Velti Plc Management Discusses Q1 2013 Results - Earnings Call Transcript

May.13.13 | About: VELTI PLC (VELTF)

Velti Plc (VELT) Q1 2013 Earnings Call May 13, 2013 4:30 PM ET

Executives

Leslie Green

Jeffrey G. Ross - Chief Financial Officer

Alexandros Moukas - Co-Founder, Chief Executive Officer and Executive Director

Mari Jean Baker - Interim Chief Operating Officer, Director and Member of Remuneration Committee

Analysts

Andre Sequin - RBC Capital Markets, LLC, Research Division

Peter Misek - Jefferies & Company, Inc., Research Division

Peter Stabler - Wells Fargo Securities, LLC, Research Division

Scott Zeller - Needham & Company, LLC, Research Division

Richard Ingrassia - Roth Capital Partners, LLC, Research Division

Operator

Good day, ladies and gentlemen, welcome to the Velti 2013 First Quarter Financial Earnings Conference Call. [Operator Instructions] Now, I'll turn the conference over to your host, Leslie Green, Investor Relations for Velti. Please begin.

Leslie Green

Thank you, Tyrone. Before we begin, I want to note that our earnings release is due to cross the wire shortly. We will go ahead and begin the call now. I would also like to remind you that during the course of this conference call, including comments made in response to your questions, the company will provide projections and make other forward-looking statements regarding, among other things, its future financial performance and longer-term operating model, the financial impact of its recent restructuring and performance -- excuse me, and 2012 divestiture of assets, its ability to manage cash and generate free cash flow, its ability to control costs, its expected growth in key markets, its sales pipeline and additional market opportunities, as well as other market conditions and trends.

Management wishes to caution you that such statements deal with future events and are based upon management's current expectations and are subject to risks and uncertainties that could cause actual results to differ materially.

These uncertainties and risks include, but are not limited to, Velti's ability to manage cash and reduce operating expenses without sacrificing strategic growth, agreed-to financial covenants, reduced DSOs, add new and expanding exist -- add new and expand existing customer relationships, expand into new markets and verticals, achieve the benefits of the acquisitions, as well as market acceptance and the demand for Velti's products. In addition to the factors that may be discussed in this call, management refers you to its annual report on Form 20-F for the periodic reports filed with the SEC, available online by link from the company's website for additional information on the factors that could cause actual results to differ materially from current expectations. A replay of this conference call will be available at velti.com for 3 months from today.

And with that, I'd like to turn the call over to Velti's Chief Financial Officer, Jeff Ross.

