Gen Digital Inc (GEN) 2003 Q3 法說會逐字稿

Good morning. My name is Ben and I will be your conference facilitator today. At this time, I'd like to welcome everyone to the ON Technology Corporation, third quarter 2003 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer period. If you'd like to ask a question during this time, simply press star and the number 1 on your telephone keypad. If you'd like to withdraw your question, press the pound key. Thank you. Mr. Mason, you may begin your conference.

Thank you and good morning. Welcome to ON Technology Corporations third quarter 2003 results conference call. As mentioned by Ben, I'm Mike Mason of Allan and Carrin Investor Relations. Before we start this morning's call, there're a couple of items I would like to cover. Many of you received a copy of the press release announcing the company's results for third quarter 2003. It was released this morning at 7:35 a.m. Eastern Standard Time and was covered by Dow Jones at 7:46 a.m. If you did not receive a copy of the press release it is posted in the client section of our website at www.allancarrin.com or you may call our New York office at 212 691 8087 and we'll email it to you right away. The results are posted on Yahoo Finance. You can access a replay of the conference for seven days by calling 800 642 1687. International callers should dial 706 645 9291 using conference ID # 3393533. Also this call's being broadcast live over the Internet at Thompson's Financials First Call Events at www.firstcallevents.com The Internet replay will available through October 30, 2004 shortly after the end of the call.

Additionally, I've been asked to make the following statement. The statements on this conference call that relate to ON Technology's future plans, events and performance including statements relating to the company's future growth prospects, financial results, new product offerings and expanding sales channels are forward looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Some of the important factors that could cause actual results to differ materially from those indicated by the forward looking statements are general economic conditions, including the current weakness in the global economy, demand for the company's product and services, performance of the company's direct and indirect distribution channels, competitive pressures, market acceptance of the company's new products and technologies and the risk factors detailed from time to time in ON Technology's periodic reports filed with the Securities and Exchange Commission, including without limitation the company's clearly report written on form 10Q for the second quarter of 2003 filed in August 2003.

Actual results and performance may differ materially due to these and other factors. Readers are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date of this press release. ON Technology undertakes no obligation to release publicly any updates or revisions to any forward looking statements contained in this press release that may reflect events or circumstance recurring after the date of this conference call.

With us this morning is Bob Doretti, Chairman, President and Chief Executive Office and Steven Wasserman, Vice President of Finance and Chief Financial Officer. Steve will discuss the company's third quarter results after which Bob will discuss the state of the company's operations. Bob and Steve will then be available to answer any of your questions. I would now like to turn the call over to Steve. Good morning Steve.

Good morning Mike. Thank you. Good morning ladies and gentlemen. Bob and I are pleased to be speaking with you today. Prior to discussing the quarter's results as we usually do, I want to spend a few minutes discussing the proposed acquisition of ON Technology by Symantec. ON Technology intends to file a proxy statement and other relevant documents concerning the proposed merger with Symantec Corporation with the Securities and Exchange Commission as soon as possible. ON Technology's stock holders are urged to read the proxy statement and any other relevant documents filed with the SEC when they become available because they will contain important information.

Investors can obtain free copies of the proxy statement and other documents when they become available by contacting the company. In addition, documents filed with the SEC by ON Technology will also be available free of charge at the SEC website which is www.sec.gov. Information regarding the identity of the persons who may under the rules of the SEC be deemed to be participants in the solicitation of stock holders of ON Technology in connection with the merger with Symantec Corporation and their interest in the solicitation will be set forth in proxy statement that will be filed by ON Technology with the SEC.

Finally, until the merger proxy is filed, we will be unable to answer questions related to our discussions with Symantec, discussions with other parties and the board deliberation. However, we are in a position to take questions relating to the merger document itself that was filed Monday with the SEC.

Now, on to the quarter. To highlight some of the key financial results from the third quarter, the company generated total revenue of $9.6 million. This included $5.4 million of software license revenue. The company reported operating income of $297,000 and the company licensed its software to a total of 107 customers. Now I'll provide some additional detail. As I mentioned, total revenue for the quarter was approximately $9.6m, an increase of approximately 14.0% over the $8.5m in revenue for the same period in 2002. This consisted of $5.4m of software license revenue and $4.2m of services revenue. Service revenue increased by $700,000.00 or 21% year over year, Software license revenue increased by $700,000.00 or 14% year over year, and hardware revenue decreased by $200,000.00 or effectively by a 100% year over year, as we had planed.

