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BIRT > SEC Filings for BIRT > Form 10-Q on 8-Nov-2013All Recent SEC Filings

Show all filings for ACTUATE CORP

Form 10-Q for ACTUATE CORP


8-Nov-2013

Quarterly Report


Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

The following information should be read in conjunction with the historical financial information and the notes thereto included in Item 1 of this Quarterly Report on Form 10-Q, the Condensed Consolidated Financial Statements and notes thereto and the related Management's Discussion and Analysis of Financial Condition and Results of Operations contained in our Annual Report on Form 10-K for the year ended December 31, 2012 as filed with the Securities and Exchange Commission on March 8, 2013.

The statements contained in this Form 10-Q that are not purely historical are forward looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, including statements regarding Actuate's expectations, beliefs, hopes, intentions, plans or strategies regarding the future. All forward-looking statements in this Form 10-Q are based upon information available to Actuate as of the date hereof, and Actuate assumes no obligation to update any such forward-looking statements. Actual results could differ materially from Actuate's current expectations. Factors that could cause or contribute to such differences include, but are not limited to, the risks discussed in Part II, Item 1A-Risk Factors of this Form 10-Q, Part I, Item 1A-Risk Factors in our Annual Report for the year ended December 31, 2012 and in other filings made by the Company with the Securities and Exchange Commission.

Overview

Actuate Software Corporation was incorporated in November 1993 in the State of California and reincorporated in the State of Delaware in July 1998 as Actuate Corporation ("We", "Actuate" or the "Company"). Actuate provides software to more than 3 million developers who use BIRT, the open source Eclipse-based interactive development environment (IDE) founded and co-led by Actuate. Organizations use Actuate products to create customer-facing, Big Data analytics and customer communications management (CCM) applications that provide end users with content they can easily access, understand and analyze. Developers use BIRT and BIRT iHub, Actuate's commercial deployment platform for BIRT-based applications, to develop and deploy scalable solutions that save time and improve brand experience by delivering personalized analytics and insights to over 200 million of their customers, partners and employees. BIRT iHub further ensures organizations can gain effective insights from Big Data and take advantage of mobile touch devices. Actuate's BIRT Analytics™ delivers self-service predictive analytics to enhance customer engagement using Big Data. Actuate for CCM empowers ECM architects to easily transform, process, personalize and archive high volume content. Actuate customers develop solutions that maximize revenue, cut costs, communicate more effectively with customers, streamline operations and create competitive advantage. Actuate's goal is to ensure that end users can seamlessly incorporate information and business analysis into their day-to-day activities and decision-making, enabling organizations to explore new avenues for improving the bottom line.

Actuate's principal executive offices are located at the BayCenter Campus at 951 Mariners Island Boulevard, San Mateo, California. Actuate's telephone number is 650-645-3000. Actuate maintains Web sites at www.actuate.com, www.birt-exchange.org and www.birt-exchange.com www.birtperformanceanalytics.com, www.xenos.com, www.birtondemand.com and www.quiterian.com. The information posted on our Web sites is not incorporated into this Form 10-Q.

We began shipping our first product in January 1996. We sell software products through two primary means: (i) directly to end-user customers through our direct sales force and (ii) through indirect channel partners such as OEMs, resellers and system integrators. OEMs generally integrate our products with their applications and either provide hosting services or resell them with their products. Our other indirect channel partners resell our software products to end-user customers. Our total revenues are derived from license fees for software products and fees for services relating to such products, including software maintenance and support, professional services and training.

Despite the ongoing global economic uncertainty, we have continued to achieve profitability and positive year-to-date cash flows. Nevertheless, our business model and longer-term financial results are not immune to a sustained economic downturn. For example, the recent domestic and global economic uncertainty resulted in reduced demand for information technology, including enterprise software and services. The direction and relative strength of the global economy continues to be uncertain and makes it difficult for us to forecast operating results and to make decisions about future investments. Factors that may affect our operating results include the possibility of a prolonged period of limited economic growth or possible economic decline in and adverse effects of the ongoing sovereign debt crisis in Europe, including its expected negative impact on European economic growth versus the rest of the world; disruptions to the credit and financial markets in Europe, the U.S., and elsewhere; contractions or limited growth in corporate spending; adverse economic conditions that may be specific to information technology and the software industry; and risk that the size of the market for our products will not support more sales professionals. Please also refer to our Risk Factor discussion in Item 1A.


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We continue to monitor market conditions and may make adjustments to our business in order to reduce the adverse impact that changes to the economic environment could have on our business. We expect to continue to explore both organic and strategic growth opportunities. In particular, we may acquire companies or technology that can contribute to the strategic, operational and financial performance of our business. The Company expects that it will continue to derive a significant portion of its revenues from financial services customers for the foreseeable future.

