必能寶 (PBI) 2004 Q1 法說會逐字稿

Good morning. I will be your conference facilitator. At this time, I would like to welcome everyone to the MapInfo first quarter 2004 conference call. All mikes 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. Press star then the number 1 on your telephone keypad. If you would like to withdraw your question, press star then the number 2 on your telephone keypad. I would now like to turn the call over to Miss Jody Berfini..

Thank you. Good morning, everyone. With us on today's call, Mark Cattini, President and Chief Executive Officer. Wayne McDougall, Chief Financial Officer. And Mike Hickey, Chief Operating Officer. The info issued in the earnings announcement earlier this morning, if you have not received a copy, please call Marcy Benjamin at 518-285-7028. She will fax or e-mail the release to you. Alternatively a copy is available in the investor relations section of the company's website at www..MapInfo.com.

Before starting the call, I'd like to remind everyone that management will be making forward looking statements on today's call, regarding the company’s future financial performance. Including statements regarding future revenue and earnings per share, broadening of usage of MapInfo’s products in targeted vertical markets, future trends in IT spending, prospects of favorable business conditions, statements about management’s future expectations, beliefs, goals, plans or prospects. These statements constitute forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Actual results could differ materially. Forward looking statements due to a number of factors, including those factors contained in the company's most recent annual reports on form 10-k for the year ended September 30th, 2003, as well as other documents that may be filed by MapInfo from time-to-time with the Securities and Exchange Commission. MapInfo undertakes no responsibility to update any of these forward looking statements. With that, I would now like to turn the call over to Mark. Good morning, Mark.

Thank you. Good morning, everyone. We are pleased to report a strong start to the new fiscal year, with revenue of $28.6 million representing a 37% increase over the prior year and EPS 4 cents versus a 12 cent loss in Q1 of last year. This marks the 3rd consecutive quarter of bottom line profitability. In addition, we made progress towards achieving this year’s strategic objectives, mainly to deepen our presence in under penetrated vertical markets by introducing vertical specific solutions to extend our partnerships with industry leaders who had location based capabilities to leading enterprise solutions and establishing Vinsa, our enterprise location platform which will help us broaden the use of location based analytics within an organization and expand our customer base.

Before describing in more detail, Our operational performance for the quarter, I'd like to turn the call over to Wayne, who will take you through the financial results in detail. Wayne.

Thank you, Mark. We're happy to report first fiscal quarter revenues of $28.6 million. Earnings per share of four cents. This is the highest first quarter revenue in the company's history and third consecutive quarter of profitability. In addition, on a trailing 12 month basis the company is profitable delivering nine cents per share. Worldwide revenues increased $7.7 million or 37% over the prior year first quarter. The Thompson acquisition accounted for $4.5 million dollars of the increase and the revenue of the core business increased $3.2 million up 16% over the prior year results. As a reminder, since Thompson was acquired on January 6th, 2003, this will be the last quarter we will be reporting Thompson revenue separately. from a geographic perspective quarterly revenues in the Americas increased $5.9 million or 56%. $16.5 million. Excluding Thompson, core Americas revenues increased 14% over the prior year and achieved a second consecutive quarter of year-over-year growth following eight quarters of decline. Revenues outside the Americas increased 18% on a year-to-year basis to 12.1 million. Our European team began to see signs of upward trending in IT spending and had its largest first quarter revenues of $8.7 million, 17% above the prior year result

On a constant currency basis, European revenues increased 9%. All major European markets were up year-over-year although we still see some sluggishness in certain European economies. The European quarter was highlighted by execution of a $1 million plus contract with Zuric financial services, a large insurance carrier and a significant win in one of our targeted verticals. This contact will be completed and the revenue recognized over the next couple of quarters and Mark will further elaborate on this transaction. In the Asia Pacific region, first quarter revenues were $3.3 million a 21% increase over a year ago. Australia Japan and China increased over the prior year although the Australian result was attributable to a favorable exchange rate. On a constant currency basis, Asia Pacific revenues increased 2% year-over-year.