With in-services, maintenance revenue increased 45% year over year. The significant increase in maintenance revenue resulted from the growth in our unsold base, as well as the continued high level of maintenance renewal. From a channel perspective, direct channels generated 60% of ON's license revenue with the remaining 40% generated from the indirect channels. From a geographic perspective 23% of total revenue was generated in North America with the remaining 77% from Europe. This compares to 18% and 82% respectively for the same period in 2002.

Focusing on software license revenue alone, North America generated 27% of the quarter's license revenue as compared to 11% in the same period in 2002. Of the 108 customers that licensed ON's software in the quarter, 66% licensed ON Command CCM and the remaining 34% licensed On iCommand. 55% of the customers in the quarter were new license customers and the remaining 45% were repeat license customers. Annualized revenue per employee was $198,000.00 for the quarter, as compared to $191,000.00 for the same period in 2002.

Moving below revenues, the gross profit percentage decreased by 3.4 percentage points from the same period in 2002. This decline was due primarily to higher consultant utilizations resulting in increased cost being allocated to cost of sales as well as higher third party product sales, which do have lower margins.

Total operating expenses for the first quarter, for the last quarter increased by $500,000.00 over the same period in 2002. Sales and marketing expense increased by $800,000.00 year over year, primarily due to higher head count in the sales and marketing organization. Year-over-year sales and support positions increased by six.

Research and development expenses decreased $200,000.00 year over year, primarily due to a reduction in allocated lease expense. G&A expense was flat at $1.2m from the same period in 2002.

As I said previously, the operating income for the quarter was $297,000.00, compared with an operating income of $198,000.00 for the prior year. The net loss for the quarter was $798,000.00 compared with a net income of $16,000.00 in the same period in 2002.

During the quarter we recorded an income tax provision of $1.2m, which relates primarily to the estimated foreign taxes that are due on our profitable European operations.

Moving onto the balance sheet. We ended the quarter with $13.8m in cash, up modestly over last quarter's cash balance, due primarily to the continued appreciation of the Euro.

Day sales outstanding increased to ninety-four days as a result of the large percentage of sales that were made in the latter part of the quarter. The percentage of receivables over ninety days continues to improve, and is actually decreased to a recent low.

We do not envision any collection problems with our current receivables and we expect DSL's to return to a more typical 55 - 60 day range going forward. In sum rates, the company generated total revenue of $9.6 million, which included $5.4 million of software license revenue. The company recorded operating income of $297,000 and the company licensed its software to a total of 108 customers. I'd like to turn to floor over to Rob Doretti.

Thank you Steve. Let me begin by stating we are very proud of our progress, our decision in our focus to prevail on a very crowded industry and marketplace. Our stick-to-it attitude for executing our agenda has paid off not only for the investors but for our employees and for our customers as well. We did what was right for our constituents in the company as a whole when we agreed to merge with Symantec.

Let me talk about Q3. We again prevailed and had another good quarter by meeting our objectives of revenue growth in the double-digit arena and attaining a good operating profit. Unfortunately (indiscernible) got in the way for net profit, but this could not be avoided at this time. Overall we did well and are on to the next stage of our existence. In addition, during Q3 we attained our guidance and now made seven out of eight quarters in a row in operating profitability and did it by sticking to our agenda and executing our strategy and plans.

A North American field operation has gained traction and is moving in a positive direction. I am pleased we are sticking to our strategy and not bending to the whims of people that are impatient. On the other hand, we also realize we need investment for exposure via enhanced market awareness, critical mass distribution and customer support.

We also continue to execute our plans in the financial services arena where we focus our business along with the retail, the public sector and select other verticals. In the financial service arena we realized over $1 million in revenue with a strong well-known New England financial institution leading the way. We continue to execute in the public sector as well as the local state and federal government by closing eighteen new deals in this arena worldwide. But that is today only. In reality we are nowhere near the potential in this arena but have a huge in the focus in the arena worldwide. The potential was tied to distribution account management and technology advancement, all of which is being paid attention to in our present strategy.

