but is amortizing the purchase price of the intellectual property to cost of software licenses. See additional information regarding the amortization of the intellectual property in Note 2 to the Company's condensed consolidated financial statements.
The increase in cost of maintenance and services of $13,000, or approximately 2%, is primarily due to higher wages and employee-related costs as compared to the same period last year.
The increase in sales and marketing expenses of $1,731,000, or approximately 114%, is due to increased promotional, lead generation and consulting costs as well as higher wages, commissions and other employee-related costs attributable to increased headcount as compared to the same period last year.
The increase in engineering and product development expenses of $130,000, or approximately 22%, is primarily attributable to higher wages and other employee-related costs due to increased headcount offset by lower external consulting costs as compared to the same period last year.
The increase in general and administrative expenses of $368,000, or 40%, is primarily attributable to higher severance costs, stock compensation and other employee-related costs as well as an increase in consulting costs as compared to the same period last year.
Interest (expense) income and other income, net includes primarily the following two components: interest income (expense); and gains (losses) on foreign currency transactions. Interest expense for the three months ended June 30, 2012 was $165,000 which relates to interest charged pursuant to the Company's subordinated note payable with MCRC and its revolving line of credit with SVB which were both entered into on March 30, 2012. There was no interest expense during the three months ended June 30, 2011. Gain (loss) on foreign currency transactions for the three months ended June 30, 2012 was a loss of approximately $11,000 as compared to a gain of $1,000 for the three months ended June 30, 2011.
Income tax expense for the three months ended June 30, 2012 was $9,000 as compared to an income tax benefit of $18,000 for the three months ended June 30, 2011. Income tax expense for the three months ended June 30, 2012 includes $10,000 related to estimated federal alternative minimum taxes, offset by $7,000 in estimated state tax adjustments. Income tax benefit for the three months ended June 30, 2011 is primarily attributable to estimated state tax adjustments. Additionally, income tax expense for both periods includes a $6,000 provision for uncertain tax positions relative to foreign taxes. At June 30, 2012, the Company had U.S. federal tax loss carryforwards of approximately $5.8 million which expire at various dates through and until 2031 as well as significant state and foreign net operating loss carryforwards.
Net income for the three months ended June 30, 2012 was $548,000 as compared to net income of $213,000 for the three months ended June 30, 2011.
Nine months Ended June 30, 2012 Compared to Nine months Ended June 30, 2011
Total Revenues
The following table presents total revenue, total revenue increase (decrease)
and percentage change in total revenue for the nine months ended June 30, 2012
and 2011:
Nine Months Ended
June 30, Increase Percentage
2012 2011 (Decrease) Change
(In thousands)
Software licenses $ 13,182 $ 7,063 $ 6,119 87 %
Maintenance 5,683 4,569 1,114 24 %
Professional services 1,126 1,415 (289 ) -20 %
Total revenue $ 19,991 $ 13,047 $ 6,944 53 %
|
Software license revenue for the nine months ended June 30, 2012 was $13,182,000 or approximately 66% of total revenue, as compared to $7,063,000, or approximately 54% of total revenue for the nine months ended June 30, 2011. The increase in software license revenue of $6,119,000 for the nine months ended June 30, 2012 consists of an $6,113,000 increase in Report Analytics Solutions (including Monarch, Monarch Data Pump, Monarch Enterprise Server, Monarch RMS, Datawatch Dashboards, Monarch Report Manager on Demand and iMergence products) and a $6,000 increase in Business Service Management Solutions (including Visual QSM and Visual HD products). The Company attributes the increase in software license revenue to its new product positioning and the investments the Company has made in its sales and marketing organization which has resulted in both increased desktop and enterprise license sales as compared to last fiscal year.
Maintenance revenue for the nine months ended June 30, 2012 was $5,683,000 or approximately 28% of total revenue, as compared to $4,569,000, or approximately 35% of total revenue for the nine months ended June 30, 2011. The increase in maintenance revenue of $1,114,000 consists of a $1,176,000 increase in Report Analytics Solutions offset by a $62,000 decrease in Business Service Management Solutions. The increase in maintenance revenue is primarily attributable to increased maintenance on the Monarch product line.
Professional services revenue for the nine months ended June 30, 2012 was $1,126,000 or approximately 6% of total revenue, as compared to $1,415,000, or approximately 11% of total revenue for the nine months ended June 30, 2011. The decrease in professional services revenue of $289,000 consists of a $189,000 decrease in Report Analytics Solutions and a $100,000 decrease in Business Service Management Solutions.
Costs and Operating Expenses
The following table presents costs of sales and operating expenses, increase in
costs of sales and operating expenses and percentage changes in costs of sales
and operating expenses for the nine months ended June 30, 2012 and 2011:
Nine Months Ended
June 30, Percentage
2012 2011 Increase Change
(In thousands)
Cost of software licenses $ 1,743 $ 1,661 $ 82 5 %
Cost of maintenance and services 2,019 1,941 78 4 %
Sales and marketing 9,041 4,219 4,822 114 %
Engineering and product development 2,048 1,883 165 9 %
General and administrative 3,469 3,436 33 1 %
Total costs and operating expenses $ 18,320 $ 13,140 $ 5,180 39 %
|
The increase in cost of software licenses of $82,000, or approximately 5%, is primarily due to amortization costs related to the Company's acquisition of intellectual property underlying its Monarch Report Analytics platform on March 30, 2012 offset by lower software amortization costs associated with previously capitalized software.
The increase in cost of maintenance and services of $78,000, or approximately 4%, is primarily due to higher commissions resulting from increased sales and other employee-related costs as compared to the same period last year.
The increase in sales and marketing expenses of $4,822,000, or approximately 114%, is attributable to higher wages and employee-related costs due to increased headcount, higher commissions attributable to increased sales and higher marketing program-related costs as well as increased external consulting costs as compared to the same period last year.