With respect to business units, the company will no longer be reporting business unit results on a quarterly basis as it is no longer organized into business units. Instead, we have aligned resources with the market opportunities and are managing the business geographically with sales and market focused vertically within each geographic market. Switching to a product perspective we continue show a more diversified mix compared to last year, with services constituting 22% of worldwide revenues in the first quarter up from 11% in the first quarter a year ago.

Product revenue which includes software, data and solutions represented 78% of the revenues in the quarter compared to 89% one year ago. In terms of growth over the prior year, services increased three fold and products increased 20%. In terms of large orders we had a total of 82 revenue transactions in the first quarter, valued in excess of $50,000. These 82 transactions amounted to $8.4 million in the first quarter revenues or 30% of the total revenue. As a comparison, in the prior year we had a total of 54 revenue transactions in the first quarter in excess of 50k, which accounted for $5 million or 24% of the prior year's first quarter revenues. This quarter we had two customers with billings or new contracts in excess of $1 million with one in insurance and the other in retail.

Existing and new customers this quarter come from all of our target sectors, including Home Depot, Wal-Mart, Gap Starbucks, Linens and Things, ESPN, Citigroup FleetBoston, Royal Bank of Canada, Zuric Financial Services, AT&T, Sprint, MCI Worldcom, Nextel, Verizon, Vodafone, Telstra UPS and the State of New York.

In terms of vertical industry revenue mix, we continue to see improvements towards a more balanced portfolio, with telecommunications representing 21% of revenues, Retail 19% and the public sector 15%. In the prior year telecommunications represented 17%, public sector, 18% and retail 5% of first quarter revenues. All of our significant verticals have increased year-over-year including the telecommunications sector which has seen its fourth straight quarter of year-to-year growth. Continuing down the income statement, the gross profit margin was 70.8 million -- 70.8% in the first quarter compared to 72.1% one year ago. The decrease in gross margin is attributed to the addition of 60 ads related to the service business of Thompson. This is the highest gross margin since the Thompson acquisition and is a reflection of the favorable revenue mix this quarter.

Operating expenses were $19.1 million in the quarter compared to $18.2 million one year ago, with the Thompson operation accounting for the majority of the increase.

As far as headcount, total headcount stands at 699 as compared to 668 in the prior year despite the addition of 90 Thompson Associates. Headcount of what was the core business decreased almost 10% from the prior year.

Operating profit for the quarter was $1.1 million, which was an improvement of $4.3 million over the prior year loss of $3.2 million. That gives us an operating margin of 3.9%. After other income and tax are taken into account, the result is earnings of four cents per share compared to a loss of 12 cents per share a year ago. The results of the first quarter of four cents per share exceeded the guidance of up to two cents a share due to better than expected revenues and gross margins. Operating expenses were in line with expectations. The tax rate is 40%. Cash and liquid investments were $35.4 million at the end of December. December 31 balance sheet reflected $17.9 million in debt outstanding.

Other highlights to know. We generated $1.2 million of cash flow from operation in the first quarter. DSO’s were 75 days this quarter, a four day improvement since the first quarter a year ago, deferred revenues on the balance sheet were $13 million at the end of December compared to $9.7 million one year ago, a 33% increase.

Now, I’ll turn to guidance. We had mentioned in our previous earnings call we would consider changing our guidance should improvements in the IT dictate. We are seeing increasing signs of recovery in capital business spending and still expect a stronger second half of the year than the first. Given our outlook for improving economic conditions coupled with the better than expected first quarter outcome on the top and bottom lines, we are revising our fiscal year guidance upward.

On a full year-over-year basis we now anticipate sequential revenue growth each quarter for a full year of increase at a rate of 15 to 17%. Corresponding to the full year revenue expectation we're assuming the gross margin will approximate 70%, and that operating expenses will grow from 19 million to twenty million per quarter over the course of the year. This is expected to result in full year earnings of at least 25 cents per share.