We continue to penetrate the large enterprise with partners like Dell, Getronics and Direct Sales and will continue to do so in the future with added channel resources. Europe, although getting hit in select geographic- economic restraints continues to prevail with multiple accounts closed in the mid-market place, at the same time, more businesses being added to the pipeline and realized in the large enterprise phase with the added focus of our account teams and valued partners.

And lastly, as we're into Q4 we're on our way to obtain our annual projections as we stated in our Q2 call. Our business is gaining momentum and our expansion is underway. To ensure our success we recently took the step in our evolution to preserve our strength and grow and extend our reach by consummating our strategic initiatives to gain timely critical math, scale and market awareness to truly prevail in the enterprise; that being the proposed alignment with Symantec. We are in this awkward window between SEC filings and the proxy making it difficult and frustrating to communicate our strategies and actions going forward. As enthusiastic as I am about the deal, I am unfortunately constrained from talking about this great merger. Therefore I refer you to the recent AK filing and the forthcoming proxy.

As far as Q4 goes I am projecting $10 million to $11 million in revenue and another profitable quarter. We possibly can do more but I remain concerned about the IT spending environment and I am also keenly aware that some (indiscernible) customers may put their orders on hold awaiting the outcome of the alliance. Of course, we will pushed to do all we can to excel in this arena. The pipeline is solid and is growing. Now let's see if we can open it up to questions for Steve and myself.

At this time I would like to remind everyone, in order to ask a question, please press star then the number one on your telephone keypad. We'll pause for just a moment to compile the Q & A roster. Once again, please press star then the number one on your telephone keypad. At this time there are no questions.

Let's give people one more minute and then if there are no questions, we'll ring off.

Your first question comes from Jeff Burgman of Milton Partners.

Hi Jeff.

Hi how are you?

Good.

I'd just like to ask why there's such a low threshold (technical difficulty).

Well. We missed that. Something got in the way of the communication.

Jeff could you repeat your question please.

Yes. In the merger agreement there is only a 3% at centre- condition or it is more than 3% for the shares desent - Why- that seems awfully low?

Jeff. Our experience is that's well within the normal range and that was part of the negotiations with the other party.

Okay. Were there other interested parties?

As much as we'd like to answer that, we can't answer that. You have for the merger proxy statement, which will provide answers to those and other questions that I'm sure you have. Again as Rob said, it's just awkward. It's difficult. We can't answer these questions right now.

It's frustrating for me because we'd love to tell you everything but we can't do it at this time.

Jeff Burgman And your guidance of $10 million to $11 million. Does that include some expectation that the customers will delay?

Like I said, it does. We're not sure. We haven't got any word that it does. And we hope to do more but I can't pinpoint the exact number at this time. We have an awful lot in the pipeline on both sides of the ocean and the U.S. has gained a lot of traction for this quarter. That's all we can say but we never know.

Okay thank you.

Thank you Jeff.

Your next question comes from Brian Hathaway (ph) of Hathaway Park.

Hi Brian, how are you?

Hi Rob. Hi Steve.

Hi Brian.

The question is, in light of the last couple of sentences and answering that the gentleman's question, in kind of in light of U.S. just getting some traction and $10 million to $11 million and maybe you could do better and at that level you earn money. Why sell out now?

Again we can't answer that. I wish we could. I think it's a little longer-term view than just the short-term view Brian.

Brian all of this information will be covered in the merger proxy statement. The issue that we have is it could be perceived as with soliciting by answering these questions and that Rob and I don't want to be looking at each other through jail cells. You have to wait for the merger proxy on that point.

Okay well otherwise good job on the fundamentals of the business and I'll check in with you soon.

Thank you Brian.

Take a look at the AK Brian and the proxy as it comes out and you'll get a lot of the answers and you know that we're always available.

Alright. Great. Thanks.

Bye. Alright.

I'd like to remind everyone, in order to ask a question please press star then the number one on your telephone keypad.

And is anybody coming on.

No sir. At this time there are no questions.

Okay. We'd like to thank all of you for participating in our quarterly conference call. As Mike (indiscernible) said in the beginning, you may access a replay of the call at 1 800-642-1687 access code 3393533 for the next seven days or in addition, it's available at www.firstcallevents.com or also on our website www.on.com . Thank you very much everyone and bye for now.