Jeffrey G. Ross

Thanks, Leslie, and again, welcome to our Q1 earnings call. Revenue came in at $41 million towards the low end of our $40 million to $44 million range. This was fundamentally due to lower-than-expected results within our advertising business, which Alex will discuss in more detail later in this call. In terms of the breakdown between the advertising and marketing businesses for the first quarter, advertising revenues comprised approximately 25% of our total revenues, while marketing revenues comprised the remaining 75%. For the quarter, the geographic breakdown of revenues is as follows: The Americas generated $11.8 million or 29% of revenue compared with $13.3 million or 26% of revenues in Q1 2012. Western Europe, including the U.K., which was previously reported separately, generated $14.9 million or 36% of our revenue compared with $18.3 million or 35% of our revenue in Q1 2012. Other Europe generated $4.8 million or 12% of our revenue compared to $13 million or 25% of our revenue in Q1 2012. And finally, Asia and Africa generated $9.5 million or 23% of our revenue compared with $7.2 million or 14% of our revenue in Q1 of 2012. With respect to expenses and profitability, third-party costs came in at $23.4 million for an overall gross margin of 43%. Advertising and mobile marketing gross margins were 30% and 47%, respectively. We are still expecting gross margins for the year to be consistent with our guidance of slightly above 50%. It is normal for many of our mobile marketing projects to have lower gross margins during their initial stages, and our Q1 mix was slightly skewed towards lower margin offerings. Pro forma operating expenses including share-based compensation, acquisition-related and other nonrecurring charges, came in at $36 million, which included a $2.3 million charge to increase Velti's allowance for doubtful accounts. This charge was largely the result of an aging-based bad debt methodology we implemented in Q4. Adjusted EBITDA was negative $18.3 million for the quarter or $16.1 million, excluding the bad debt provision. Included in our first quarter GAAP results is a noncash charge of $133 million related to the write-down of substantially all our good will and other intangible assets, which was triggered by our decline in market value and was largely mechanical based on our stock price as of March 31. Specifically, under the applicable accounting rules, we were effectively required to perform a purchase price allocation based on our market value as of the end of the quarter. This resulted in a full writeoff of the good will the company recorded on previous acquisitions and a substantial write-down of all other intangible assets recorded on the company's books. Notwithstanding the required accounting treatment, our view is that both the businesses acquired and the intangibles acquired or developed by the company have substantial economic value in our ongoing business operations. Now turning to the balance sheet. We ended the quarter with $16.3 million in cash and cash equivalents. In late April, we raised $24.8 million via a private placement of equity to a small group of institution comprised of both existing and new investors. As you're aware, we ended the quarter with acquisition-related obligations to MIG of approximately $30.5 million. $15.7 million of this amount was payable in cash with the remaining $14.8 million payable in shares, cash or notes at our election. Weighing all the legal business and operational implications, we decided it was not advisable to push forward with an extended deferral of the MIG payments, and consequently in early Q2, we paid that obligation in full. For the $15.7 million cash portion, we utilized cash on hand, as well as a portion of the proceeds of the equity offering. Of the $14.8 million payable in cash, shares or notes, we paid $800,000 by issuing notes and $14 million through the issuance of 5.7 million shares. With these payments to MIG behind us, we have no meaningful remaining acquisition-related obligations due in 2013. Our only significant remaining acquisition-related obligation is to CASEE, which is on our balance sheet at $4.2 million and which we anticipate paying in 2014. We believe we will be able to satisfy this obligation in a mix of cash and shares. In terms of free cash flow generation, in the first quarter, the company had operating cash flow of negative $26.6 million and free cash flow of negative $34.3 million. These figures include the impact of foreign exchange, but exclude final acquisition-related payments of $6 million made to Mobclix. The negative free cash flow was primarily attributable to operating results and certain catch-up payments related to accrued liability. In terms of comprehensive DSOs, as outlined in the earnings deck, DSO ended the quarter at 309 days, which is down slightly from year end. While we will not be giving out specific DSO guidance, we continue to expect DSOs on revenue generated in 2013 to be under 100 days and overall DSOs to improve gradually as older receivables are collected. In April, the company implemented a significant restructuring focused on reducing its operating expenses by approximately 20% on an annual basis. These activities were primarily comprised of a headcount reduction and we're focused on non-revenue generating functions. To a lesser extent, the activities also targeted excess capacity in certain facilities, as well as additional cost controls. We believe these actions should serve to streamline and better align cost with current opportunities and preserve the company's ability to generate its stated EBITDA and free cash flow targets for the year. Now turning to Q2 guidance, which you'll note is included in our earnings release deck. To summarize, expectations for the quarter are revenue of $42 million to $45 million with adjusted EBITDA of negative $8 million to negative $12 million. As we discussed in our fourth quarter call, our priorities this year are free cash flow, adjusted EBITDA and revenue in that order. We continue to make business decisions consistent with these objectives. Consequently, in terms of guidance for the year, we are maintaining our adjusted EBITDA and free cash flow guidance at $5 million to $15 million each. Revenue is expected to grow quarter-over-quarter through 2013 and be below our original guidance, although we will not be providing an updated range. The operational changes I discussed earlier will enable us to lower our cost and largely offset lower fiscal year revenues. And with that, I will turn the call over to Alex, but not before I note to you that the release has now been posted, so you should have that available.