As for the guidance for the upcoming quarter, we anticipate revenue in the 29.5 to 30.5m range and earnings of approximately six cents per share. Again, we are pleased with the financial and operating results achieved this quarter.

Mark will discuss the opportunities we have for next quarter. Mark.

Thank you Wayne. As I mentioned at the beginning of today's call MapInfo made progress toward achieving fiscal 2004’s strategic objectives. I would like to update you on our activities during the quarter.

As many of you know. MapInfo set a clear goal for to diversify the revenue mix last year and we remain committed to a balanced revenue approach recognizing that the contribution from our target vertical markets, telecommunications, the public sector, retail, financial services and insurance may vary from quarter to quarter. We made progress this quarter in deepening our presence in under penetrated verticals. In insurance, as a result of our vertical focus we concluded our first $1 million plus contract. We were rewarded a contract with Zuric financial services, a large global European headquartered insurance company for a phase one target implementation that incorporates software, data and services. We will begin to recognize revenue for this first phase in the next two quarters and expect to participate in phases two and three which involve further geographic rollouts at a later date.

Zuric will utilize our solution to location enable traditional underwriting procedures allowing them to understand the concentration of risk by property or location. The system will also assist in the business of acquiring re-insurance. Insurance decisions solution suites, a solution we introduced towards the end of fiscal 2003, showcased our capabilities and acted as a proof of concept that we could solve this customer's business problem. We believe many insurance companies have the same business needs and our sales and professional services teams have been trained and educated on this solution We believe it to be highly repeatable.

During the quarter, we made progress integrating our location based offerings with leading supplier solutions. We joined forces with business objects who offer enterprise users an integrated locations and business intelligence solution which is designed to help organizations perform expanded analysis of customer relationship management, enterprise resource planning and supply chain management. To date, we have seen success in the public sector. As a direct result of this relationship, the Department of Justice and internal revenue service are implementing the integrated solutions to enhance their business intelligence solutions with location analysis. They will use this to locate hidden trends and make more informed decisions.

In retail we are delivering predicted modeling software and data to Zaxby's Franchising, an operator of 150 quick service restaurants based in Athens Georgia, along with Ground Round, Barbecues Galore and Hardy’s. We have also began a significant analytical and statistical research project with Linens and Things. These are good examples of maturing MapInfo offerings that encompass software data and professional and analytical services.

We have also made structural changes to the American sales and service organizations to enable us to take advantage of our analytical services expertise and to allow the entire sales team to sell predictive analytical offerings into opportunities in all vertical markets.

At the same time, we continue to develop solutions for our more mature verticals such as telecommunications. In preparation for the next phase of local number portability mandated by the S.E.C. for mid 2005, MapInfo is providing critical solutions to telecommunications companies. The latest phase of the L&P mandate requires carriers to provide geographic number portability, allowing customers to take their telephone numbers with them as they move from one geographic area to another. The geographic number portability, the carrier can locate a customer's address with a boundary and provide all of the necessary information needed to determine what services are offered, how they are provided and how much they cost. Carriers will not be able to provision and bill for services without the ability to transfer these criteria from the telephone number to the service address. MapInfo enables them to do this with our solutions and data. The L&P mandate will further enable MapInfo to secure long-term renewal of beta licenses and further encourage enterprise wide deployment.

This quarter, we introduced top spot info, a beta solution that enables users to determine the location of WI-FI hot spots throughout the United States. It combines [inaudible] WI FI hot spot list.com database with our technology to help users analyze WIFI market penetration and perform in-depth competitive analysis and improve customer services. This is designed to further differentiate MapInfo from its competitors.

