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Executives

Dan Mondor – Chief Executive Officer, President

Emory O. Berry – Chief Financial Officer

Kirk Somers – Executive VP of Investor Relations

David King – Chief Marketing Officer

Jim Brickmeyer – VP of Product Line Management

Analysts

Alan Davis – D. A. Davidson & Co.

Todd Kauffmann – Raymond James

Concurrent Computer Corp. (CCUR) F1Q09 Earnings Call October 24, 2008 10:00 AM ET

Operator

(Operator Instructions). I would now like to introduce your host, Mr. Kirk Somers, Executive Vice President.

Kirk Somers

Good morning everyone and welcome to Concurrent's earnings conference call for the first quarter of fiscal year 2009. The format for this morning's call will be as follows, Dan Mondor, Concurrent's President and Chief Executive Officer will review the ongoing operations of business and Emory Berry our Chief Financial Officer will conclude the call with a detailed review of the financials for the quarter.

Following our scripted comments we will be pleased to take your questions. We also have David King our new Chief Marketing Officer and Jim Brickmeyer our new Vice President of Product Line Management with us today and they will be available to answer questions following the prepared remarks.

Before we begin, please let me remind you that this presentation may include forward-looking statements such as believes, expects, estimates, anticipates and other similar expressions. These statements are made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Accordingly, the cautionary statements made in Concurrent's form 10-K filed August 27, 2008 are incorporated herein by reference. The company's actual results could differ materially from the forward-looking information in this presentation.

The content of this webcast contains time sensitive information that is accurate only as of the date of this live broadcast, October 24, 2008. Any redistribution, retransmission or rebroadcast of this presentation in any form without the express written consent of Concurrent is prohibited. I caution you that any forward-looking statements made by the company are not guarantees of future performance and that a variety of factors could cause the company's actual results and experience to differ materially from the anticipated or projected results which the company may discuss on this conference call.

You should all have a copy of the earnings release documents. If you have not received a copy, please call Sandra Dover at 678-258-4112 and she will be pleased to provide you with a copy. With that said, I'll turn it over to Dan.

Dan Mondor

Good morning everyone and thank you for joining us today. I'll make a couple of comments on the first quarter and then provide an update on some of our key initiatives. Following that Emory will provide an in-depth review of the Q1 results including the buyback, the affect of the macro economic conditions as we see them, and our current outlook.

In the first quarter we achieved the following, we grew overall revenue, we improved gross margins and we reduced our operating expenses. The management team is focused on driving profitable revenue growth and making transformational changes to strengthen the business. We are early in these efforts and certainly there's more work to be done.

On the call in August and in my shareholder letter in September we outlined a number of our strategic priorities so let me give you an update on some of these.

Our focus and operational effectiveness continues and on that point we are transforming our sales and marketing capabilities and have done the following. We've established a product management discipline led by Jim Brickmeyer, who is on the call with us today, created a new marketing organization, appointed a new leader responsible for on-demand sales in the Americas and AMEA, and we've initiated the recruitment of a new head of global sales.

For the new marketing organization, as we reported we were actively searching for a chief marketing officer whose primary responsibilities were to lead our global strategy, expand our global market reach, and form strategic partnerships and alliances to complement our core technology.

This week we announced that David King has joined us as our CMO. David's experience in both service provider and enterprise vertical markets is the right fit for our business. In addition, his alliance in global marketing experience and capabilities will strengthen our business.

Next, we are making changes to allow us to better address opportunities in international markets. The European on-demand and IPTV business has continued to gain momentum for us as evidenced by the TV Cabo success in Portugal. In addition, we have increased the on-demand sales resources in that region and are encouraged by a marked increase in customer engagement.

On the innovation front, we have been aggressively pursuing new technologies as well as extending the capability of our existing platforms. We've had very positive feedback from our customers on our media cache 1000 solid-state storage arrays and we are working to extend the use of flash-based media in our products.

