Question-and-Answer Session
Operator
(Operator Instructions). Your first question comes from [Kevin Louve] - Riley & Co.
Kevin Louve - Riley & Co.
Just first off on the ChannelLinks acquisition, I was wondering if you could kind of go through the strategic rationale in terms of how they’re offerings kind of tie in with your existing product portfolio as well as some of the new initiatives you’re working on? Then also kind of discuss how they generate their revenues. From their website it looks like it might be kind of a hosted software model, so I just wanted to confirm that.
John Farr
Those are great questions. Fist of all, I’d start with the last part first. The ChannelLinks business model is exactly that, a hosted model. In fact they deliver no software. You think about trading partners; imagine large oil and gas companies who have trading partners throughout their system, their network, whether they’re pumpers or field personnel or pipelayers, whatever.
There are trading partners throughout that particular large hubs network, and so what ChannelLinks does is provide the internet connection or internet interface to allow those trading partners to exchange data, exchange documents with their hubs, and vice versa. It is all internet based, it’s all subscription, fees or monthly usage fees, and as you can imagine, they’ve got a number of different ways to deal with those sub partners. Small companies can be flexible as are we.
There’ll be some of the hubs in their network, who basically pay for all of their trading partners to utilize the service from ChannelLinks. There will be other hub partners who officially mandate that their trading partners will subscribe and use the ChannelLinks service, and then there are others who simply say that they would like for their trading partners to participate. ChannelLinks goes and deals with all of those scenarios.
I would say to you that ChannelLinks has continued in the $2 million kind of revenue scenario. They throw off about a 10% profit, and that profit being before tax, let’s think of that as an EBITDA number. That number though is relatively void of any marketing, investment and their sales investment is relatively limited, relative to the technology investment.
So we will going forward, add to some of the budget for spending on sales and marketing for ChannelLinks, essentially breaking them; even for a little bit for a little while here, so they can see how they do with a little bit more sales and marketing dollars to invest themselves, but also making available to them the relatively large sales and marketing foundation infrastructure that we have here at Pervasive.
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