Last quarter we discussed divulging MIAWARE, to an enterprise location services platform for corporate customers to expand locations services into the operational and analytical aspects of their business. I am pleased to report we have begun this evolution with the introduction of INVINSA and thus far we are satisfied with a positive response from the market place. For the first time MapInfo is offering organizations a singling high performance location platform to gain better insight into their data and drive better business decisions. Our goal is to broaden the use of MapInfo solutions for existing and new customers by supplying them with an enterprise location platform that enables them to address their enterprise needs and maximize their investment in location technology.

INVINSA provides location capability, integration, scalability, and rapid deployment while adhering to web services and other IT standards. INVINSA has been designed to link an organizations location data to applications throughout their information system and giving users instant access to powerful enterprise wide location technology and solutions. It can help an organization answer critical questions or make better decisions by supporting a variety of business needs in multiple business units, geographies and application environments all without specialized GIS skills. To date, we have worked with MIAWARE customers such a Vodafone and Mastercard using a more traditional and software licensing approach. However, with the broader rollouts and Migration to INVINSA, we see the opportunity to offer a variety of pricing models outside of the traditional software licensing model. The overriding objective of these pricing models is offer our customers a more relevant pricing model and for MapInfo to move more towards recurring revenue stream that is recognized over the life of a contract. For instance a per transaction structure or monthly usage fee. We are in the process of Creating, refining and reviewing other pricing options based on new customer needs. In Q1 we secured our first new INVINSA win from an aftermarket supplier for our national deployment.

To conclude, as our first quarter performance demonstrates we are building on the foundations of growth we laid in 2003 and we are focused on continuing to drive top and bottom line growth while investing in growth opportunities.

On the strength of the first quarter performance and an improving outlook for spend going throughout the year we're raising full year guidance of 15 to 17% revenue growth and earnings of at least 25 cents per share. Last quarter, we indicated that we would consider revisiting guidance should IT spending improve sooner than we originally expected in the second half of our fiscal year. This indeed proved to be the case. With that said, we are mindful of the fact that some customers are still budget constrained and this may still be continue to be the case for an undeterminable period of time. However, at MapInfo we have observed that more customers' budget restrictions appear to be lifting.

As you can see, we're off to a strong start for the year and are looking forward to improving bottom line performance throughout the year. Now, operator, I'd like to turn the call over toe questions.

At this time, I would like to remind everyone, if you would like to ask a question, press star and the number 1 on your telephone keypad. Fur first question is from Paul Coster.

I think the conference call was very informative. Not many questions. Mark, the predictive analytics business can you tell us how that business scales and what kind of margins we should expect out of it?

Sure. The first thing we have done is important to note, is that we made significant structural changes to the Americas sales and services organizations this quarter. We're making those solutions available throughout the rest of the organization. In the other groups, telecommunications insurance wherever it's relevant. Across the board, we still think we can manage up to 70% gross margin, which is typical for our business as we envision in 2004.

Doesn't it entail a little bit more high touch to it?

It does. But one of the things we have is we had some -- even though we have a professional services and analytical capability, we do have some pretty in depth software solutions. That's the way we have been giving some of our services. A tool we built, a solution we built that allows organizations to site scores. That we think is a way to scale some of these services. Not just in the Americas but we're looking clearly at Europe as well and Asia Pacific.

One of your directors, I believe, left to take a positive conflict of interest, meaning that he's off to look at potential acquisitions for you. What's the latest thinking on acquisitions?

The latest thinking at the moment, I think you’re referring to George, we've indeed hired First Albany for -- for them to work with us to identify suitable targets. What we had engaged the metagroup, that had a couple hundred consultants worldwide we have given very detailed briefings as to the areas we're interested in. We're trying to create effectively vertical practices within that info. Obviously, retail is the best example, telecommunications, public sector, financial services and retail, that's what we're looking to replicate across the business.

What's your philosophy regarding dilution.

Our philosophy is to date all our acquisitions have been accretive immediately and that’s what we'll move ahead with unless there's some specific strategic long-term advantage.