We are continuing to be engaged in target advertising initiatives with both our data analytics and screening products. We believe that audience measurement is the foundation for monetizing future video delivery business models. To that end, one of the steps we've taken is enhancing our Everstream Data management products to improve performance for larger data sets, which will be required to support these emerging event advertising business models.

On another note, we've made great progress in our real-time Linux operating system and software tools for the embedded systems market.

Services, as I mentioned previously, our key differentiator for Concurrent. We've made changes to reinforce this focus including the appointment of a new services leader for this part of the business. As a direct result we realized improvements in our services effectiveness for Q1.

So since joining Concurrent, I spent a significant amount of time on the road meeting current and prospective customers. Feedback is that our core products and services are sound and we will continue to expand our existing relationships and develop new ones to drive the growth we are committed to achieve.

So in conclusion, to reiterate, we are 100% focused on three key areas to increase shareholder value, profitable revenue growth, innovation and communication. We've made some headway on these and we will continue to update you in our progress. So thank you and I'll turn the call over to Emory.

Emory O. Berry

I'd like to give you a more detailed review of the financial results for the quarter. We finished the first quarter with over $18.3 million in revenue. Revenue increased 4% from the prior quarter, increased 13% from the previous year's quarter.

Gross margins improved to 56% in the first quarter. This margin improvement benefited from our efforts to improve our efficiencies through technology as well as other cost improvements.

The operating expenses decreased to $9.7 million as compared to $10.8 million in the prior quarter and $10.4 million in the previous year's quarter.

While we had lower operating expenses this quarter, they will vary as we balance controlling our expense management with investments for long-term growth. As a result, we ended the quarter with an operating profit of $552,000. The operating profit for the quarter included $775,000 in depreciation and amortization, $82,000 in non-cash share-based compensation expense, and $91,000 in severance.

Let me also comment that the revenue during the first quarter was comprised of approximately $12.2 million for on-demand and approximately $6.1 million for real-time. The revenue growth was attributable to the on-demand product revenues.

We finished the quarter with cash and working capital balances of approximately $24 million. Further, we improved efficiencies in inventory turns. During the quarter we repurchased approximately 37,000 treasury shares at $252,000. Given the unprecedented current market condition, we have paused further repurchases.

In our first quarter, these market conditions did not have a significant impact on our results. As we currently see the upcoming quarter we believe these market conditions, coupled with an anticipated calendar year end capital spending slowdown, will adversely impact the second quarter.

Our current view is that our fiscal 2009 revenue will exceed the previous fiscal year and that the fiscal year results from operations will improve year-over-year. Now I'd like to turn the meeting back over to our AT&T call coordinator, [Shameka], who will help us take your questions.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions). Your first question comes from Alan Davis – D.A. Davidson.

Alan Davis – D.A. Davidson & Co.

I guess I'll start with some bookkeeping questions. Emory, what was the depreciation and amortization again? I missed that.

Emory O. Berry

Alan, it was $775,000 in the quarter.

Alan Davis – D.A. Davidson & Co.

And then could you breakdown on-demand and real-time sales, just the product sales side of it?

Emory O. Berry

As follows, the VOD product $8.2 million, the VOD service $3.3 million, Everstream about $700,000, real-time product $3.7 million and real-time service $2.4 million.

Alan Davis – D.A. Davidson & Co.

In terms of, to sort of give us a little more details on the guidance, it sounds like your comments on the second quarter it appears is kind of guiding to more of a down quarter or were those comments just related to more of the rest of the year in terms of the economy and the capital spending declines affecting the second quarter and the back half of the year? Or give us a little more on what you're seeing near term in terms of activity?

Emory O. Berry

It's like we've mentioned in kind of the prepared comments. While we didn't see a significant impact in Q1 for us, we do see an impact in Q2. There is a notable impact and certainly in our business we believe the return on investment for our products are generally well accepted by the industry to provide a good return on investment for their businesses. We do see some belt tightening that's out there. We don’t know the exact impact but we do see an impact in Q2.