The increase in engineering and product development expenses of $165,000, or approximately 9%, is primarily due to higher wages and other employee-related costs offset by lower consulting costs as compared to the same period last year.
The increase in general and administrative expenses of $33,000, or approximately 1%, is primarily attributable to higher professional services, legal and consulting costs and employee-related costs which were partially offset by $641,000 of severance costs incurred last year in connection with a restructuring by the Company to align its sales and marketing operations with the Company's new business strategy.
Interest (expense) income and other income, net includes primarily the following two components: interest income (expense); and gains (losses) on foreign currency transactions. Net interest expense for the nine months ended June 30, 2012 was approximately $166,000 as compared to net interest income of $2,000 for the nine months ended June 30, 2011. Interest expense for the nine months ended June 30, 2012 was $169,000 which relates to interest charged pursuant to the Company's subordinated note payable with MCRC and its revolving line of credit with SVB which were both entered into on March 30, 2012. Gain (loss) on foreign currency transactions for the nine months ended June 30, 2012 was a loss of approximately $118,000 as compared to a gain of $55,000 for the nine months ended June 30, 2011. The foreign currency loss for the nine months ended June 30, 2012 was attributable to the settlement of intercompany account balances due to the dissolution of one of the Company's foreign subsidiaries and the repatriation of international funds to the US required by the Company's line of credit facility which was entered into on March 30, 2012. Additionally, the foreign currency gains (losses) recorded in both periods were partially due to the repayment of intercompany loans between the Australian and UK subsidiaries.
Income tax expense for the nine months ended June 30, 2012 was $75,000 as compared to $34,000 for the nine months ended June 30, 2011. Income tax expense for the nine months ended June 30, 2012 includes $30,000 related to estimated federal alternative minimum taxes and $26,000 related to estimated state taxes. Income tax expense for the nine months ended June 30, 2011 includes $11,000 related to estimated state taxes and $4,000 related to estimated federal alternative minimum taxes. Additionally, income tax expense for both periods includes a $19,000 provision for uncertain tax positions relative to foreign taxes.
Net income for the nine months ended June 30, 2012 was $1,311,000 as compared to net loss of $69,000 for the nine months ended June 30, 2011.
OFF BALANCE SHEET ARRANGEMENTS, CONTRACTUAL OBLIGATIONS AND CONTINGENT LIABILITIES AND COMMITMENTS
The Company leases various facilities and equipment in the U.S. and overseas under non-cancelable operating leases that expire through 2016. The lease agreements generally provide for the payment of minimum annual rentals, pro rata share of taxes, and maintenance expenses. Rental expense for all operating leases was approximately $105,000 and $82,000 for the three months ended June 30, 2012 and 2011, respectively, and $327,000 and $246,000 for the nine months ended June 30, 2012 and 2011, respectively.
As of June 30, 2012, the Company's contractual obligations include minimum rental commitments under non-cancelable operating leases, long-term debt obligations and other liabilities related to uncertain tax positions as follows (in thousands):
Less than More than
Contractual Obligations: Total 1 Year 1-3 Years 3-5 Years 5 Years
Operating Lease Obligations $ 823 $ 295 $ 360 $ 168 $ -
Long-term Debt Obligations $ 4,000 $ - $ 867 $ 1,600 $ 1,533
Other Liabilities $ 194 $ - $ - $ - $ 194
|
Prior to the acquisition of intellectual property disclosed in Note 2 to the Company's condensed consolidated financial statements, the Company was obligated to pay royalties ranging from 7% to 50% on revenue generated by the sale of certain licensed software products. Royalty expense included in cost of software licenses was approximately $21,000 and $413,000 for the three months ended June 30, 2012 and 2011, respectively, and $1,116,000 and $1,126,000 for the nine months ended June 30, 2012 and 2011, respectively. As a result of the acquisition of the intellectual property, the Company will no longer be required to pay royalties related to its Monarch Report Analytics platform, exclusive of one final payment representing the amount that would have been due for the 30 day period ended April 30, 2012 had the closing of the acquisition not previously occurred. The final royalty payment related to the Monarch Report Analytics platform was made in July 2012.
The Company's software products are sold under warranty against certain defects in material and workmanship for a period of 30 days from the date of purchase. If necessary, the Company would provide for the estimated cost of warranties based on specific warranty claims and claim history. However, the Company has never incurred significant expense under its product or service warranties. As a result, the Company believes its exposure related to these warranty agreements is minimal. Accordingly, there are no liabilities recorded for warranty claims as of June 30, 2012.
The Company enters into indemnification agreements in the ordinary course of business. Pursuant to these agreements, the Company generally agrees to indemnify, hold harmless, and reimburse the indemnified party for losses suffered or incurred by the indemnified party, generally its customers, in connection with any patent, copyright or other intellectual property infringement claim by any third party with respect to the Company's products. The term of these indemnification agreements is generally perpetual. The maximum potential amount of future payments the Company could be required to make under these indemnification agreements is unlimited. The Company has never incurred costs to defend lawsuits or settle claims related to these indemnification agreements. As a result, the Company believes its exposure related to these agreements is minimal. Accordingly, the Company has no liabilities recorded for these potential obligations as of June 30, 2012.
Certain of the Company's agreements also provide for the performance of services at customer sites. These agreements may contain indemnification clauses, whereby the Company will indemnify the customer from any and all damages, losses, judgments, costs and expenses for acts of its employees or subcontractors resulting in bodily injury or property damage. The maximum potential amount of future payments the Company could be required to make under these indemnification agreements is unlimited; however, the Company has general and umbrella insurance policies that would enable it to recover a portion of any . . .
|
|