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Original Source: FD (FAIR DISCLOSURE) WIRE
OPERATOR: Good morning and thank you all for holding. I would like to remind parties all lines have been placed on the listen-only mode until the question-and-answer session of today's conference. Also, today's call is being recorded. If you have any objections, you may disconnect at this time. I would now like to turn the call over to Mr. Bill Evans. Thank you, sir. You may begin.
BILL EVANS, CFO, WITNESS SYSTEMS: Thank you, Wendy (ph). Good morning and thank you for joining this call to discuss our announcement this morning that we have signed a definitive agreement to purchase Blue Pumpkin Software, a leading provider of workforce Management solutions for customer contact centers. I am Bill Evans, the Chief Financial Officer of Witness Systems, and with me this morning is Dave Gould, our Chairman and CEO. Dave will outline the strategic rationale for this merger and I will review the financial terms and expected impact of the transaction on Witness Systems.
Let me start by reminding you that our comments today include historical and forward-looking statements relating to the Company. Numerous factors affect the Company's operating results and could cause actual results to differ materially from those indicated in this or any other disclosure. And there can be no assurance that future results will meet expectations.
There are specific risks related to conducting acquisitions, particularly our ability to identify and evaluate prospects, conduct due diligence, and complete the acquisition and properly manage the integration process. If we fail to properly evaluate and execute acquisitions, it may seriously harm our business and operating results. If we fail to effectively integrate the acquired company, we may not achieve the expected synergies nor achieve an acceptable return on investment.
Additional risks include, but are not limited to, the potential distraction of our management, diversion of resources, disruption of our business, ability to retain and motivate key employees of the acquired company, and maintaining good relationships with the customers of the acquired company. These acquisition-related risks are in addition to the general business risks that include, but are not limited to, fluctuations in customer demand, the timing of orders for our products and services, the market acceptance of our products, and the effect of macroeconomic trends on our business.
There are also risks associated with rapid technology change, foreign currency fluctuation, and the management of our business. Investors are cautioned that these forward-looking statements are not guarantees of future performance and we undertake no obligation to update these statements. Our actual results may differ materially from our expectations. A more complete summary of these and other investment risks that may affect our Company can be found in our most recent reports on file with the SEC.
Before I turn the call over to Dave, let me summarize the principal terms of this transaction. We have agreed to pay approximately $75 million for all of the equity interest of Blue Pumpkin, a privately-held company based in Sunnyvale, California, that is a leading provider of Workforce Management solutions for contact centers. The purchase price will consist of $40 million cash, with the remainder in Witness Stock. The stock component provides for a minimum of 2.1 million and a maximum of 2.4 million Witness shares.
We currently believe this transaction will increase revenues by approximately $28 million and core earnings by 3 cents per share during 2005. I will have more to say about the financial impact of this merger after Dave speaks to the strategic value. I will turn the call over now to Dave Gould.
DAVE GOULD, CHAIRMAN, CEO, WITNESS SYSTEMS: Good morning. Today we announced that Witness Systems is acquiring Blue Pumpkin, a leading provider of Workforce Management solutions for customer contact centers. Both boards have unanimously recommended the transaction. We believe there's a strong strategic rationale for this acquisition. Here's a quick summary, then I will provide some more color on each point.
One, the combination further defines the global workforce optimization market and establishes a clear leader in terms of share and momentum. Two, the resulting application suite represents a transformational event in the workforce optimization market, with an exceptionally compelling value proposition for customers and partners and strong competitive differentiation. Three, the deal significantly expands our market opportunity, with a solid position in the untapped midmarket and an opportunity to replace what we believe to be an aging set of installed legacy sites. And fourth, the combined Company will see greater channel leverage as we supply more products, which enables us and our partners to realize more revenue and margin. We believe this makes it easier for our large global partners to invest in our mutual success.
Now I will give you some color on each of these points. First, let's talk about market leadership. The anchor segments of this market in terms of current spending are quality monitoring and Workforce Management, which represent about 78 percent of the revenue according to Datamonitor. Independently, Witness has a dominant 47 percent share of the quality monitoring segment, and Blue Pumpkin is the second leading supplier of Workforce Management solutions, with more than 22 percent share.
I will also add that Blue Pumpkin has achieved this share with only seven years in the market versus 23 years for the largest legacy supplier and 16 years for the number three player. Clearly, we have acquired the momentum leader in this space. According to Datamonitor, the greater Witness Company will have approximately 20 percent of the anchor segments of the broader workforce optimization market, two-thirds higher than our closest legacy competitor.
On a gross profit basis, which accounts for the difference between our software business model and the hardware model of the legacy recording vendors, we believe we are approximately 50 percent larger than the next challenger and almost three times the number three player.
Second, Blue Pumpkin broadens our performance optimization suite to include advanced Workforce Management applications, including forecasting, scheduling, adherence, and planning applications. They also bring deep domain expertise, which extends the breadth and depth of our services capability and …