Alexandros Moukas

Thank you, Jeff. This is an important time for Velti. As we've been discussing over the past several quarters, we continue to take the necessary steps to improve our financial position and drive long-term growth. While the progress has been digital for the company and our shareholders, we believe we're making good progress towards creating a strong and sustainable business. As Jeff mentioned, last month, we made significant operational changes that further aligned our cost structure with our business strategy. The goal of these changes was to reduce our expenditures in areas that are not critical to our strategic direction, including free cash flow and adjusted EBITDA. As such, the change included a 20% reduction in headcount with emphasis on senior staff and corporate overhead, most recent cost controls throughout the organization and an alignment of our facilities' goals with business requirements. In addition, since the beginning of the year, we have made significant changes to the executive leadership to help us affect meaningful post exchange in our performance. During the first quarter, we announced the appointment of Jeff Ross as Chief Financial Officer. Jeff has been instrumentally helping us work through many of the difficult financial issues that we face and enabling us to chart the quarter for long-term success. Jeff joined us after 15 years with Sybase where he was CFO during the period which included the sales of Sybase to SAP. Today, I'm very pleased to announce that Mari Baker is joining Velti in a permanent capacity as Chief Operating Officer. Mari was appointed to our Board of Directors in August 2011, and has an impressive track record of -- for driving growth and efficiency at a variety of respected Bay Area companies. In addition to COO roles such to venture-backed companies, Mari led the sales of BabyCenter to Johnson & Johnson in 2001, and integrated and expanded the company through her next 5 years as a company president at J&J. For the 10 previous years, she was a key member of the leadership team at Intuit as the company grew from under $10 million in revenue to nearly $850 million, and led various business and functional units. Mari has been integral in driving the restructuring that Jeff referred to, and has brought strong leadership and focus on operational efficiencies. I'm very excited to have her join us as we transition our business and position ourselves for long-term growth. Mari will also be joining this call during the Q&A session. We are confident that these organizational changes will allow us to drive improvements in our free cash flow and adjusted EBITDA without sacrificing strategic growth opportunities in the key areas that we're targeting. We'll continue to focus on leveraging the benefits of our existing technology platform, key talent and geographic presence. Speaking of technology, on the product side, we've also made solid progress in our platform capabilities, including market channel tracking, data and predictive analytics. In combining mobile advertising and marketing with performance data, Velti is now able to make recommendations to brands on the best types of campaigns to run in order to achieve specific sets of goals. Our recently launched multichannel targeting technology enables for us to target consumers with relevant advertising and marketing interactions from smartphones, tablets and PCs, allowing them to identify and reach the same consumers across any device or platform. This ability to target from best of the mobile web, mobile app and mobile messaging enables advertisers to continue delivering deeper levels of engagement as consumers move across devices. On the mobile marketing side, we launched a new version of our technology that allows for accelerated customer deployment time with using initial setup by up to 1/3, and we also introduced new data and optimization adoptable algorithms that further enhance our laid-in performance and predictive analytics. Turning to our geographical and regional business focus, as we discussed in our last earnings call, 2013 will be a transition year as we continue to optimize our business around strategic geographies and strategic accounts. We've been selective about the revenue opportunities we pursue to optimize cash. This will enable us to reduce our capital expenditure by almost 60% compared to 2012, and achieve DSOs on 2013 revenue of below 100 days. From a geographic perspective, we are beginning to see success in achieving a more optimal distribution of our revenue as evidenced in Q1, where 65% of our revenues came from Western Europe and the Americas compared with 56% for fiscal 2012. Our advertising business results were mixed with our year-over-year gross profit increasing 25% despite a year-over-year decline in revenues of approximately 10%. This revenue reduction was largely the result of our decision to delay several publisher payments, which preserved cash but resulted in a decrease in exchange inventory, and consequently, lower advertising revenue. We are focused on resolving these publisher payments in the coming months, and we expect to see our inventory to increase correspondingly. Velti's ad exchange continue to provide among the highest monetization for mobile ad inventory for publishers and offers a very compelling value proposition for our customers. Further, late in the first quarter, we announced the launch of Velti Media, and early results have been encouraging with a number of significant global brand partners, including Disney, Toyota and Unilever. As a result of the rationalization of certain business that we discussed in our last 2 earnings calls, our mobile marketing revenue as a whole was down year-over-year. Despite the recent challenges, we've maintained positive customer relationships as a result of our continued innovation and history of delivering on our promises. Velti provides a valuable service and unique expertise to grants, looking to leverage the mobile channels to establish, maintain and develop customer relationships. During the first quarter, we added key new 7-figure deals with major brands including American Express, Ford, AT&T, Panasonic, Vodafone, Orange, Claro and Coca-Cola. In closing, we recognize that this continues to be a challenging time for Velti shareholders. I can tell you, however, that we, as a management team, and this entire company are highly committed to drive value for our shareholders, our customers and our employees. We believe we're taking the necessary and difficult steps to create a strong and sustainable business, and we firmly believe in the tremendous opportunity for growth and success. Thank you for your continued support and interest. And with that, we're going to open it up for questions, and available for questions are going to be Jeff Ross, our CFO; Mari Baker, our Chief Operating Officer; and myself.

