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Concurrent Computer Corporation (NASDAQ:CCUR)

F2Q09 Earnings Call

January 27, 2008 10:00 am ET

Executives

Dan Mondor – President, Chief Executive Officer

Emory O. Berry – Chief Financial Officer

David King - Chief Marketing Officer

Kirk Somers - Executive Vice President

Analysts

Andrew Hillman

Todd Koffman - Raymond James

Al Shams - Mid-South Capital

Dan Culver - Intellivest Securities

Operator

Welcome to Concurrent Computer Corporation earnings conference call for the second quarter of fiscal year 2009. (Operator Instructions) I would now like to introduce your host, Mr. Kirk Somers, Executive Vice President. Sir, you may begin.

Kirk Somers

Thank you and good morning, everyone. Welcome to Concurrent’s earnings conference call for the second quarter of 2009. The format for this morning’s call will be as follows: Dan Mondor, Concurrent’s President and Chief Executive Officer will highlight some financial results and provide an update on the business. Emory Berry, our Chief Financial Officer will conclude the call with a detailed review of the financials for the second quarter and first half of our fiscal year. Following our scripted comments, we will be pleased to take your questions. We also have David King, our new Chief Marketing Officer with us today and we will all be available to answer questions following the call.

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 provision of the Private Securities Litigation Reform Act of 1995. Accordingly, the cautionary statements made in concurrence with Form 10-K filed August 27, 2008 and incorporated here 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 the date of this live broadcast, January 27, 2009. 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 Concurrent are not guaranteed as 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 today. You should all have a copy of the earnings release document. 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

Thanks, Kirk. Good morning, everyone and thank you for joining us today. I’ll start with the highlight of our financial performance and then provide an update on the business. Following my remarks, Emory will provide an in-depth review of the financial results and our outlook for the remainder of the fiscal year.

Here are the highlights of the second quarter. Total revenue was $18.1 million with gross margins of approximately 59%. Operating expenses were $9.7 million and operating income of approximately $0.9 million and net income of over $0.5 million. Net income per share was $0.06 on a fully diluted basis and the cash balance at the end of the quarter was over $27.6 million.

It was a strong quarter given the challenging macroeconomic environment. Our performance for the first half of fiscal 2009 compared to the first half of fiscal 2008 illustrates the impact of our focus on profitable revenue growth. We grew revenue approximately 8%. We strengthened our gross margins by 400 basis points to 57% and reduced operating expenses approximately 6%. As a result, operating income improved by over $4 million.

The first half operating income was the highest for two consecutive quarters in over six years. These results were primarily driven by the continued strength in the On-Demand business as well as diligent management of expenses. We continue to strengthen our relationships with our current and expected customers and we are proactively responding to our customers’ challenges and opportunities.

With respect to our international customers, we had an excellent quarter in Japan and our business with JComm remains strong. In Europe, our recent win with ZON TV Cabo began to contribute to our financial results and our North American business was solid with major sales from RightHouse Networks, Cox, Lockheed Martin, Time-Warner Cable and Videotron.

On the innovation front, we are accelerating our efforts to assist our customers as they prepare for emerging on-demand advertising initiatives. As such we engaged in interoperability trials with Cable Ops. We demonstrated successful integration of our myriad line of advanced advertising products with other leading technology providers. These trials demonstrated advanced targeted solutions based on the SAP 130 and E-Disk standards. This will enable broadband providers to deliver advanced functions such as targeting, COD ad insertion, thumping, telescoping and reporting.

We also released new functionality across both the Concurrent MiniHawk and MediaHawk video servers. These software releases provide standard compliance and improved functionality, capacity enhancements and most notably, playlist support enabling it for advanced advertising.

The MediaHawk 4500 continues to be a market leader. In calendar year 2008, we deployed over 400,000 streams with over 240,000 of these deployed in an end-off architecture. We believe this leads the market.

On the real-time side, we introduced ImaGen RL, a PC-based visual server. This solution provides high-performance video simulation in a compact package creating a flexible Linux-based graphics platform.

Finally, with respect to communicating our vision in a forward direction with the company, I would like to share some of these highlights. Video is in our DNA and on-demand video is the future. People want content anywhere, any time and on any device. With that in mind, Concurrent will leverage its technology and video distribution analytics and advanced advertising across new markets and devices.

