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Concurrent Computer Corporation (NASDAQ:CCUR)

F2Q13 Earnings Call

January 29, 2013 4:30 pm ET

Executives

Emory O. Berry – Chief Financial Officer & Executive Vice President Operations

Dan Mondor – President, Chief Executive Officer & Director

Analyst

Christopher Ferris – Noble Financial

Welcome to the Concurrent earnings conference call for the 2013 second quarter financial results. This call is being recorded for replay purposes. If you have any objections you may disconnect at this time. This call is also being webcast live via the Internet at www.CCUR.com. After accessing the web page please press the investor’s tab in the above section. Following the prepared remarks the call will be opened to analysts questions. I would now like to introduce Mr. Emory Berry, Chief Financial Officer and EVP of Operations.

Emory O. Berry

Welcome to Concurrent’s second quarter fiscal 2013 earnings conference call for the period ended December 31, 2012. Joining me on today’s call is Dan Mondor Concurrent’s President and Chief Executive Officer. Before we begin let me remind you that this conference call may include forward-looking statements such as believes, expects, estimates, anticipates, and other similar expressions.

These statements are made pursuant to the Safe Harbor provision of the Private Securities Litigation Reform Act of 1995. Accordingly, the cautionary statements made in Concurrent’s 10K and 10Q filings with the Securities & Exchange Commission are incorporated here and by reference. The company’s actual results could differ materially from the forward-looking information presented on this call.

The content of this webcast contains time sensitive information that is accurate only as of the date of the live broadcast, January 29, 2013. Any redistribution, retransmission, or rebroadcast of this call 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 no guarantees of future performance and that a variety of factors could cause our 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 for Concurrent’s fiscal second quarter. If you have not received a copy please contact Leah Connell at 678-258-4108 and she will be happy to provide you with a copy. Alternatively, you may visit the company’s website at www.CCUR.com and find a copy in the investor’s section of the website under the about tab. Additionally, if you would like to arrange a call with management at any time to discuss the business I invite you to contact Leah.

Dan Mondor will now provide a brief update of the business.

Dan Mondor

The highlights for the quarter is both top line and bottom line growth. We continued to make progress in our business reporting a fourth consecutive quarter of profitability. Sustained focus on improving our operating models through cost reductions and process improvements has resulted in increased value for our shareholders. With the implementation of a new sales organization and improved alignment in the R&D organization, I believe we have strengthened our ability to deliver new products to market and are serving our customers more effectively.

We continue to invest in the development of our unified CDN eFactor and media data intelligent solutions in an effort to address the rapidly changing video landscape. There’s a growing focus on video as operators launch wired line and wireless broadband networks with higher bandwidth and faster speeds. With growth in the number of video capable devices in the marketplace including smartphones, tables computers and smart TVs consumers continue to change their consumption behavior leading to more video viewing more often and in more places.

This represents an opportunity for our customers that is cable, teleco, Internet and CDN operators to generate revenue by streaming premium video content to a growing population of video capable devices over multiple networks. We are helping our customers by reducing the complexity associated with launching new multiscreen video services. Our unified approach enables a single software solution to simultaneously support new IP video applications and classic applications such as VOD.

This makes it easier for operators to reach new customers, support existing customers and quickly adapt to the ongoing changes in content consumption. Whether for streaming video, transforming content on the fly, or analyzing [croft] services media data, our solutions are designed to provide customers with the tools that they need to succeed in the multiscreen video marketplace.

I’ll discuss additional details regarding highlights in the quarter following Emory’s review of the results.

Emory O. Berry

We made progress in the fiscal second quarter with revenue results of approximately $16.6 million compared with revenue of $15 million in the first quarter and a slight increase as compared to $16.4 million in the fiscal 2012 second quarter.

Turning to our product line revenue details, Current’s video revenue which includes media data intelligence was $9.7 million representing approximately 59% of fiscal second quarter revenue compared with $10.2 million or 62% of revenue in the comparable period of fiscal 2012. In the preceding first quarter video revenue was approximately $8.9 million representing approximately 59% of total revenue. The balance represents our real time revenue which was approximately $6.9 million for the fiscal second quarter of 2013 and $6.2 million in 2012 respectively. The real time revenue was $6.1 million in our first quarter fiscal 2013.

Gross margin for the fiscal second quarter increased to over 57% compared with approximately 55% in the second quarter last year. Total operating expense for the fiscal second quarter were $8.7 million down 8% from the second quarter a year ago and up 3% from the first quarter of fiscal 2013. As we have previously communicated we are operating at a lower expense level which is partially offset in the recent quarter by an increase in variable expenses associated with higher revenues and increased profitability of the business.