Question-and-Answer Session

Operator

[Operator Instructions] Your first question is from Andre Sequin of RBC Capital Markets.

Andre Sequin - RBC Capital Markets, LLC, Research Division

I wonder first, Jeff, if you could comment on where the cash balance is today and if you'd be willing to give us any kind of cash flow guidance, more detailed for the course of the year. And then moving on, the shortfall of revenue that we saw in 1Q, would you say that's for the similar reasons of the slowness we saw in 4Q and that's basically what's flowing through to the reduction in 2013 guidance?

Jeffrey G. Ross

Yes. So let me take the first question and then Alex can address the second one. So I'm not going to specifically discuss cash balance today other than to say it's enough to run our business. With respect to liquidity, we think it's tight, but we'll be able to manage through this tightening into Q3 when we expect a significant amount of cash flow. With respect to exact cash flow for Q2, free cash flow, excluding acquisitions, is expected to be pretty similar to that of the EBITDA, which is negative $8 million to negative $12 million. For the year, as we announced, we're holding our guidance at $5 million to $15 million, which effectively means that our expectation for cash flow in Q3 is around $10 million and then mid $40s million in Q4. And with that, I'll turn it to Alex on the revenue question.

Alexandros Moukas

So the revenue question, I would say it was mostly a function of the way we're pivoting our business. So moving away from revenue and moving into new revenue categories. You're looking at the geographies that we're targeting. We're taking a very careful look in the customers we're going after. We're avoiding any sort of material up from CapEx investment in order to maintain our total CapEx for the year to a figure that's below $20 million, and that's down from sort of almost $60 million in 2012. And we're also doing it in such a matter that we are making sure that our comprehensive DSOs are going to be sub-100 days.

Operator

Next question is from Peter Misek of Jefferies.

Peter Misek - Jefferies & Company, Inc., Research Division

We've had, obviously, a restructuring occurring here, but I'm trying to bridge what was, in Q1, a very hot mobile marketing advertising market as reported by Facebook and the other Internet giants and what you're seeing in the business. Maybe you can help us understand the key points that are going to -- we should look at as performance indicators, and are they going to drive business going forward? And then just as a follow-up on the liquidity, and I'm sorry to bang on the point, but it looks, based on our calculations, that you're going to need another cash injection. Maybe you can help allay some of those concerns of ours.

Alexandros Moukas

So the business side, you should be seeing very solid quarter-over-quarter revenue growth. And we are seeing -- if you look at our pipeline, it absolutely demonstrates that. We continue to see that the different folks out there in terms of the major brand, the major customers, one thing you see, sort of ever larger RFPs. And this was also in this sort of first quarter. It was also the first quarter that we saw so many multimillion dollar deals essentially being signed or extended.

