Attunity Ltd (ATTU) CEO Discusses Q2 2013 Results - Earnings Call Transcript

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 |  About: Attunity Ltd (ATTU)
by: SA Transcripts

Operator

Good day and welcome to the Attunity’s Second Quarter 2013 Earnings Conference Call. Today’s conference is being recorded. At this time, I would like to turn the conference over to Mr. Garth Russell from KCSA Strategic Communications. Please go ahead sir.

Garth Russell

Thank you. Before turning the call over to management, I would like to make the following remarks concerning forward looking statements. All statements in this conference call other than historical facts are forward looking statements. The words anticipate, believe, estimate, expect, intent, guidance, confidence, target, project and other similar expressions typically are used to identify forward-looking statements.

These forward looking statements are not guarantees of future performances and may involve and are subject to risks and uncertainties and other factors that may affect Attunity’s business, financial condition, and other operating results which include but are not limited to the risk factors, another qualifications contained in Attunity’s Annual Report on Form 20-F, quarterly reports that are filed in a 6-K, and other reports filed by Attunity with the SEC which are Attunity’s directive. Therefore, actual outcomes and results may different materially from what is expressed or implied by these forward looking statements. Attunity’s express or disclaims any intent or obligation to update these forward-looking statements.

During this call, we may also present certain non-GAAP financial measures such as non-GAAP net income and certain ratios that are used with these measures. In our press release, and in the financial tables issued earlier today which is located on our website at www.attunity.com, you’ll find our definitions of these non-GAAP financial measures, a reconciliation of these non-GAAP financial measures with the closest GAAP financial measure as well as the discussion of why these non-GAAP financial measures are relevant to our results. These financial measures are included for the benefit of investors and should not be considered instead of the GAAP measures.

At this time, it is now my pleasure to turn the call over to Shimon Alon, Chairman and Chief Executive Officer of Attunity. Shimon, the floor is yours.

Shimon Alon

Thank you, Garth and thank you everyone for joining our call today. Since the first quarter, we have made significant progress in growing our revenues, generating profits, and building momentum in order to meet our goals for the year. With me today is Dror Elkayam, our Chief Financial Officer. We would be providing an overview of our financial results and then some details regarding our performance during the quarter. After our prepared remarks, Dror and I would be happy to answer any questions you may have. With that said let’s get started.

As we announced this morning we grew license revenue by 92% and total revenue by 33% compared with the first quarter of 2013. This revenue growth is attributed to effective marketing activities, accelerated sale performance and increased activities with our partners. With respect to sales execution we have engaged in growing number of prospects and customers through our direct sales activity. We have seen stronger performance for our U.S. sales force both quarter to quarter and year-over-year.

I am pleased to say that these growths can be mostly attributed to increased contribution from our new sales people as well as strength of our flagship product Attunity Replicate, which now makes up the majority of our license revenue.

Later I will discuss how our replication technologies are used to enable big data analytics by customers using data warehouses, such as Pivotal Greenplum, Teradata and Amazon Redshift. Extending into new territories is an important part of our overall growth strategy.

As part of these efforts we stand stable as new resellers in Mexico and Brazil and started to seeing increased activity in the region where we already closed the deal with a major financial institution, these activities complement the work that we're already doing to expand our business in Asia and Europe.

Moving on to our marketing activities, we're strengthening our brand and have been consistently recognized for the values that our data and file replication products provide, for big data and for the cloud market. Attunity solutions were highlighted by some of the leading industry publication, which includes being selected as one of the most important companies in big data by Database Trends and Application magazine, Attunity was also named to the CRM big data 100 list. We also accelerate our marketing initiatives.

We have hired a new VP of Marketing, Mr. Lawrence Schwartz. Under his leadership we are focused on generating new (inaudible) by investing our marketing approach. This includes growing overall awareness and inbound traffic by using customers to directly promote our message in a variety of forms including webinars and social outlets. We're extending our telemarketing effort in Europe. We're exposing Attunity to wider range of big data industry analyst and media, and we're working very close with our partners to develop a series of webinars that are jointly promoted to much larger audience. These activities have complemented and increased number of programs for both prospective and existing customers.

We expect to follow activity in the quarter, we have seen an increased activity with Greenplum, following the spinout of EMC and Pivotal. We went and collaborated more closely with the sales organization and closed very several deals for Greenplum data warehousing customers .With several more of these in the pipeline, for example Pivotal introduced us to one of the largest financial services institution in North America. This particular customer needed to load data into Greenplum to support analytics on strategic investment products. The customer saw the immediate benefit of our click to load solution that accelerated data loading process and selected Attunity within just few weeks. We are also starting to experience growth in selling our solutions for Teradata which has the target the largest which is the largest sale of enterprise data warehousing market. I'm pleased to say that we have successfully closed our first deal with the Teradata customer, this U.S based customer is using big data analytics and needed to use in time data to enable supply chain management intelligence, high performance integration with Teradata and a complete automation made Attunity the perfect solution. We are also seeing more Teradata customers who are evaluating our solutions with favorable results, we expect this partnership to contribute our growth in the future quarters.

