Envivio, Inc. (NASDAQ:ENVI)
Q1 2014 Earnings Call
May 30, 2013, 05:00 pm ET
Cynthia Hiponia - IR, The Blueshirt Group
Julien Signès - President & CEO
Erik Miller - CFO
Good afternoon ladies and gentlemen, thank you for standing-by. Welcome to the Envivio First Quarter 2014 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 questions. (Operator Instructions) The conference is being recorded today, Thursday, May, 30, 2013.
At this time, we would like to turn the conference over to Cynthia Hiponia, Investor Relations. Please go ahead, ma’am.
Thanks Dick and good afternoon and welcome to Envivio’s first quarter fiscal 2014 financial results conference call. Joining the call today are Julien Signès, President and CEO, and Erik Miller, CFO. The agenda of today’s call includes commentary from Julien followed by discussion of financial results from Erik. This afternoon, Envivio issued a press release announcing its second quarter financial results, which is available on the company’s website at envivio.com. This call is being broadcast live over the internet and the audio of this call will be available on the Investor Relations page of the company’s website.
I would like to remind everyone that this conference call will contain forward-looking statements that are not historical facts but rather based on company’s current 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 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 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. Reconciliations to the most directly comparable GAAP financial measures are included in a table attached to the earnings release on Envivio’s website.
And now I would like to introduce Julien Signès.
Thank you, Cynthia. Joining me on the call today is Erik Miller, Envivio’s Chief Financial Officer.
Revenue for the first quarter was $7.5 million, down 3% sequentially, and down 44% year-over-year. I would note that the first quarter is typically down sequentially over the fourth quarter due to seasonality. Despite this seasonality and continues poor spending trend in our service provider customers, in the first quarter we have begun to see the impact of a rebuilding of our North American sales organization; revenues from the Americas was $2.6 million compared to $1.1 million in the prior quarter and $2.4 million in the first quarter of the prior year.
Thanks to our new American sales team and sales leadership, in the first quarter we increased the number of engagements including those with all key Tier-1 North American cable and telecom companies. Notably, IncrediTek, our reseller to Verizon contributed 18.5% of Envivio’s revenue in the first quarter. Motorola and other resellers to Tier-1 U.S. operators also contributed 11.4% of total revenue for the quarter. We also signed a new master purchase agreement with a leading Tier-1 U.S. cable multi-system operator. We are encouraged by our sales pipeline which is 50% larger than previous quarters.
Another highlight in the first quarter was our gross margin of over 63% up from 59% in Q4 and 52% in the prior year. The higher mix of software on orders and (inaudible) North American business helped the margins in the quarter; 66% of our sales came through partners and we continue to expand and strengthen our business relationships with distribution partners as well as key technology providers. Leveraging our partners to maximize our market coverage is an essential part of our distribution strategy and it helps us efficiently reach the global service provider market.
Other customer highlights during the first quarter includes the addition of six new customers with 76% of revenue coming from existing customers; several contracts for traditional pay-TV services demonstrating the success of our focus on the broader digital TV distribution market; expansions with many existing customers worldwide including the leading Western Europe and telecom operator specific to the (inaudible) for it’s IPTV and marketing strategies; increased momentum of our Halo Network Media Processor including additional orders by an existing European Tier-1 double customers. Selection by a leading global content provider for regional and GTV service delivery into connected TVs, PCs and tablets and mobile devices.
Turning to our products; on our last earnings call we discussed our HEVC Early Access Program for customers seeking to implement HEVC encoding, a new video standard promising up to twice the compression efficiency compared to current codecs. There has been a lot of interest in the earlier (inaudible) including meetings with key customers at NAB Conference in April, several Tier-1 operators are coming on board and we expect to have the first rollout later this year and ramping in to 2014 calendar year. Envivio won Streaming Media Magazine’s Best of NAB 2013 Award for the new Halo Experience Server. Launched at NAB, the Halo Experience Server is an innovative, new application server designed to enable operator to further customize the user experience based on individual viewer requests.
Halo’s innovative technology is designed to facilitate advanced applications such as time-shifted TV, targeted advertisement insertion as well as social and personalized TV without requiring operators to make significant changes to their video infrastructure. As I have stated before, with TV being watch more and more in personal mobile devices, we believe that personalization is key for operators to fully monetize their new services.
During the first quarter, we also announced forthcoming updates to our Muse encoding and Halo network media processing software products. (Inaudible) software licensing options are designed to improve the video quality and enable a more personalized user experience while facilitating service monetization.
Muse Live will offer increased channel density supporting up to 120 SD channels in the 2RU 4Caster G4 platform and up to 16 HD channels in MPEG-2 or AVC format. Muse On-Demand is being enhanced including the ability to better control video quality, the integrated video quality monitoring.
Partnerships remain a key competitive advantage for Envivio and in the first quarter we were pleased to announce collaboration with Broadcom on HEVC technology and integration with Adobe Primetime. Service providers can use Envivio’s encoding and video processing systems with Adobe Primetime DRM solutions to deliver the services to any web connected device and fully monetize the high quality TV like viewing experience. A leading Tier-1 North American cable customer is currently deploying Adobe Primetime and Envivio solutions for more distinct services.
All of these new product advancements are the results of investments in our industry leading technology. We continue to make these investments while prudently managing our costs. We're encouraged by the progress we're seeing from our efforts that we built our sales force, particularly in North America. These new sales teams combined with the technology differentiation that Envivio offers should enable us to compete in the broader TV distribution market while translating our leadership in more distinct technology.