For the remainder of fiscal year 2013, we expect three additional trends to continue that would have a significant impact on the results of our operations. We currently believe that corporate IT budgets will grow only modestly if at all in fiscal year 2013, particularly among financial services companies in the United States and Western Europe. Secondly, corporations are reluctant to buy software from new vendors and we continue to witness corporations consolidating their applications development, business analytics and customer communications management software purchases among fewer suppliers. Finally, we expect to experience vigorous competition in the applications development, business analytics and customer communications management markets. Several of our competitors have released products that are marketed to be directly competitive with our offerings. As one of the few independent vendors remaining, Actuate faces competition from large and well-established vendors including Microsoft, SAP, Oracle and IBM, all of which have acquired competing products to add to their technology stacks. The existence of these competitive products may require additional sales and marketing efforts to differentiate our products, which could result in extended sales cycles.

For the remainder of fiscal year 2013, we will continue to pursue our strategic initiatives to improve revenue growth related to applications development, business analytics and customer communications management markets. These initiatives are as follows:

• Investing in BIRT-We continue to make a significant investment in BIRT. BIRT has become widely adopted by developers and continues to drive demand for our BIRT-based commercially available products from Actuate. The BIRT project is a core, long-term initiative.

• Selling to IT Management-We are re-focusing our sales efforts on selling our products to IT managers who we believe generally recognize the technical advantages of our products.

• Selling to Line-of-Business Management-We are creating business analytics applications and software solutions to market to line-of-business managers. These offerings are in the areas of performance management, business analytics, customer self service and statementing.

• Selling to Global 9000 Corporations in the Financial Services Sector-We continue to focus on selling our products to Global 9000 financial services companies in an effort to increase our substantive market share in this sector. We anticipate a negative impact of the slow recovery in IT spending in this sector through 2013.

• Building out and delivering on the roadmap of applying BIRT to additional data sources including hard reaching print stream data by investing in the development of BIRT-based customer communications management offerings.

• Building out and delivering on the BIRT roadmap of customer communications management capabilities by integrating Content Services Group (formerly Xenos) offerings into the iHub. The BIRT iHub ("iHub") provides content generation, management and distribution capabilities for a variety of different types of content.

• Building out and delivering on the roadmap of BIRT Analytics capabilities by integrating Quiterian offerings into BIRT iHub.

We continue to transition from our legacy e.Reports product suite to our new BIRT iHub product offering. We have experienced higher than normal decline rates for our legacy products which is likely to continue. In the mean-time, BIRT and BIRT iHub are expected to soon become the dominant contributor to license and maintenance revenues. When that happens, we expect to see stronger maintenance revenue growth rates.

We have a limited ability to forecast future revenues and expenses, thus the prediction of future operating results is difficult. In addition, historical growth rates in our revenues and earnings should not be considered indicative of future revenue or earnings growth rates or operating results. There can be no assurance that any of our business strategies will be successful or that we will be able to achieve and maintain profitability on a quarterly or annual basis. It is possible that in some future quarter our operating results will be below the expectations of public market analysts and investors, and in such event the price of our common stock could decline.

Critical Accounting Policies, Judgments and Estimates

The discussion and analysis of our financial condition and results of operations are based upon our Condensed Consolidated Financial Statements, which have been prepared in accordance with generally accepted accounting principles in


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the United States of America. The preparation of these financial statements requires us to make estimates, assumptions and judgments that can have a significant impact on the reported amounts of assets and liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities at the date of our financial statements. We base our estimates, assumptions and judgments on historical experience and various other factors that we believe to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions. On a regular basis we evaluate our estimates, assumptions and judgments and make changes accordingly. We believe that the estimates, assumptions and judgments involved in revenue recognition, allowances for doubtful accounts, stock-based compensation, accounting for income taxes, restructuring and integration costs, allocation of purchase price of acquisitions, and the impairment of goodwill, have the greatest potential impact on our Condensed Consolidated Financial Statements, so we consider these to be our critical accounting policies.

For further information about our significant accounting policies, see the discussion under Item 7 to the annual Consolidated Financial Statements as of and for the year ended December 31, 2012, as filed with the SEC on Form 10-K on March 8, 2013.

                                                               Three Months Ended September 30,
                                                             (in thousands except per share data)
                                                   2013            2012          $ Change           % Change
Financial Summary
Total revenues                                   $ 32,291        $ 32,179        $     112                 -  %

Total operating expenses                           30,722          29,466            1,256                  4 %

Income from operations                              1,569           2,713           (1,144 )              (42 )%
Operating margins                                       5 %             8 %             (3 )%             (38 )%

Net income                                       $  1,235        $    107        $   1,128              1,054 %

Diluted net income per share                     $   0.02        $   0.00        $    0.02

Shares used in diluted per share calculation       51,428          52,794

Financial Performance Summary for the quarter ended September 30, 2013 compared to September 30, 2012:

• Increase in license revenues of 8% or approximately $1 million. This increase was driven by improved license sales in North America and Europe, particularly with our BIRT Content Services suite of products (formerly Xenos).