In addition to our existing data warehouse partners, including Pivotal, Teradata, (inaudible), Amazon and Exion, we plan to introduce new partnerships with large data warehouse vendors in the second half of the year. Beyond our activities enterprise data centers we've also seen more introduction via a solution that enabled big data analytics in the cloud. For example, a large media company is now using Attunity CloudBeam to load terabytes of data for analytics with analogue elastic method use. Yet another example is the leading online domain brokerage that is giving Attunity CloudBeam to load data from these (unplanned) database into Amazon Redshift which is Amazon data warehouse in the cloud. By another (inaudible) this customer was able to locate that in minutes and save months of development work.

Given the demonstrated value we have delivered to customers thus far, Amazon web services is introducing us to new customers and has invited us to participate in several joint webinars with them that highlight our solutions. These activities have begun to generate customers, and need for our pipeline. The steps I have described have already started to improve our performance allowing us to rapidly close the year-over-year gap, our Q2 total revenue are 5% lower compared to the same quarter of 2012, showing significant improvement of what they got in Q1.

I will now turn the call over to Dror Elkayam our CFO, to discuss details of our financials.

Dror Elkayam

Total revenue for the second quarter of 2013 decreased by 5% to 6.1 million compared with 6.4 million for the same period of 2012. This is mostly attributable to an 8% decline in total license revenues to 3.3 million compared with 3.6 million for the same period of 2012. Our cost of sales for the second quarter decreased by 5% to $512,000 from $537,000 in the second quarter of 2012. This is mainly due to a decrease in software development expenses which were fully amortized by December 2012.

Our R&D expenses amounted to 1.9 million in both Q2 2013 and 2012 and were 31% and 30% of total revenues respectively. Our sales and marketing expenses for the second quarter increased by 11% to 2.8 million from 2.5 million in the second quarter last year. This is, mostly due to the increase in headcount of our sales and marketing team during the second half of 2012 and Q1 2013 and to an increased marketing budget. As a result sales and marketing expenses for the second quarter was 46% of revenue compared with 40% of revenue for the same period last year.

This increase as a percentage of revenue is a mixture of higher costs and lower revenue for the second quarter of 2013, compared with the same period last year. We expect that the decrease in people as they have fully ramped will drive higher revenue in the second half of 2013. General and administrative expenses for the second quarter was 13% as a percentage of total revenue or 793,000 compared with 12% for the same period in 2012 or 747,000. The increase is mostly attributable to an increase in corporate expenses.

Operating income for the second quarter was 108,000 compared with 688,000 for the same period last year. Operating income included a total of 326,000 mainly in equity based compensation, actuation related expenses and amortization. This is compared with 461,000 of similar expenses in the second quarter of 2012. Excluding these items non-GAAP operating income for the second quarter was $434,000, compared with 1.1 million for the same period last year.

Net income for the second quarter of 2013 was $180,000, or $0.02 per diluted share, compared with 508,000 in the second quarter of 2012 or $0.04 per diluted share. Non-GAAP net income for the second quarter was $371,000, compared with $1.2 million for the same period last year. Non-GAAP net income for the second quarter of 2013 exclude expense in a total of 191,000 mostly attributable to amortization related to the acquisition of RepliWeb, equity based compensation expenses and noncash financial income resulting from reevaluation of liabilities presented at fair value.

Non-GAAP net income for the second quarter of 2012 excluded 724,000 in similar expenses. Moving to the balance sheet as of June 30, 2013, we had cash and cash equivalent of approximately 1.8 million compared with 3.8 million as of December 31, 2012. The decrease is attributable to the $2 million earn-out payment made earlier this quarter in respect to the RepliWeb acquisition completed in September 2011. We expect that our cash combined our line of credit would satisfy our operational need.

Our shareholders’ equity has decreased to 9 million as of June 30, 2013, compared with 9.6 million as of December 31, 2012. Now, I would like to turn the call back over to Shimon for some closing comments.

Shimon Alon

Thank Dror, so to recap with our long time goal that we should remind, we will able to lay the foundation for increased regeneration as long as sale and marketing force and we’re really to be expending to new market for the use of all the annual reseller and go to market partners. With the positive momentum this quarter, we’re setting the stage to go on the long term basis. We had demonstrated our ability to remain resilient for the difficult time and we expect to see this result counterreformation during the second half of the year.

