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Edgewater Technology Inc. Reports Operating Results (10-Q)

November 12, 2010 | About:
Dividend Growth Investor

10qk

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Edgewater Technology Inc. (EDGW) filed Quarterly Report for the period ended 2010-09-30.

Edgewater Technology Inc. has a market cap of $33.9 million; its shares were traded at around $2.76 with and P/S ratio of 0.7. EDGW is in the portfolios of Mario Gabelli of GAMCO Investors, Jim Simons of Renaissance Technologies LLC, John Rogers of ARIEL CAPITAL MANAGEMENT LLC.

Highlight of Business Operations:

Revenue. The Company derives its service revenue from time and materials-based contracts, fixed-price contracts and fixed-fee arrangements. Time and materials-based contracts represented 94.0% and 93.4% of service revenue for the three- and nine-month periods ended September 30, 2010, respectively. Time and materials-based contracts represented 91.1% and 94.2% of service revenue for the three- and nine-month periods ended September 30, 2009, respectively. Revenue under time and materials contracts is recognized as services are rendered and performed at contractually agreed upon rates. Revenue pursuant to fixed-price contracts is recognized under the proportional performance method of accounting. Fixed-price contracts represented 3.6% and 4.5% of service revenue for the three- and nine-month periods ended September 30, 2010, respectively. Fixed-price contracts represented 5.9% and 3.2% of service revenue for the three- and nine-month periods ended September 30, 2009, respectively. Revenue under fixed-fee contracts is recognized ratably over the contract period, as outlined within the respective contract. Fixed-fee contracts represented 2.3% and 2.2% of service revenue during the three- and nine-month periods ended September 30, 2010, respectively. Fixed-fee contracts represented 3.0% and 2.6% of service revenue for the three- and nine-month periods ended September 30, 2009, respectively.

Utilization, which is the rate at which we are able to generate revenue from our consultants, improved to 75.0% during the third quarter of 2010 compared to 65.1% during the third quarter of 2009. On a year-to-date basis, utilization for the first nine months of 2010 improved to 75.3% compared to utilization of 65.1% during the first nine months of 2009. We typically target utilization in a range from 78%-82%. This objective is influenced by a variety of factors, including customer demand for IT spending and general economic circumstances. The improvement in our current quarter and year-to-date utilization rates are the cumulative effects of the Fullscope Acquisition and the current and sequential quarterly growth in our Core Service Offerings service revenue.

Software revenue, on an annual basis, has traditionally represented less than 5% of our total revenue. During the three- and nine-month periods ended September 30, 2010, software revenue totaled $1.2 million, or 5.6% of total revenue, and $7.9 million, or 12.1% of total revenue, respectively. During the three- and nine-month periods ended September 30, 2009, software revenue totaled $154 thousand, or 1.3% of total revenue, and $617 thousand, or 1.6% of total revenue, respectively.

Cost of Revenue. Cost of revenue primarily consists of project personnel costs principally related to salaries, payroll taxes, employee benefits, software costs and travel expenses for personnel dedicated to customer projects. These costs represent the most significant expense we incur in providing our services. In total, cost of revenue increased by $6.0 million, or 78.7%, to $13.6 million for the three-month period ended September 30, 2010 compared to $7.6 million in the comparative 2009 quarterly period. Similarly, cost of revenue increased by $15.2 million, or 56.8%, to $41.9 million during the year-to-date period ended September 30, 2010 compared to $26.7 million in the comparative 2009 year-to-date period.

Read the The complete Report

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10qk
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