• The increase in license revenues was offset by lower services revenues driven by lower maintenance renewals.

• Decrease in operating margins driven by higher operating expenses. The increase in operating expenses was mainly headcount driven as we acquired Quiterian in October 2012 and steadily increased our sales force over the last twelve months.

Results of Operations

The following table sets forth certain Condensed Consolidated Statement of
Income data as a percentage of total revenues for the periods indicated.



                                                       Three Months Ended              Nine Months Ended
                                                         September 30,                   September 30,
                                                      2013             2012           2013            2012
Revenues:
License fees                                              44 %            41 %            45 %           41 %
Services                                                  56              59              55             59

Total revenues                                           100             100             100            100

Costs and expenses:
Cost of license fees                                       2               1               2              1
Cost of services                                          13              16              13             15
Sales and marketing                                       43              38              41             35
Research and development                                  20              19              19             17
General and administrative                                16              17              17             16
Amortization of other purchased intangibles                1               1               1              1
Restructuring charges                                     -               -                1             -

Total costs and expenses                                  95              92              94             85

Income from operations                                     5               8               6             15
Interest income and other income/(expense), net           (1 )             1              -               1
Interest expense                                          -               -               -              (1 )

Income before income taxes                                 4               9               6             15
Provision for income taxes                                -                9               1              6

Net income                                                 4 %            -  %             5 %            9 %


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Revenues



                                                   Three Months Ended                                            Nine Months Ended
                                                     (In thousands)                                               (In thousands)
                                     September 30,                                                 September 30,
                                                              Variance        Variance                                      Variance        Variance
                                   2013          2012           $'s              %              2013           2012            $'s             %
Revenues
License fees                     $ 14,338      $ 13,304      $    1,034               8 %     $  45,973      $  42,389      $   3,584               8 %
Services                           17,953        18,875            (922 )            (5 )%       56,138         60,854         (4,716 )            (8 )%

Total Revenues                   $ 32,291      $ 32,179      $      112              -  %     $ 102,111      $ 103,243      $  (1,132 )            (1 )%

% of Revenue
License fees                           44 %          41 %                                            45 %           41 %
Services                               56 %          59 %                                            55 %           59 %

Total Revenues                        100 %         100 %                                           100 %          100 %

Total revenues. Our revenues are derived from license fees and services. Our services revenues include software maintenance and support, professional consulting and training. Our total revenues increased slightly in the third quarter of 2013 compared to the third quarter of 2012. This increase was primarily experienced in North America and Europe where total revenues increased by approximately $900,000 compared to the third quarter of 2012. Software license revenues increased approximately $1.6 million in North America and Europe led by strong demand for our BIRT Content Services suite of products which included a large compliance transaction that we secured during the third quarter of 2013. Partially offsetting these increases were approximately $800,000 of lower total revenues in Asia Pacific. The decrease in Asia Pacific revenues during the third quarter of 2013 compared to the third quarter of 2012 was primarily due to lower license revenues as we closed an unusually large transaction with a reseller during the third quarter of 2012.

Our third quarter and year-to-date revenues for 2013 were also adversely impacted as March 2013 marked the end of the revenue stream driven by our June 2010 agreement with Oracle. The terms of the agreement called for equal quarterly cash payments by Oracle to Actuate between June 2010 and March 2013. Accordingly, over the past twelve quarters ending March 31, 2013, Actuate has recognized approximately $1.3 million of quarterly revenues upon receipt of payment from Oracle.

We also experienced a decrease in our services revenues during the third quarter of 2013 compared to the same period last year. This decrease was driven by lower maintenance renewal revenues as we continue to transition from our legacy
e.Reports product suite to our new BIRT iHub product offering. As our legacy products age, we have experienced higher than normal decline rates which may continue in the short term future.

Sales outside of North America were $6.6 million or 20% of total revenues for the third quarter of fiscal 2013, compared to $7.1 million, or 22% of total revenues for the third quarter of fiscal 2012. The decrease in third quarter 2013 international revenues compared to the third quarter of prior year was mostly attributable to lower license and services revenues in Asia Pacific primarily due to an unusually large license transaction that was completed during the third quarter of 2012. Fluctuations in foreign currency exchange rates did not have a significant impact on our revenues for the third quarter of fiscal 2013.

