Insightful Corporation (NASDAQ: IFUL), a leading provider of predictive analytics and reporting solutions, today announced its operating results for the third quarter ended September 30, 2007.
Insightful reported total revenues of $4.9 million in the third quarter of 2007, a decline of 16% when compared to revenues of $5.9 million in the third quarter of 2006. Total revenues associated with the company’s core data analysis product line decreased by 15% in the third quarter of 2007 compared to the third quarter of 2006. Revenues associated with the company’s text analysis product, InFact, decreased from $0.2 million in the third quarter of 2006 to $0.1 million in the third quarter of 2007. For the third quarter of 2007, Insightful reported net income of $1.9 million, or $0.14 per diluted share, compared to net income of $0.3 million, or $0.02 per diluted share, for the third quarter of 2006. Net income for the third quarter of 2007 includes a gain of $3.5 million on the sale of the company’s InFact search technology and associated intellectual property rights.
Non-GAAP operating results, which excludes stock-based compensation expense, amortization of intangible assets and the gain on the sale of InFact, were a loss of $1.4 million, or $0.11 per diluted share, for the third quarter of 2007, compared to a profit of $0.6 million, or $0.04 per diluted share, for the third quarter of 2006. As described in the section below entitled “Use of Non-GAAP Financial Measures,” non-GAAP earnings or loss differs from net income or loss reported under accounting principles generally accepted in the United States (GAAP) due to the exclusion of stock-based compensation expense, the amortization of intangible assets and the gain on the sale of the company’s InFact search technology and associated intellectual property rights. The reconciliation of Insightful’s GAAP net loss to its non-GAAP loss for the quarters ended September 30, 2007 and 2006 are set forth at the end of this release.
“We are disappointed with our results for the quarter,” said Jeff Coombs, president and CEO of Insightful. “We continue to feel that our strategic direction, to deliver packaged predictive analytic solutions built on an enterprise-scale S-PLUS platform, remains sound. However, we suffered from poor sales execution. Our lower revenues for the third quarter were in part a result of turnover in critical sales functions, of focusing too early on long sales cycles for products and solutions that have not yet been released, and of not closing the larger deals in our pipeline. We also saw declines in our professional services revenues, as custom projects dropped off in anticipation of product releases of packaged solutions.”
Continued Coombs, “We are determined to return to profitability while continuing to build a sound foundation for future revenue growth. To further our strategic enterprise direction, during the third quarter we released S-PLUS 8 Enterprise Server, a new analytic platform that provides improved scalability, reliability and compliance with IT standards for deployment of analytics applications across the enterprise, and continued our development of vertical solutions built on the S-PLUS 8 platform. Additionally, we’ve recognized the need for a unified worldwide sales and operations function. To this end, we are actively recruiting for a vice president of worldwide sales and professional services. Our regional vice presidents have resigned. Our vice president of North American sales has already left the company and our vice president of Europe will be transitioning out by the end of this quarter. The focus of the new function will be to unify and sell one set of worldwide solutions, thereby bringing scalability, simplicity, and effectiveness to our global sales operations.”
Quarterly Highlights
* Software license revenues were $1.6 million in the third quarter of 2007, as compared to $2.3 million in the third quarter of 2006. License revenues from the company’s data analysis product line decreased from $2.1 million to $1.5 million. License revenues from the company’s InFact product decreased from $0.2 million to $0.1 million.
* Maintenance revenues were $2.1 million in the third quarter of 2007, as compared to $1.9 million in the third quarter of 2006.
* Professional services and other revenues were $1.2 million in the third quarter of 2007, as compared to $1.7 million in the third quarter of 2006.
* Funded research, which is an offset to research and development expense in the company’s income statement, was $0.46 million in the third quarter of 2007, as compared to $0.55 million in the third quarter of 2006.
* Domestic revenues were $2.5 million in the third quarter of 2007, as compared to $3.4 million in the third quarter of 2006. This decrease resulted primarily from a $0.7 decrease in revenues from the data analysis product line. International revenues were $2.4 million in the third quarter of 2007, as compared to $2.5 million in the third quarter of 2006.
* The company accelerated its investment in solutions focused on solutions in key vertical markets, and on enhancing its core S-PLUS® predictive analytic platform. As a result, net research and development expenses increased by 17% to $1.4 million in the third quarter of 2007, as compared to $1.2 million in the third quarter of 2006, and increased as a percentage of revenues from 20% to 28%.
* The company released S-PLUS 8 Enterprise Server, the latest release of its predictive analytic platform, and S+FinMetrics® 3.0, the latest release of its software library for advanced financial data analysis.
Use of Non-GAAP Financial Measures
The non-GAAP financial measure of earnings or loss included in this press release is different from the GAAP measure of net income or loss, as this non-GAAP measure excludes certain items otherwise included in the computation of net income or loss. Insightful believes this non-GAAP measure is useful to enhance an overall understanding of its past financial performance and also its prospects for the future. These adjustments to the company’s GAAP results are presented with the intent of providing both management and investors a more complete understanding of Insightful’s underlying operating results and trends. This non-GAAP measure is among the primary indicators management uses as a basis for planning and forecasting of future periods.
The expenses excluded from Insightful’s GAAP results include stock-based compensation expense, amortization of intangible assets arising from the 2004 acquisition from Lucent Technologies, Inc. of the title to the software code underlying the “S” programming language and the gain on the sale of the InFact search technology and associated intellectual property rights. Stock-based compensation expense and amortization of intangible assets have no current effect on cash or the future uses of cash. Insightful’s stock-based compensation expense fluctuates with changes in the company’s stock price and interest rates. For this reason, changes in stock prices and interest rates could mask variation and trends in Insightful’s GAAP operating results that may otherwise be important to an understanding of the company’s results. The acquisition of intangible assets and the sale of the InFact-related technology and intellectual property were events outside of the course of Insightful’s normal business operations. For these reasons, management believes that exclusion of stock-based compensation expense, amortization of intangible assets and the gain in the sale of InFact may be important to an understanding of Insightful’s ongoing operating performance.
Reconciliations of GAAP to non-GAAP results are as follows (in thousands, except share data):
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