Harnessing the power of real-time is a Concurrent core competency that is essential to numerous Fortune 500 companies. Our focus will sharpen to serve these customers. Please join me in March as we communicate the details of our vision, direction and plan. We will provide further information on this on our website.

In closing, I want to reiterate that we are focused on increasing shareholder value through profitable revenue growth, technology innovation and communication. Our first half was a good start to the year given these challenging times. We remain committed to these initiatives and we will continue to update you on our progress.

Thank you and I’ll now turn the call over to Emory.

Emory O. Berry

Thank you, Dan and thank you all for joining us this morning. I will provide a detailed review of the financial results for the quarter and the fiscal year to date.

We finished the second quarter with over $18.1 million in revenue. Revenue decreased by 1% from the previous quarter but increased 3% from the previous year’s quarter. Gross margins improved to approximately 59% in the second quarter as compared to 56% in the previous quarter and approximately 54% in the prior year.

We held operating expenses at $9.7 million as compared to $10.3 million in the previous year’s quarter. As a result, we ended the quarter with an operating profit of approximately $0.9 million. It should be noted that the operating income for the quarter included the following expenses, $789,000 in depreciation and amortization, $165,000 in non-cash share-based compensation, and $475,000 of severance.

Our second quarter net income per share was $0.06 on a fully diluted basis as compared to a loss per share of $0.09 in the prior year’s quarter.

Let me also comment that the revenue during the second quarter was comprised of approximately $12 million for on-demand, and approximately $6.2 million for real-time.

From a fiscal year-to-date perspective, we generated $36.5 million in revenue for the first half of fiscal 2009, an increase of approximately 8%. Gross margins improved to approximately 57%. Operating expenses decreased by $1.2 million or approximately 6% to $19.5 million compared to $20.7 million in the prior year’s first half.

As a result, we reported an operating profit of $1.4 million compared to the prior year’s first half operating loss of $2.6 million, an improvement of over $4 million. The operating profit for the first half of fiscal 2009 included the following expenses, $1.6 million in depreciation and amortization, $247,000 in non-cash share-based compensation, and $566,000 in severance.

We finished the quarter with over $27.6 million in cash, an increase of over $3.8 million from the previous quarter. This is our strongest cash position in over four years. In addition, working capital grew to over $27 million as a result of our profitable operations. During the quarter, we extended the $10 million revolving line of credit from July 2009 to December 2010. Also, as we discussed on the prior earnings call, due to the unprecedented market conditions, we continue to pause our stock buyback.

Even though we had a strong first half, the business experienced an impact from the macroeconomic downturn and we expect this to continue into the second half. However, our view remains that fiscal 2009 revenue will exceed the previous year. Finally, we are diligently managing expenses and are prepared to respond quickly to the changing market conditions.

Now, I would like to turn the meeting over to our AT&T call coordinator who will help us take your questions.

Question-and-Answer Session

Operator

(Operator Instructions) The first question comes from the line of Andrew Hillman. Please proceed.

Andrew Hillman

Great quarter. Glad to see the numbers. I was wondering if you guys could discuss a little bit more on what’s going on with the Everstream business as far as Canoe’s concerned, in that realm.

Dan Mondor

It’s Dan here. We are leveraging the Everstream technology as we mentioned into the advanced advertising initiatives. We have a platform in development, in trial in a number of places. We are certainly well-engaged with Canoe but we can’t comment further relative to that engagement at this time.

Andrew Hillman

Okay, you guys are still in the Canoe?

Dan Mondor

We are certainly heavily engaged with them, yes.

Operator

Your next question comes from the line of Todd Koffman with Raymond James. Please proceed.

Todd Koffman - Raymond James

I have two questions, if I could. First, if you could just give a little more color on the strong improvement that you were able to capitalize on on the gross margin in the quarter, what was behind that? In your full-year comment on revenue being up in the current fiscal versus the prior fiscal, would you care to break out the trends you see in real-time versus VOD, if there’s any difference in trends going forward?

Dan Mondor

Emory will take that one.