While we were disappointed with our reported results this quarter, we've seen significant improvements in our pipeline and the level of engagements with our Tier-1 customers, especially North America. Our software-based solutions continue to be well received by the market and our plan to grow beyond [market applications] including diversification in to pay TV applications and introduction of technologies for the personalization of TV continues to show progress. Combined with our continued expense management efforts which we commenced in Q3 of last year, we believe we're on the right path to restore growth and profitability.
Let me now turn the call over to Erik Miller to discuss the quarter in more detail.
Thank you, Julien. Good afternoon, everyone. Before I begin, please note that I'll 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 can also be found in the Investor Relations section of envivio.com.
Let me now discuss results for the first quarter fiscal year 2014 in more detail. Revenue for the first quarter was $7.5 million compared to $7.7 million in the prior quarter and $13.4 million in the first quarter of 2013. While we saw significant improvement in revenue from the Americas, this was offset by weakness in EMEA and Asia Pacific regions, sequentially and year-over-year.
In the first quarter our revenue from the Americas was $2.6 million, compared to $1 million in the prior quarter and $2.4 million in the first quarter of the prior year. The sequential and year-over-year increase was from greater sales to North American service providers as the changes we made in our Americas sales force began to show result.
Our revenue in EMEA for the first quarter was $3 million, compared to $4.4 million sequentially and $7.5 million from the prior year. The revenue weakness sequentially was substantially as a result of the timing of orders received from the EMEA region. Our revenue in Asia Pacific for the first quarter was $1.9 million, compared to $2.3 million sequentially and $3.5 million from the prior year.
Our gross margin percentage for the first quarter was 63.3%, compared to 58.6% in Q4 and 61.7% from Q1 of last year. Non-GAAP gross margins for these periods are the same as GAAP. We saw higher gross margins both sequentially and year-over-year, primarily due to higher revenue in North America, which typically generates higher gross margins and an increase in software-only orders.
As we mentioned before, we expect gross margin percentage to fluctuate based upon product mix and geographic area of sales. Non-GAAP operating expenses for the first quarter of 2014 were $9.1 million, compared to $8.6 million in Q4 and $9.7 million in the year ago period. The significant year-over-year decrease in the non GAAP operating expenses was due in part to our strategy to lower our cost structure in light of the changing business environment.
Non GAAP R&D expenses for the quarter were $1.9 million compared to $1.5 million in Q4 and $2 million in the year ago period, the higher R&D expenses this quarter in comparison to Q4 of fiscal 2013 was primarily as a result of the one time increase in the amount of research tax credits we received last quarter from the French government for certain qualifying expenditures.
Non GAAP sales and marketing expenses for the quarter were $5 million compared to $4.6 million in Q4 and $5.6 million in the year ago period. Non GAAP general and administration expenses for the quarter were $2.1 million compared to $2.5 million sequentially and flat with the year ago period.
Non GAAP operating loss was $4.3 million compared to a loss of $4.1 million in Q4 and the loss of $1.5 million in the prior year quarter. Stock based compensation expense for the first quarter was $519,000 compared to $721,000 in Q4 and $690,000 in the prior year quarter. GAAP net loss for the first quarter was $4.7 million or a loss of $0.18 per share compared to GAAP net loss of $4.9 million or a loss of $0.18 per share in Q4 and GAAP net loss of $2.2 million or a loss of $0.17 per share in the first quarter of last year.
Non GAAP net loss for the first quarter was $4.2 million or a loss of $0.16 per share compared to non-GAAP net loss of $4.1 million in Q4 or a loss of $0.15 per share. And non-GAAP net loss of $1.5 million or a loss of $0.12 per share in the first quarter of last year.
Moving to the balance sheet, total assets as of the end of the first quarter, were $67.7 million compared to $72.4 million at the end of Q4 and $91.1 million at the end of the first quarter in the year ago period. We ended the quarter with $49.9 million in cash, cash equivalents and short term investments as compared to $54.9 million at the end of the fourth quarter 2013. The decline was due to our operating losses in the quarter and an increase in accounts receivable of approximately $600,000 due to the timing of revenues in the quarter and marginally slower collections.
Our deferred revenue balance at quarter end was $4.9 million compared to $4.7 million in Q4 and $5.6 million a year ago. Revenue from direct sales was 34% in the quarter compared to 37% in the prior quarter and 27% in the year ago quarter. Our DSO for Q4 was 108 days compared to 98 days in Q4 and 64 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 first quarter was 545,000 down from 708,000 in Q4 and up from 80,000 at the end of Q1 last year. The increase in inventory year over year was the result of inventory we purchased last quarter for future sales transactions and consist primarily of components and finished goods used in our industry standard server platforms.
We ended the quarter with the total headcount of 162 compared to 158 in the prior quarter and 152 in the prior year as a reminder over the last two quarters as part of our cost saving initiatives we significantly reduced a number of temporary engineering consultants, we employ in France that are not reported as part of our headcount.
As Julien mentioned we saw good momentum this quarter and our North American revenue primarily as a result of the changes we made in our sales force while we are optimistic about our future opportunities in the video processing and delivery market, we remained focused on monitoring our cost and continue to be cautious in the current macroeconomic environment.
With that we will now take your questions.
(Operator Instructions) And at this time I'm showing no questions in my queue, I'd like to turn the conference back over to Ms. Hiponia for any closing remarks.
Thank you. Thank you again for joining us for our first fiscal quarter earnings call and we look forward to talking to you again next quarter.
Thank you, ma'am. Ladies and gentlemen, this does conclude the Envivio first quarter 2014 earnings conference call. Thank you very much for your participation. You may now disconnect.
Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.
THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.
If you have any additional questions about our online transcripts, please contact us at: email@example.com. Thank you!