Envivio's CEO Discusses Q4 2013 Results - Earnings Call Transcript

Mar.26.13 | About: Envivio, Inc. (ENVI)

Envivio Inc (NASDAQ:ENVI)

Q4 2013 Earnings Call

March 26, 2013 05:00 pm ET

Executives

Cynthia Hiponia - IR

Julien Signès - President, CEO, co-Founder

Erik Miller - Chief Financial Officer

Analysts

Operator

Ladies and gentlemen, thank you for standing by and welcome to the Envivio Fourth Quarter 2013 Earnings Conference Call. During today's presentation, all participants will be in a listen-only mode. Following the presentation, the conference will be open for your questions. (Operator Instructions). Today's conference is being recorded March, 26, 2013.

I would now like to turn the conference over to Cynthia Hiponia, Investor Relations. Please go ahead.

Cynthia Hiponia

Thank you, Elisa. Good afternoon and welcome to Envivio's fourth quarter and full year fiscal 2013 financial results conference call. Joining the call today are Julien Signès, President and CEO, and Erik Miller, Chief Financial Officer.

The agenda for today's call include commentary from Julien followed by a discussion of the financial results from Erik. This afternoon in Envivio issued a press release announcing its fourth quarter and full fiscal year financial results, which is available on our company's website at envivio.com. This call is being rebroadcast live over the internet and the audio of this call will be available on the Investor Relations page of the company's website.

I'd like to remind everyone that this conference call will contain forward-looking statements that are not historical facts, but rather are based on the company's expectations and beliefs. Such forward looking statements are not a guarantee of performance and Envivio's actual results may differ materially from these forward looking statements.

Several factors that could cause or contribute to such differences are described in detail in the Risk Factors and other sections of our SEC filings as well as in our earnings release. Envivio undertakes no obligation to publicly release or otherwise disclose the results of any revision to these forward looking statements that may be made as a result of the events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.

In addition, today's discussion includes non-GAAP financial measures that Envivio believes may be important to investors as a metric to assess the operating performance of its business. Reconciliation to the most directly comparable GAAP financial measures are included in a table attached to the earnings release on the Envivio website.

And now I would like to introduce Julien Signès.

Julien Signès

Thank you, Cynthia. Joining me on today's call is Erik Miller, Envivio's Chief Financial Officer.

Revenue for the fourth fiscal quarter was $7.7 million, up 7%, sequentially, and down 50% year-over-year. While we continued to see the impact of a weak spending environment, we are pleased to see a slight improvement in revenue over the prior quarter. As you recall, in both, the second and third fiscal quarters Envivio business was impacted by a slowdown in spending by our service providers due to both, a weak macro environment and an industry pause in multi-screen deployments. Another factor that impacted our business in fiscal 2013 are the disappointing sales execution in North America, where we did not have adequate sales coverage to capitalize on sales opportunity.

For the full fiscal 2013, revenue in the Americas was down 58% year-over-year. As a result, our focus has been on the rebuilding of our North American sales organization with a right coverage and depth.

Let me update you on our progress here. On our last earnings call in early December, we announced the hiring of a new VP of Sales for North and Latin America, David Baranski brought a strong industry background in cable, telecom and broadcast having worked in such companies as Cheetah Technologies, Terayon Communications, Advent Networks and 3Com.

Continuing to add trends to our sales organization in late January, we announced Ira Goldfarb as our new Senior Vice President of Global Sales and Service. Ira joined us from SeaChange International, where he was Executive Vice President of Worldwide Sales and Service. Ira brings extensive relationships with a Tier-1 North American customers and a deep understanding of the technology and markets.

We believe that our ability to continue to attract industry veterans such as Ira and David, speaks well of Envivio technology leadership and reputation in the marketplace. Another leadership of Ira and David, we hired three new sales executives, veterans of the industry, covering North America and U.S. cable in particular. We have also signed new sales partners in Latin America and Canada to expand our depth in these regions.

While our lack of sales coverage in fiscal 2013 contributed to missed opportunities in North America, we believe that the significant changes we made to our sales organization should provide us with positive momentum as we enter fiscal 2014.

As delays in the multi-screen deployments continue to negatively impact spending of our service provider customers and other area of focus that Envivio two quarters ago is selling our solutions into the broader pay TV video proxy markets. We believe Envivio as a competitor differentiator when it comes to these opportunities, thanks to our disruptive sales force strategy.

One example of a customer in the pay TV market, during the fourth quarter includes Totalplay Telecomunicaciones, a cable and IPTV service provider in Mexico Muse encoders, we're deployed for its live and on-demand video services in order to extend that channel lineup and improve video quality while reducing space requirement in the headends.

Another example is with Wasu Media Group in China. Wasu will deploy our Muse transcoders on the 4Caster appliance for its cable service to over 800,000 homes. Converged architecture and easily upgradable software and Wasu to optimize traditional TV services today and multi-screen environment in the near future, additional customer highlight during the fourth quarter includes, we won a significant new customer with a transaction value of a over $1 million in the Middle East is placing a legacy vendor in selling a converged TV and multi-screen headends. We will recognize the revenue for the transaction over time.