Currency effects on earnings, if you stripped that out, what impact would that have

On the revenues, approximately 5%.

5% of revenue and EPS??

We didn't put that together, Paul. The bottom line, it is -- is there is no impact on the bottom line, to be honest with you. We have natural hedging around the world. No impact on the bottom line.

Great. That's it. Thanks very much. Good going.

Thanks, Paul.

Your next question comes from Susan Greer. -- Steve Greer.

Good morning, Steve.

A couple questions here. First of all, I was looking at your sales and marketing. Are you prepared to give any more guidance or any other comments based on what you think that might entail during the rest of the year? Obviously, you're going to respond to opportunities, as you see them and you have a lot of opportunities right now. Do you have any further comments to make on -- in terms of guidance or color on selling and marketing expense?

We’re taking a very prudent approach, as it affects the business, 60 something% of our expenses. We are adding sales and marketing where we see the opportunities and the revenue in advance. I can tell you, we're taking a cautious approach quarter to quarter. One of the comments Wayne that in what was our core business we saw headcounts decrease by 10% over the prior year. We will increase where we see the revenue ahead of the costs.

Another question I had, I believe in the past quarter, Home Depot was one of your largest customers through the Thompson acquisition, is that correct?

That's correct.

I know they talked about spending an enormous amount of money for new stores and upgrading. Could you give us a little more light on exactly what it is you do for Home Depot.

I am happy to tell you. What we do, a number of things. Help them identify new store outlets. We do that through a series of analytical models we have built. [inaudible] Home Depot, analyzing trade areas, demographic analysis, competitive influences and are able to site their stores for them. We take a partnership approach with Home Depot. We think we're deep into the fabric of their business. Sell financial forecast and planning for every single one of their stores across the Americas. That's bodes well we think for us, moving forward.

On INVINSA, obviously that’s just out of the gate. My understanding, that's a platform that may have some add-on possibilities as you get installations out there?

Yes.

Could you tell us a little bit about what this automotive aftermarket supplier is initially doing with INVINSA right now?

That's really a simple dealer locator service. I think what that does is address one of the key issues. What INVINSA does for MapInfo and our customers is provide a platform of all the capability that we've been developing. In an infrastructure way. A way in which an IT organization looks at standards as a piece of infrastructure. For example, a customer of ours has bought this piece of technology for what we would consider to be a reasonably simple application. That platform is now in place and effectively what they have acquired a capability. What we're doing is building pricing, and we're building approach to market, which is providing new and existing customers effectively a capability on which they continue to build as many applications as they wish. The next stage, of course, for MapInfo, is to build industry specific solutions on top of the platform for targeted verticals which we're focused on currently.

That does it for me. Thank you.

If you would like to ask a question, please press star and the number 1 on your telephone keypad. The next question comes from Jeff Meyers of Intrepid Capital.

Hi, guys. The first question is, I was a little late getting on the call, homeland securities, what you guys are seeing there, in terms of budget and potential opportunities for MapInfo there.

What we're seeing with Homeland Security is budgets are slowly being released. I can tell you that we are very focused and we are continuing to position ourselves in that market place. Other than that, I have nothing more specific to report.

Okay. And the same question is you could revisit the long-term model, you know, where growth can be on a longer term basis, where you think you get operating margins up?

Yes. Jeff, this is Wayne. We targeted we'll be approaching a 10% operating margin by the end of this fiscal year for Q4. If we could have the similar type revenue growth as this year we would expect to have an operating margin in the range of 10% next year, that’s contingent upon the market conditions and IT spending freeing up.

Thanks a lot, guys.

Once again, if you would like to ask a question, please press star and the number 1 on your telephone keypad. We'll pause for just a moment to compile the roster. There are no further questions at this time.

On behalf of everybody at MapInfo, I'd like to thank all of you for your continued support. Thank you very much.

That concludes today's conference.