For the second quarter of fiscal 2013 we reported operating income of $876,000 which included non-cash expenses of $812,000 of depreciation and amortization and $201,000 of shared based compensation. This compares to an operating loss of $461,000 in the second quarter a year ago which included non-cash expenses of $893,000 of depreciation and amortization and a $186,000 of shared based compensation.

The company reported an income tax provision of $6,000 during the quarter equal to approximately no cents per share. For the comparable period last year, the company had an income tax provision of $192,000 equal to $0.02 per share that was related to the profitable operations of our Japanese subsidiary that is not currently offset by our cumulative US subsidiary net operating losses. Net income was $673,000 for the second fiscal quarter of 2013 equal to $0.08 per diluted share compared with net loss of $833,000 or $0.10 per share in the comparable period last year.

Looking at our results for the first half of fiscal 2013, total revenue was approximately $31.6 million compared with $29.3 million in the first half of fiscal 2012. The increase generally reflects the lower than usual first quarter results reported in the prior fiscal year period. Our video revenue represented approximately 59% of our total revenue for the first half of the current fiscal year versus approximately 57% of total revenue a year ago.

Gross margin for the first six months of fiscal 2013 were approximately 58% compared with approximately 56% in the first half of the prior year. Total operating expenses for the first half of 2013 were $17.1 million compared with $19.2 million in the first half of the prior fiscal year. As described earlier we are seeing the benefit of our lower expense level based upon our improved operating model.

The company reported operating income of approximately $1.3 million for the first six months of fiscal 2013 which included approximately $1.7 million in depreciation and amortization and $369,000 of share based compensation. This compares to an operating loss of $3 million for the first six months of the prior year period which included non-cash expenses of approximately $1.8 million in depreciation and amortization and $456,000 of share based compensation.

Net income for the current six month period was approximately $1 million or $0.11 per diluted share which included a tax provision of $113,000 or $0.01 per share. This compared with a net loss of $3.4 million or $0.40 per share for this same period last fiscal year. Providing some highlights from Concurrent’s balance sheet the company’s financial position remains strong with no debt. We finished the second quarter with cash of approximately $24.6 million versus cash of $29.6 million at June 30th and $28.9 million at the end of the first quarter.

During fiscal 2013 the company began paying quarterly dividends of $0.06 per share. The company has now paid three $0.06 dividends during the current fiscal year as well as a special dividend of $0.50 per share. Overall, the company has paid out dividends of approximately $6 million. In addition, we finished the recent quarter with $24.7 million in working capital also reflecting a very strong balance sheet.

Now, I’d like to turn the meeting back over to Dan.

Dan Mondor

As I mentioned in my opening remarks we continue to advance in our mission to enable service providers to expand their traditional video services, grow their content libraries, more easily reach new screens, and migrate smoothly from set-top boxes to video IP devices. From a sales perspective we’ve seen growing interest in our unified solutions and we believe our value proposition is unique in the marketplace.

In order to extend our sales reach and attract new customers around the globe we have strengthened ours sales, sales support and marketing organizations. Our R&D investments continue to strengthen our product lines. This quarter we announced expanded support for smart TVs on our MediaHawk VX unified CDN solution. With this software solution operators can now reach new customers on Internet connected TVs and eliminate the need for a traditional set-top box.

Eliminating the set-top box allows operators to conserve costs and compete alongside over the top offerings such as Netflix in the increasingly dynamic streaming video market. In December we launched new multiscreen Video Assurance Services which we designed to help operators proactively identify issues and trends that could affect their quality of video service. Under this new service plan the Concurrent team works hand-in-hand with customers implementing steps to prevent service interruption, improve overall consumer experience and plan for capacity growth. By working closely with our customers we believe our service team can help operators meet the demanding quality service levels their customers expect.

Our real time product line continued to provide solid financial contribution in the quarter and we had a number of customer wins. Our hardware-in-the-loop solution was selected by General Electric, our new GP Workbench systems were selected by Mitsubishi Heavy Industries both for system design testing applications and we shipped additional imogens to our partner KCI in Korea for the KTPS program. I should also mention that our real time business was named one of the top simulation and training companies for 2012 by Military Training Technology Magazine.

