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

November 04, 2011 | About:
10qk

10qk

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Edgewater Technology Inc. (EDGW) filed Quarterly Report for the period ended 2011-09-30.

Edgewater Technology Inc. has a market cap of $36 million; its shares were traded at around $2.89 with a P/E ratio of 41.3 and P/S ratio of 0.4.

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 95.7% and 95.0% of service revenue for the three- and nine-month periods ended September 30, 2011, respectively. 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. Revenue under time and materials contracts is recognized as services are rendered and performed at contractually agreed upon rates. Fixed-price contracts represented 2.4% and 2.9% of service revenue for the three- and nine-month periods ended September 30, 2011, respectively. Fixed-price contracts represented 3.6% and 4.5% of service revenue for the three- and nine-month periods ended September 30, 2010, respectively. Revenue pursuant to fixed-price contracts is recognized under the proportional performance method of accounting. Fixed-fee contracts, which are specific to monthly hosting and support services, represented 1.9% and 2.1% of service revenue during the three- and nine-month periods ended September 30, 2011, respectively. Fixed-fee contracts represented 2.3% and 2.2% of service revenue for the three- and nine-month periods ended September 30, 2010. Revenue under fixed-fee contracts is recognized ratably over the contract period, as outlined within the respective contract.

Revenue. Total revenue increased by $3.7 million, or 17.1%, to $25.0 million for the three-month period ended September 30, 2011, compared to total revenue of $21.4 million in the three-month period ended September 30, 2010. Similarly, total revenue increased by $11.0 million, or 17.0%, to $76.0 million for the nine-month period ended September 30, 2011, compared to total revenue of $65.0 million in the nine-month period ended September 30, 2010. With respect to the comparative increases in year-over-year total revenue, service revenue increased by $2.0 million, or 11.0%, and $7.2 million, or 14.1%, in the three- and nine-month periods ended September 30, 2011. Software revenue increased by $1.8 million and $1.4 million, in the three- and nine-month periods ended September 30, 2011.

Gross Profit. During the three-month period ended September 30, 2011, total gross profit increased by $1.5 million, or 19.6%, to $9.4 million compared to total gross profit of $7.8 million in the three-month period ended September 30, 2010. During the nine-month period ended September 30, 2011, total gross profit increased by $5.7 million, or 24.5%, to $28.8 million compared to total gross profit of $23.1 million in the nine-month period ended September 30, 2010. For purposes of further analysis, we refer to gross profit as a percentage of revenue generally as gross margin.

Selling, General and Administrative (SG&A) Expenses. As a percentage of revenue, SG&A expenses were 26.5% and 31.1% during the three- and nine-month periods ended September 30, 2011, respectively, compared to 35.5% and 33.9% in the comparative 2010 quarterly and year-to-date periods, respectively. On an absolute dollar-basis, SG&A expenses decreased by $933 thousand, or 12.3%, to $6.6 million in the three-month period ended September 30, 2011 compared to SG&A expenses of $7.6 million in the three-month period ended September 30, 2010. On a year-to-date basis, SG&A expenses increased by $1.6 million, or 7.3%, to $23.6 million in the nine-month period ended September 30, 2011 compared to SG&A expenses of $22.0 million in the nine-month period ended September 30, 2010.

Net cash provided by operating activities was $4.2 million and $1.3 million for the three months ended September 30, 2011 and 2010, respectively. Net cash provided during the three months ended September 30, 2011 was largely attributable to inflows related to the net income from operations of $1.5 million, a $2.5 million decrease in accounts receivable and $2.1 million in accrued payroll and related liabilities. The Company recorded non-cash charges of $716 thousand in depreciation and amortization expense and $265 thousand in stock-based compensation expense. Additionally, the Company recorded a reversal of non-cash charges of $1.4 million in connection with fair value remeasurements of contingent earnout consideration. The inflows were partially offset by a decrease in accounts payable and accrued expenses of $1.4 million (primarily related to payments made to software partners in connection with software revenue deals executed during the second quarter of 2011).

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