Jeffrey G. Ross

And then I'll say the same thing I said before, I mean it's tight. I acknowledge that it's tight, but we believe we can manage through the tightness into Q3 where we see more meaningful cash flow generation. So based on what we see today, our expectation is not that we will be needing to raise additional fund.

Peter Misek - Jefferies & Company, Inc., Research Division

Okay. Just if I can sneak in a follow-up, Alex. Excluding the geographies where you've divested or exited, if we look at the Americas and Western Europe, can you give us any sense for backlog, pipeline or level of activity or any kind of criteria or metric that we could think of? Or your view on the market to try and help us gauge the business?

Alexandros Moukas

Yes. Alex over here. So there are a couple of things, right? Number one, I would go back to what I mentioned before. Meaning that, again, we are seeing sort of very solid traction from very well-known names in terms of brands across a variety of different market. These markets are obviously the Americas, where you're seeing customers there like, as we discussed, American Express, customers like AT&T. And it's also -- we also saw sort of significant growth with other types of customer, for instance, in Europe where we have very solid growth from customers like, for instance, Vodafone. So overall, if you look at our pipeline, again, and I understand that it's hard to model this because we are rationalizing a big part of our business and we divested a part of our business, so comparing Q1 of this year to Q1 of last year is actually not very meaningful. But we are seeing sort of solid folks like sort of Disney, like Toyota, like Unilever and then we're also looking even at growth at sort of markets that are not U.S. and Western Europe, markets where we're looking at DSOs to be around sort of 90 days. And for instance, a certain market is India. We're looking at sort of very, very solid growth, robust double digits. In general, the other thing that was absolutely obvious in the first quarter results is that even though our gross profit margin on the mobile advertising business increased 20% year-over-year, we did see a deceleration on the revenue side. And that was primarily, I would say, self-inflicted as we, in order to conserve cash, we delayed some publisher payments. And this is something that we're absolutely looking to remediate in the coming months.

Operator

Our next question is from Peter Stabler of Wells Fargo Securities.

Peter Stabler - Wells Fargo Securities, LLC, Research Division

So Alex, could I ask you about these clients that you've been naming? Could you give us a little bit more color on the types of engagements? In particular, I'm interested in understanding how the mGage platform is or is not gaining traction within agencies. I understand the desire is to get installed as a platform and then leverage the inherent scale within agencies. Can you help us understand, are these one-off type campaigns? Are these tests, are these advertising-only or are you getting traction in -- on the marketing side with performance-based advertising? And then a quick one for Jeff. I was writing furiously, I just want to make sure I got this. So on the bad debt allocation expense or the $2.3 million incremental, and that's on top of what was, what, previously $7 million, could you help us -- I think, and correct me if I'm wrong. And then if you could help us understand, going forward, any way to have a sense of whether more of bad debt write-downs could be ahead?

Jeffrey G. Ross

Sure. Let me take the first part of that and then Alex can get the revenue question or the customer question. So the $2.3 million in the quarter, the balance at year-end was somewhere around $10 million, so it's in addition to that. Current expectations at this point based upon expectations of winning some of the older receivables that now have reserves will be collected as that -- it should be pretty much breakeven for the remaining portion of the year. Obviously, if more of the older stuff gets collected, we do better. And if more of the newer stuff gets collected, we do a little worse on that reserve. That said, we are not seeing a meaningful increase in specific instances of bad debt where customers are having financial difficulties or going into bankruptcy or other like situation where it's a definitive write-up of the bad debt. And even on those that we are reserving that are -- because of their long life, in most instances, we are receiving regular payment. They're just not as quick or as large as we expect them to be, or would hope them to be, I guess. And with that, I'll turn it over to Alex.