We sold the first commercial headend based on our Muse software on HP blade in Europe or Tier-1 mobile trader. We were in newer business with many of our existing foreign customers. With our new staff team we have reengaged with many of the Tier-1 service providers in North America on a variety of potential new business opportunities. We had 91 multi-screen wins around the world during the fourth quarter. We believe that these wins are important in maintaining our leadership in the multi-screen market and in positioning us for future growth. 63% of our sales were through partners and we continue to expand and strengthen our business relationships with distributions partners as well our key technology partners.

We continue to see strong momentum in our new G4 4Caster platform, which we launched in September and we presented the majority of our video processing sales in the fourth quarter. On the product front, we will be showcasing at NAB, the National Association of Broadcaster show the largest video industry trade in Las Vegas April 8/2/11 our HEVC early access program for customers seeking to implement HEVC encoding. High efficiency video coding or HEVC is a new key video extender which is twice the efficiency of compression compared to MPEG-4, the current web-enhanced video standards. This new technology is a key to the successful adoption of mobile video services over 4G. We'll offer HEVC for live and on-demand applications and new installations or as a software upgrade for Muse customers running on the latest generation focused on G4 platforms or the Muse software on a blade server.

Envivio is collaborating with Broadcom and other chipset manufacturers on encoder and decoder interoperability in order to shorten the time to market for service providers who want to rollout OTT, over-the-top or pay TV HEVC services in the near future. We will also be introducing a key new product which enable specialization of video services including time-shifting and ad insertion on any device. TV is being watched more and more on personal mobile devices. We believe that personalization is key to our customers to further monetize these new trends.

In summary, fiscal 2013 was obviously a very challenging year for Envivio. The impact of the weak macro environment combined with a slowdown in multi-screen deployments and there were transition in our North American sales team had a significant impact on our financial results.

In response, we restructured our sales force and are prudently managing our costs. However, as we are showcasing at NAB, we continue to invest in our industry leading technology which remains a competitive advantage for Envivio. Our technology differentiation allows us to address a broader pay TV distribution market while position us for growth in the multi-screen services and beyond in personalization of the TV experience.

Let me now turn the call over to Erik Miller to discuss the quarter in more detail.

Erik Miller

Thank you, Julien. Good afternoon, everyone. Before I begin, please note that I will be discussing the financial results on a U.S. GAAP basis unless otherwise indicated. A reconciliation of non-GAAP to GAAP measures was included in our earnings release and also can be found in our Investor Relations section on envivio.com.

Let me now discuss the results for the fourth quarter and full fiscal year 2013 in more detail. Revenue for the fourth quarter was $7.7 million, compared to $7.2 million in the prior quarter and $15.5 million in the fourth quarter of fiscal 2012. For fiscal 2013, revenues were $39.1 million, compared to $50.6 million last year.

The overall revenue weakness was due primarily to a reduction in revenue for North America. In the fourth quarter, our revenue from the Americas was $1 million, compared to $1.3 million in the prior quarter and a decrease from $7.1 million in the fourth quarter of the prior year. For the full year, revenue in the Americas was $8.3 million, compared to $19.5 million in fiscal 2012.

Our revenue in EMEA for the fourth quarter was $4.4 million, compared to $3.5 million, sequentially and $6.1 million in the prior year. For the full year, EMEA revenue was $19.9 million, compared to $19.3 million in fiscal 2012.

Our revenue in Asia-Pacific for the fourth quarter was $2.3 million, compared to $2.4 million, sequentially and flat with the prior year. For the full year, Asia-Pacific revenue was $10.9 million, compared to $11.8 million in the prior year.

Our gross margin percentage for the fourth quarter was 58.6%, compared to 64.7% in Q3 and 64.8% from Q4 of last year. Non-GAAP gross margin for these periods are the same as GAAP. We saw lower gross margins both sequentially and year-over-year due primarily to a geographic shift away from North America and toward international market, which typically attract lower gross margins.

As mentioned before, we expect gross margin percentage to fluctuate based on product mix and geographic area of sales. For the full year, our gross margin was 61.7%, compared to 63.5% in fiscal 2012.

Non-GAAP operating expenses for the fourth quarter of fiscal 2013 were $8.6 million, a decrease from $9.5 million in Q3 and flat with the year ago period. For fiscal 2013, non-GAAP operating expenses were $37.9 million, compared to $29.8 million in fiscal 2012.

Non-GAAP R&D expenses for the quarter were $1.5 million compared to $2 million in Q3 and $1.8 million in the year ago period. The sequential decrease in R&D expenses was partially as a result of a one-time increase in the quarterly amount of research tax credit we received from the French government for certain qualifying expenditures and a reduction in the number of temporary engineering consultant as part of our cost saving initiative as previously announced.

Non-GAAP R&D expenses for fiscal 2013 were $7.5 million, compared to $6.6 million in fiscal 2012. Non-GAAP sales and marketing expenses for the quarter were $4.6 million, compared to $5.0 million in Q3 and $4.9 million in the year ago period. Non-GAAP sales and marketing expenses for fiscal 2013 were $20.8 million compared to 15.9 million in fiscal 2012. The increase in sales and marketing expenses for the full fiscal year compared to the prior year was as a result of increased headcount.