Our total revenues during the first nine months of 2013 decreased by 1% or approximately $1.1 million compared the corresponding period in the prior year. We experienced an 8% increase in license revenues driven mainly by license growth


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in North America. North America license revenues increased 14% or $4.5 million over the first nine months of 2012 driven by increased demand for our BIRT iHub suite of products, particularly our BIRT Content Services suite of products. The decrease in services revenues in the first nine months of 2013 was mostly due to the fact that in the first nine months of 2012, we recorded several large transactions in Europe and Asia that included back maintenance, which consequently resulted in high services revenues in those regions. Back maintenance consist of the amount a customer would have paid for maintenance and support of our software if they would have continued to pay the usual stream required to access support, bug fixes, patches, and upgrade rights. We also experienced high decline rates during the third quarter of 2013 as we continue to transition from our legacy e.Reports product suite to our new BIRT iHub product offering.

License fees. The increase in license revenues for the third quarter of fiscal 2013 over the same period last year was due to increases in BIRT Content Services bookings including a large compliance transaction that we recorded in North America. We also recorded several smaller compliance transactions in Europe that contributed to the overall increase in the third quarter 2013 license revenues over the third quarter of 2012. The increases in North America and Europe license revenues were partially offset by weaker license sales in Asia Pacific primarily due to a large license transaction that was completed during the third quarter of 2012. Fluctuations in foreign currency exchange rates did not have a significant impact on our license revenues for the third quarter of fiscal 2013.

Our third quarter and year-to-date revenues for 2013 were also adversely impacted as March 2013 marked the end of the revenue stream driven by our June 2010 agreement with Oracle. The terms of the agreement called for equal quarterly cash payments by Oracle to Actuate between June 2010 and March 2013. Accordingly, over the past twelve quarters ending March 31, 2013, Actuate has recognized approximately $1.3 million of quarterly revenues upon receipt of payment from Oracle.

During the third quarter of fiscal 2013, we completed two transactions greater than $1 million in license component and closed transactions greater than $100,000 with 63 customers. During the same period last year we completed two transactions greater than $1 million in license component and closed transactions greater than $100,000 with 66 customers.

For the first nine months of 2013, license revenues increased 8% or approximately $3.6 million compared to the first nine months of 2012. This increase was driven by strong demand for our BIRT iHub products, particularly our BIRT Content Services suite of products. Partially offsetting these increases were lower license sales from our Asia Pacific region mainly due to the timing of two large transactions recorded in the first nine months of 2012 that carried a significant license component. Fluctuations in foreign currency exchange rates did not have a significant impact on our license revenues for the first nine months of fiscal 2013.

The following table represents our license revenues by region (in thousands):

                                                     Three Months Ended                                          Nine Months Ended
                                                       (In thousands)                                              (In thousands)
                                        September 30,                                               September 30,
                                                                 Variance       Variance                                    Variance       Variance
                                      2013          2012           $'s              %             2013          2012           $'s             %
License Revenues
North America                       $ 11,711      $ 10,640      $    1,071             10 %     $ 36,611      $ 32,067      $   4,544             14 %
Europe Middle East, and Africa         1,908         1,353             555             41 %        7,820         6,656          1,164             18 %
Asia Pacific and others                  719         1,311            (592 )          (45 )%       1,542         3,666         (2,124 )          (58 )%

Total                               $ 14,338      $ 13,304      $    1,034              8 %     $ 45,973      $ 42,389      $   3,584              8 %

% of total revenue                        44 %          41 %                                          45 %          41 %

Services. Services revenues are comprised of maintenance and support, professional services, and training. The 5% decrease in services revenues was driven primarily by a recent trend of high declines in our maintenance renewal rate. Although we are seeing improvements in the maintenance renewal decline rate in the third quarter of 2013, the cumulative impact effect of prior declines continue to depress the maintenance renewal revenues. Maintenance renewal revenues decreased approximately $900,000 during the third quarter of 2013. We believe that these declines are the result of our continued transition from our legacy e.Reports product suite to our new BIRT iHub product offering. We have experienced higher than normal decline rates for our legacy products which is likely to continue. In the meantime, BIRT and BIRT iHub are expected to soon become the dominant contributor to license and maintenance revenues. When that happens, we expect to see stronger maintenance growth rates.


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For the first nine months of fiscal year 2013, the underlying reasons for the changes in the various components of our services revenues were similar to those experienced during the quarter as noted above.

The following table represents our total services revenues by region (in thousands):

                                                      Three Months Ended                                          Nine Months Ended
                                                        (In thousands)                                              (In thousands)
                                         September 30,                                               September 30,
                                                                  Variance       Variance                                    Variance       Variance
                                       2013          2012           $'s              %             2013          2012           $'s             %
Services Revenues
North America                        $ 13,968      $ 14,424      $     (456 )           (3 )%    $ 43,620      $ 45,144      $  (1,524 )           (3 )%
. . .
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