In summary, we are pleased with the breadth of our customer engagement in the quarter, the continued competitiveness of our products and product quality, our service and support performance and customer satisfaction. With that, we’re happy to take your questions.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from Christopher Ferris – Noble Financial.

Christopher Ferris – Noble Financial

Can you talk about what caused the decline in video revenue year-over-year in the quarter? Can you refresh my memory to maybe what was in the second quarter of last year that may have juiced that number or did something in particular happen on the video side this quarter or is it just lumpiness? Can you elaborate there?

Emory O. Berry

The video revenue for the quarter ended December 31, 2012 was $9.7 million and then the comparable period last year was $10.2 million. I would say the only noticeable decreases were in Europe and Japan as compared to last year, nothing tremendously but just about $500,000 less. Alternatively that compares to $8.9 million last quarter so it was really up sequentially but not year-over-year.

Christopher Ferris – Noble Financial

What sort of visibility do you have going into the second half of the year, particularly on the video revenue side?

Dan Mondor

Well, as you well know we don’t provide guidance at this point. I think just as a comment we’ve certainly began to see spending levels that are back I would say to long term averages particularly I would say in North America. As you know, there’s always variability in customer spending each quarter as they work from project-to-project. I think Emory just commented, we see a little bit of sluggishness relative to Europe and Japan but I think as we look at kind of our top three customers our first half revenue is pretty similar to the prior year.

Christopher Ferris – Noble Financial

How about in North America? How is North America shaping up?

Emory O. Berry

It was up comparatively. In fact, we will have filed our Q probably by the time this call finishes up and you can probably see the details in a little bit more detail. But essentially, if you look at the details of the quarter from the standpoint of the three months ended December 31st about $11.7 million of the $16.6 million came from North America and about $3.5 million came from Japan and the rest from Asia and then Europe also provided about $900,000. Now, that compares last year with about $10 million in North America and Japan was $3.6 million but Europe for example, was at $2 million. So between Europe and Japan those are the big differences.

Christopher Ferris – Noble Financial

Is that any loss of customer or is that just customers pulling back on spending?

Emory O. Berry

It’s just project-by-project.

Christopher Ferris – Noble Financial

In the past you had indicated, I think you said, that the second half of the year is going to be bigger than the first half. You’re up 8% year-over-year for the first six months in revenue and I realize most of that is real time, but do you care to give us any thoughts on the second half revenue?

Emory O. Berry

We’re just not providing that type of guidance at this point in time.

Christopher Ferris – Noble Financial

Is there any risk, and I realize we avoided the fiscal cliff, but is there any risk from government cost cuts that you see to the real time business over the next six to 12 months?

Dan Mondor

The visibility there is clouded by what’s happening in Congress to some extent. I do believe that I’d be reading a crystal ball or trying to guess what they might do in Washington. I would say for the foreseeable future, let’s say the next three months, we don’t see a change in what’s out there. As it relates to past the three months we’ve certainly got a risk factor out there for the sequestration. We’re not sure how that will affect us other than to say this, I would say that our products are typically those that save the government a ton of money. Many times it’s in the simulation field so if somebody is simulating a torpedo for example, they can use our product rather than an actual torpedo and just the repeated test of that system would allow them to save obviously the cost of the ammunitions that they would test.

So there’s a great return on investment with many of the products and projects that we sell so we still see that that’s a benefit for various defense countries around the world including the US. But we really don’t have a good gage as to what sequestration will really do for us.

Christopher Ferris – Noble Financial

Shifting to the cost side on the R&D line about a little less than $3 million the past three quarters, is that a good run rate going forward do you think on a quarterly basis?

Emory O. Berry

Well, we don’t really provide that kind of guidance but I think as a comment Q2 this quarter, Q1 and Q4 of fiscal ’12 are a general indicator of our expense level run rate.

Christopher Ferris – Noble Financial

I’m sure this is in your K but can you remind us what the NOL was at the end of the year and I don’t know if you tracked it as of what the end of the quarter was?

Emory O. Berry

We don’t track it by the quarter but the 10K that we filed in August of last year was approximately $116 million and that’s where it stood.

Dan Mondor

Just summing up as a final note I just wanted to mention Concurrent’s new website. We recently launched a new website to better highlight our company, our products and our value proposition for the markets we serve. So we invite you to go online at www.CCUR.com to learn more about Concurrent and our solutions. Thanks so much for your participation today and thank you for your interest in Concurrent.

Operator

Ladies and gentlemen that does conclude our conference for today. Thank you for your participation today and for using AT&T Executive Teleconference service. You may now disconnect.

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