Emory O. Berry

Hey, Todd. Good morning. Thanks for the call. As it relates to your question, we can provide you the overall guidance that we gave in the call which was ultimately that we certainly have seen the impact in our business, generally speaking. It’s impacted both the real-time as well as video on-demand. As far as a characterization of which of those it involves, we’re really unable to provide that. We’re rather able to continue to believe that fiscal 2009 is well-positioned over fiscal 2008. From an expense-management perspective, we have really focused on managing these expenses diligently and will continue to do so in light of the current environment. We’ve seen a number of companies and how they’ve handled it and we’ve been managing those closely. We’ve certainly looked at areas that discretionary expenses could be stopped, where needed.

As far as the margins during the quarter, we were able to continue to benefit from two main areas. One, on a real-time basis, we are able to sell in excess of $500,000 in software which gave us better margins for the second quarter as well as the first half as well as just maintaining the same levels of support personnel with additional revenue. Both of those benefitted us during the second quarter and the first half.

Todd Koffman - Raymond James

If I could just have a quick follow-up, Emory. I thought I heard you say that you spent almost $500,000 associated with a severance cost in the quarter. Is that correct and will there be additional severance costs and expenses likely to occur in the current quarter?

Emory O. Berry

As far as the severance that we experienced in the first half, certainly the number that you mentioned is correct. It’s about $566,000. I’m unable to comment on future actions in that area but we’re obviously responsive as we need to be on a go-forward basis. As I mentioned, we’re diligently managing our expenses and we’ll continue to do so in the second half as we have.

Operator

Your next question comes from the line of Al Shams with Mid-South Capital. Please proceed.

Al Shams - Mid-South Capital

A few comments and then a few questions. Number one, I’m glad to see the buildup in cash, that’s great. Glad to see the extension of the credit line, that’s good, too. A further comment, as we all know, cash is hard to come by today, so you need to deploy that very diligently and very prudently. As far as some questions, what kind of a payback do you see on the severance expense? Do you see a need to do anything else with respect to extensions or adding additional credit lines?

Emory O. Berry

From a positioning standpoint, it’s been over four years since we’ve had this much cash on hand. In addition to that, if you look at our working capital which I also mentioned, that was in excess of $27 million. We actually have more cash on hand than we have in working capital so that’s an extremely strong ratio. From a market cap perspective, you could even compare our cash to our market cap and see the strength there. From the standpoint of leveraging the business and running the business, we’re well capitalized to run the business. In addition to that, the credit facility is there just only as a safety mechanism for us. We’re currently not drawn other than to pay for fees for our credit facility that we have on hand.

Al Shams - Mid-South Capital

And the other was what kind of payback do you see on the severance?

Emory O. Berry

I think those are one-time charges, right, so to the extent that those expenses happen, that certainly doesn’t identify any future actions but it does deal with the actions that happened in the past, so the payback will be very soon.

Al Shams - Mid-South Capital

So you expense something like $550,000, you think it could be on an annual basis so you might be saving like $300,000 a year or something like that on taking that action?

Emory O. Berry

I don’t have the exact numbers on that specific question. Certainly, there is going to be some payback and obviously, those numbers would be incremental from an annual perspective. I would say you could look at it as an annual type savings number for us.

Operator

Your next question comes from the line of Dan Culver with Intellivest Securities. Please proceed.

Dan Culver - Intellivest Securities

My question is about your credit facility and is somewhat related to Al’s question. In December, you extended credit arrangement with Silicon Valley Bank and I was just wondering in light of all the banking problems, and I know no information about Silicon Valley Bank but have you considered trying to line up a second line of credit or an alternative in addition to the Silicon Valley Bank line?

Emory O. Berry

Good question. I’m not sure if you’re familiar with Silicon Valley Bank but they’ve been fortunate in the midst of many of the banking challenges that they don’t have the real estate exposure that seems to be prevalent within the market. So Silicon Valley Bank is a tremendously great resource for us and in addition to that, the facility for us provides us with more of a safety mechanism than a drawn-down facility where we have term debt. For our needs right now, it is very good and it is sufficient for our needs on a go-forward basis.

Operator

With no further questions in the queue, I’d like to turn the call back over to Mr. Kirk Somers for closing remarks.

Kirk Somers

I would like to thank everyone for joining us today. I think we are well-positioned going forward. Have a good day.

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