Alexandros Moukas

Yes. So on the customer question, so the quick answer is that no, these are not one-off campaigns. These are sort of, as I said, multimillion dollar engagements, 7-figure engagements where we are, in some cases, combining mobile advertising and mobile marketing activities. Remember also that in these types of performance campaigns, our customers, even the brand directly or through their advertising agencies, usually they're accessing our hosted environment, our software-as-a-service environment, so -- and they're using that with, a lot of times, agency resources. In addition to that, obviously, you have campaigns like the one that I mentioned with Toyota, where we're essentially providing a new, a completion for the revolutionary way to track through mGage and mGage Visualize, the performance of this campaign. So all of their ad serving part in all of their mobile site, the cloud campaigns that we're discussing, that we discussed before, all of these campaigns are, again, 7-figures and performance-based marketing campaigns. And then the Panasonic campaign, we're going to be making sort of -- we're going to be discussing more of that in the future. But again, it's a multimillion dollar 5-year campaign where we're providing them our mGage platform capabilities to folks on the in-plane aviation market squad unit.

Operator

The next question is from Scott Zeller of Needham & Company.

Scott Zeller - Needham & Company, LLC, Research Division

Regarding the restructuring, could you tell us if it's actually finished?

Alexandros Moukas

So if you look at the restructuring, the reduction in force, the headcount reduction has been -- is pretty much over. That is obviously, in a company like Velti, the vast majority of its OpEx. So I would say that it's finished to the tune of sort of 75%, 80% right now, and it's going to be completed over the next few weeks. But the vast majority of that is completed.

Scott Zeller - Needham & Company, LLC, Research Division

Okay. And on the same topic, can you discuss your sales capacity now and how the headcount in your sales organization looks versus before the restructuring?

Alexandros Moukas

So the major focus on the restructuring was pretty much on, let's call it, horizontal overhead positions. We didn't really touch either revenue-generating position, the sales side position that we're servicing that revenue on the back-end. If you take a look also at the deck that we've posted at our company's press release, you're going to see that we expect our OpEx, our quarterly OpEx, between Q1 of this year to Q4 of this year to grow by 26%, and the headcount drop since the beginning of the year was 22%. And again, if you look at the headcount growth, all of that has been already completed these, the vast majority of the restructuring.

Mari Jean Baker

We'll add on a few comments onto that. Where -- we focused our efforts on headcount related to corporate overhead sort of positions, non-sales generating positions that we can focus our efforts on the businesses, credentialize our highest margins and help develop us in the most strategic geographies.

Scott Zeller - Needham & Company, LLC, Research Division

Okay. And then for Jeff, can you give us a sense of share count we should target using for the full year?

Jeffrey G. Ross

Yes. So, let's see. I've been waiting that out, Scott, but in -- by the end of Q3, we expect that number to be near $90 million with the issuance of the shares for the pipe that we talked about, along with the issuance of the shares for the Mobclix -- or sorry, the MIG transaction and a few other shares issued for employee-related items. And then after that, there are no significant planned uses of shares through the end of the year, although you'll see normal grants to new employees and recoveries from employees that leave, but wouldn't expect a huge use after that point.

Operator

Our next question is from Richard Ingrassia of Roth Capital Partners.

Richard Ingrassia - Roth Capital Partners, LLC, Research Division

Jeff, on the Q4 call, you guided, obviously, to this bumpy '13, but you gave some fairly aggressive guidance for 2014 and '15. Are you still standing by that, and what gives you confidence this far out?

Jeffrey G. Ross

Yes, I mean we've rerun models with our current view of the world, and frankly, it looks, at least at the EBITDA and the cash flow and even growth percentages, it looks pretty consistent. I mean fundamentally, what's different is that we're getting a little bit more of our benefit off of reduction of expenses than what we were, in the old model, giving up top gross margin. And the characterization of the income is a little bit different in that our growth percentages, given the struggles we've had recently in the advertising and notwithstanding our high hopes for acceleration in that area, we've taken down our future growth percentages in that model for that. But we've seen nice traction in other parts of our mobile marketing business, and so have reflected that in our model. So net-net, it is substantially intact with respect to our expectations on that long-term model.