For the year we still think we'll do, as mentioned, a little bit better for the year in revenue as well as the result from operations.

Alan Davis – D.A. Davidson & Co.

What gives you that confidence in the back half of the year?

Emory O. Berry

We've obviously looked at the forecasting process and re-looked at the picture and it's the best view that we have right now and looking at some of the opportunities that we have that are kind of estimated, forecasted, that's what we currently see.

Dan Mondor

I might add a comment or two that we have healthy business with Time Warner and of course with talks with the MTAs and we certainly see on those a backend waiting relative to simply the timing of those projects. Those are clearly as all indications are in place and so that gives us that perspective. I think also relative to Q2 there is in there some timing related aspects relative to some of the top customers, so that gives us an underpinning relative to our view.

Alan Davis – D.A. Davidson & Co.

Lastly, if we could to try to differentiate the international outlook versus domestic, you already touched on the domestic side of things but given what you've done I guess from the sales coverage side of things offset by obviously the economy, give us maybe kind of an up-to-date on your expectations for international business maybe relative to what your thoughts were three months ago.

Dan Mondor

I think we certainly see a pickup from that as I said we've had early indications. It's tough to give a prescriptive forecast. We are certainly going after the market and being very aggressive and we expect more business out of there, but I didn't think we've really got it to the point that it's broken down as far as the material we've provided.

Emory O. Berry

Alan, I would just add that we've never received a tremendous amount of revenues from the VOD side of the business yet. We've really kind of focused more resources on that of late. We do see good opportunities in the market. However, there's not a significant portion of our revenues internationally, if you're driving at what do we see risks, threats things like that. We are in many parts of the world. We are certainly throughout Asia, in Japan, Korea, Germany, France, and there are certain markets that are affected more than one way, but we don't see a tremendous negative impact to those. We actually see opportunities in Europe, for example.

Operator

(Operator Instructions).Your next question comes from Todd Kaufmann – Raymond James.

Todd Kaufmann – Raymond James

Just a follow on with regard to the North American cable operators and weakness in the December quarter that you're citing, first is that across the board amongst most of the cable operators you're serving in the U.S. or is it isolated to one or two? And then secondly and more importantly, could it be possible that their need for storage in streams moderates where they may be sit tight for three or four quarters as the business, they sort of absorb that and maybe don't come back until the following 2010 planning deployment year?

Emory O. Berry

I think that there's no question that there's, as Dan mentioned, I think that there's been some belt tightening. I think that there's certainly areas of particular customers but I think several of the cable operators have already commented that they're going to continue to control their operating expenses in light of the market. We believe that cable will continue to perform I think in this market as you look at the overall business opportunities that are out there.

The fortunate thing that we see going on from a standpoint of the industry is being on the next generation platforms is very important as the market shifts to digital in February, and then I would add to that the storage needs that have been increasing related to the content, and then coupled with that the high definition requirements, which are greater than the standard definition requirements that are in the market.

So, all those help with that and then when you couple that with the return on investment for the cable operators, we believe that that positions them that they'll continue to invest in this area probably in a measured way and we do think that some of that effect could impact us in the second quarter.

Todd Kaufmann – Raymond James

Maybe I could just ask you more specifically, when you talk to those cable operators with regard to their plans for calendar 2009, have they been somewhat definitive as to what they're going to do or are those plans still now being adjusted and up in the air?

Dan Mondor

We have not actually heard of any shift in their strategic direction so the major MSOs that we work with have their strategies intact. Based on the market conditions we anticipate some belt tightening but we have not head of any changes in strategic direction.

Operator

There are no further questions in the queue. I would like to turn the call back over to Mr. Kirk Somers, Executive Vice President.

Kirk Somers

I would like to thank you all for joining us today. We believe we are well positioned and going forward and I hope you all have a good day.

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Source: Concurrent Computer Corp. F1Q09 (Qtr End 9/30/2008) Earnings Call Transcript
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