Non-GAAP general and administrative expenses for the quarter were $2.5 million in Q4, compared to $2.4 million, sequentially, and $1.9 million in the year ago period. Non-GAAP general and administrative expenses for fiscal 2013 were $9.6 million, compared to $7.3 million in fiscal 2012. The year-over-year increase was due to increased expenses related to being a public company.

Non-GAAP operating loss was $4.1 million, compared to a loss of $4.8 million in Q3 and a profit of $1.4 million in the prior year. For the full year, non-GAAP operating loss was $13.7 million, compared to a profit of $2.3 million in the prior year.

Stock-based compensation expense for the fourth quarter was $721,000, compared to $439,000 in the prior year quarter and $668,000 in Q3. GAAP net loss for the fourth quarter was $4.9 million, or a loss $0.18 per share, compared to GAAP net loss of $5.6 million or a loss $0.21 per share in Q3 and GAAP net income of $754,000 or breakeven per share in the fourth quarter of last year.

For fiscal 2013, our GAAP net loss was $16.9 million, or $0.72 per share. This compares with GAAP net income of $138,000, or breakeven per share for fiscal 2012. The net loss for the full fiscal year was as a result of lower operating income and lower revenues.

Non-GAAP net loss for the fourth quarter was $4.1 million, or a loss of $0.15 per share compared to non-GAAP net loss of $4.9 million in Q3, or a loss of $0.18 per share, and non-GAAP net income of $1.2 million or breakeven per share in the fourth quarter of last year.

For fiscal 2013, our non-GAAP net loss was $14.1 million or $0.60 per share. This compares with the non-GAAP net income of $1.8 million or breakeven per share for fiscal 2012.

Moving now to the balance sheet, total assets as of the end of the fourth quarter were $72.4 million, compared to $77.5 million at the end of Q3, and $44.6 million at the end of the fourth quarter in the year ago period. The increase year-over-year was a result of the proceeds we received from our initial public offering.

We ended the quarter with $54.9 million in cash, cash equivalents and short-term investments as compared to $60.7 million at the end of the third quarter of 2013. The sequential decline was due to our operating losses in the fourth quarter, a $1 million decrease in liabilities and a $650,000 acquisition and capital expenditure in the quarter.

Our deferred revenue balance at quarter end was $4.7 million, compared to $5.5 million in Q3 and $8.7 million a year ago. The year-over-year change in deferred revenue was as a result of revenue recognition timing and fewer revenue deferrals due to the adoption of new accounting standards mandated by the FASB, and implemented in the first quarter of fiscal 2012.

Revenue from direct sales were 37% in the quarter compared to 46% in the prior quarter and 50% in the year ago quarter. For fiscal 2013, revenue from direct sales was 30%, compared to 48% in fiscal 2012.Our DSO for Q4 was 98 days, compared to 105 days in Q3 and 49 days in the year ago period. As we've mentioned before, we expect DSO to fluctuate based upon geographic and customer mix.

Total inventory at the end of the fourth quarter was $708,000, up from $284,000 in Q3 and $108,000 at the end of Q4 last year. The increase in inventory year-over-year and sequentially was the result of inventory repurchase for future sales transaction and consist primarily of components and finished goods used in our industry standard server platforms.

We ended the quarter with a total headcount of 158, compared to 161 in the prior quarter and 131 in the prior year. As Julien mentioned, it was a challenging year for us. However, we believe, we took corrective actions to help address these challenges, which resulted in an improvement in revenue for products, sequentially, we will continue to monitor our costs, and with our new sales organization in place, we believe we are positioned for long-term growth in video processing and delivery solutions.

With that, we will now take your questions.

Question-and-Answer Session

Operator

Thank you, ladies and gentlemen. We will now begin the question and answer session. (Operator Instructions). And our first question comes from the line of Mike [Lynn] with Stifel Nicolaus. Please go ahead.

Unidentified Analyst

Hi. I was wondering if you can give us a little color on some of the competitive dynamics and sort of what your win rates for some of the bids are versus a year ago, and just the whole competitive situation as you see right now with some of the competing products.

Julien Signès

Sure. This is Julien. At high level, we haven't seen much of a difference on the win rate compared to in the last 12 months. Clearly, there's been a more specific multi-screen application, there are more products around than there was a year ago. However, in terms of our win rate, on the engagement of we haven't seen a major difference. So, we in terms of overall competitive strategy we see the two major fact that we've always seen, which is, one is, the legacy vendors using chipset which we believe while they are improving and opening to multi-screen or not, are they going to capture the dynamic aspects of this video market and then us being clearly the leaders on the software strategy commenting video processing software and we believe that overall the market is shifting its interest more and more towards the software, so we haven't seen any major disruption there.

Unidentified Analyst

Okay. Great. Thank you.

Operator

Thank you. Ladies and gentlemen, this does conclude our conference for today. Thank you for your participation. You may now disconnect.

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Envivio (ENVI): Q4 EPS of -$0.15 beats by $0.01. Revenue of $7.7M misses by $0.09M. (PR)