Sybase's So-So, Solid Q1

Software maker Sybase (NYSE: SY) "beat estimates" by the proverbial penny this morning, reporting pro forma (Latin for "better than we really did") earnings of $0.22 per share against a Street view of $0.21. Back in the real world of generally accepted accounting principles, the company also didn't do a half-bad job, boosting revenues by 5% over last year's first-quarter results and dropping one more penny than last year's $0.13 to the bottom line.

Now granted, the company's overall earnings didn't show a whole lot of improvement. Total GAAP profits only increased $100,000 in comparison to the year-ago quarter, coming in at $13.3 million. But the company has been making all the right shareholder-friendly moves over the past 12 months, buying back $125 million worth of convertible debt and another $5 million worth of plain vanilla common stock. As a result, Sybase's basic share count declined by 5% and its diluted share count (which included the likelihood that that debt would in fact get converted into stock one day) declined 6%.

Continuing our quest to bear down on the numbers that really matter, let's now move on to free cash flow. (And for those playing the home game, for a software maker, I generally modify the standard definition of free cash flow to subtract from cash from operations not just capital expenditures, but also capitalized software development costs.) After you work all the numbers, Sybase generated $50.4 million worth of the green stuff in Q1 2004. This year, it bettered that by 12%, reporting $56.6 million in free cash flow.

Now that we've got the major numbers out of the way, here are a couple other bits of information presented in Sybase's earnings release. First off, the company backed up my read on its Financial Fusion subsidiary from earlier this month; to wit, that the division is essentially an afterthought lost within Sybase's focal emphasis on databases. The division got no prose mention at all in this morning's report. Just a couple of line entries in the statement of operations. The upshot of those line entries is that Financial Fusion generates less than 4% of Sybase's total revenues, and is the only one of its divisions to report an operating loss. (Can you say spinoff?)

But while the words Financial Fusion are scarcely seen in the report, the initials RFID -- for radio frequency identification -- appear prominently and in several places. It looks to this Fool like the team at Motley Fool Rule Breakers should keep an eye on Sybase as the company positions itself to become the database maker of choice for keeping track of these billions and billions of RFID tags we keep hearing about.

Fool contributor Rich Smith has no position in Sybase.