Richard Ingrassia - Roth Capital Partners, LLC, Research Division

But more so, you're saying, if I'm hearing this right, more so on your ability to control costs and make a correction that you put in place in the last quarter, then necessarily a lot of confidence in where the top line goes from here?

Jeffrey G. Ross

No, I'd say, I think that the guidance that we gave before was around 30% on revenue growth, and that's pretty consistent. Again, it'll be coming off a bit of a lower base starting in 2014 given our comments about revenue. But as far as growth opportunities in the mobile marketing side, we believe those are largely intact and then probably a little bit lower on the advertising side. But I guess my point was, that the model, even if you look at '14 from a free cash flow and EBITDA perspective, is largely intact because we're getting more -- we have lower operating expenses and a little bit of lower gross margin given lower revenue.

Richard Ingrassia - Roth Capital Partners, LLC, Research Division

Got it, okay. I do have a question for Mari, but before I let you go, Jeff, did I hear you right, you said 90 million shares at the end of Q3 or Q2?

Jeffrey G. Ross

Q2, sorry.

Richard Ingrassia - Roth Capital Partners, LLC, Research Division

Okay. And then what do you expect severance and other charges to be in Q2 due to the restructuring?

Jeffrey G. Ross

We -- I don't have that -- so severance related charges will probably be between, say, around $2 million. We haven't finalized all the facilities related items so that could be -- that could add to that amount. But the severance related, which is probably more tied to cash, will come in somewhere below $2 million based on our current forecast.

Richard Ingrassia - Roth Capital Partners, LLC, Research Division

Okay. And finally for Jeff, can you remind us again just the final terms on the sale of the Balkan business?

Jeffrey G. Ross

The Balkan business was -- we received the note receivable around mid-20s, of which $3 million of that was paid at the end of last year, roughly $5 million will be due at the end of this year and the remaining portion is due at the end of 2014. On our balance sheet, that's been discounted a bit down for risk and cost of capital and the likes. So it's sitting somewhere around $20 million on our balance sheet.

Richard Ingrassia - Roth Capital Partners, LLC, Research Division

Okay. And then, Mari, after the restructuring here in Q2, what do you understand your marching orders to be from the operation's end? And are there still other low hanging fruit you think that could result in more efficiency for the company?

Mari Jean Baker

Yes, I think first order of business is around assuring that everything that we've articulated around the restructuring gets implemented, just making sure that everything that's planned is executed on. Second is to review restructuring going in a couple of different phases. I think in this phase, we need to come through and take a strategic look across the business, and are sure that we're putting more of our efforts behind the things that are going to drive long-term profitable growth, as well as some short-term profitable growth, and stop doing -- continue to stop doing a number of other efforts. I think part of what will drive our growth going forward is doing fewer things heck of a lot better, being best in the market, being #1. Being the preferred provider is important in gaining long-term share and profitability, and thus, what we'll go through and be committed to doing.

Operator

Thank you. This ends the Q&A portion of today's conference, I would like to turn the conference over to Chief Executive Officer, Alex Moukas. Please begin.

Alexandros Moukas

So let me quickly summarize what we'd like you to take away from today's call, and thank you for all the questions. In the past 2 months, we have reduced headcount by more than 20% and annual operating expenses by approximately the same. We have restructured the organization with the additions of our new COO, Mari Baker, and CFO, Jeff Ross, streamlining operations and removing overhead, while reducing CapEx by more than 60% compared to last year. Revenue from customers in the Americas and Western Europe reached 65% in Q1 compared to just 56% in fiscal 2012. As Jeff mentioned earlier, revenue we generated in 2013 is expected to have a much lower DSO below 100 days and significantly improve our working capital cycle. We continue to see very strong demand from our customers, including multiple 7-figure deals I discussed. Now in closing, I want to reiterate our areas of focus in order of importance. Free cash flow generation followed by adjusted EBITDA, and finally, growing our revenue in key markets, including the Americas, Western Europe and the BRICs. Thank you very much for joining us.

Operator

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the program. You may now disconnect. Have a wonderful day.

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