Before we conclude our prepared remarks, I would like to thank all our customers, all our partners, employees, and all the investors for the firm support. We will now open the call to questions and I would like to ask the operator, Lisa, to open the call please.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions). We will now take our first question from Chad Cooper of Ascendiant Capital. Please go ahead.

Chad Cooper - Ascendiant Capital

Just wanted to know, you gave revised guidance after Q1 of $27 million to $30 million of revenues and didn’t provide any update, this quarter, is that number still accurate?

Shimon Alon

Yes, we have not made any changes to our annual guidance.

Chad Cooper - Ascendiant Capital

Okay, so given that annual guidance in Q3 just doing that you should be at a new quarterly revenue record for the quarter, is that accurate?

Dror Elkayam

As we have showed before, we say the second half of the year will have a strong growth and we expect both Q3 and Q4 to represent this growth.

Operator

We will now take our next question from Donald Besser of Manchester Management, please go ahead.

Donald Besser - Manchester Management

Thank you for updating the guidance that was my first question. Could you talk a little bit more about, you mentioned that you may have progress with Pivotal, you have got an order from Teradata, customer was excited and ordered right away, can you give us some idea what the size of these orders are, are they by seat or by, how does one customer be a much larger order than another one?

Shimon Alon

They way we license our technology when we talk about licensing we license it by the size of the data warehouse of the database that is very simple way to know of the size of the (server) it go by the number of call so other network and our pricing is based on size, assuming the bigger data warehouse more data will flow into it in a simple method, on top of it we ending as you know we moving data from source to target index so how sources, how many target and that’s how we calculating it. In the data warehouse market I will say Teradata definitely is the largest data warehouses now exist and definitely the others have a significant numbers as well of significant size. (Inaudible) would be around 150 to 200 we can see it going all the way to 700 but it’s definitely passing the hundred thousand dollars.

Operator

(Operator Instructions). We will now take our next question from Noah Steinberg of G2 Investment Partners, please go ahead.

Josh Goldberg - G2 Investment Partners

Just two quick ones, on your license revenue growth to 3.3 million, still down year over year, could you pick out how much of that was OEM or per channel versus direct and I have a follow up.

Dror Elkayam

We don’t break it down but as I mentioned in the call, we said the direct sales force actually grew both year-over-year, quarter-over-quarter, so direct sales force did very well and that’s how we achieved the 93% growth in license revenue, 92. The OEM as you know is still resolving the issue with the OEM partners, that has been resolved but revenue will kick in the first quarter with agreement we sign at the end of Q1, then hoping the numbers during this quarter and then will know the numbers and that’s what little bit of a drawback. We are back with the Pivotal first set of data, so direct sales did well, some of the OEM did well, we just have to continue to pick up little bit more from those that we had some issues with.

Josh Goldberg - G2 Investment Partners

Okay can you talk a little more about our pipeline right now?

Shimon Alon

We see a very slow momentum as we go into Q3. I’d say with my experience over the last five years with the company we never had sold it will be (inaudible) and strong pipeline as we go forward. Of course, we cannot know how many of them will be closed in Q3 and how many will be closed in Q4 but we are seeing very strong, nice pipeline. It’s a combination of market demand and I think our competitive products are being very well accepted by the market and that’s why we’re giving the home entry.

Operator

We will now take our next question Ben Rogoff of Polar Capital. Please go ahead.

Ben Rogoff - Polar Capital

Thanks very much for taking the question. Just a quick one on the balance sheet, I guess you paid out in the last payments through (web). Can you just talk about your ability to fund working capital and just if the pipeline is improving, how comfortable you are with the current balance sheet position?

Shimon Alon

I feel comfortable. Thanks for the question. I feel comfortable with the cash balance. As I stated earlier, the cash balance will satisfy our operational lead. On top of that, we have a line of credit available for us. If you take a look at our AR and our working capital, excluding the deferred revenue balance, you will see that we’re even better, in a better shape compared to last quarter and in a better shape compared to most of the 2012. So, we feel comfortable with that.

Dror Elkayam

I just like to add one comment here. The payment we paid to (inaudible) which was the one-time payment we have no other payments to anybody. We have no loans, we have no debt. And therefore from now on every penny we generate belongs to us.

Operator

We will now take our next question from Mark Gomez of Poised To Triple Research. Please go ahead.

Mark Gomez - Poised To Triple Research

Hi gentlemen. Nice move on quarter. I got the call little earlier. Wondering, if this question was asked, wondering what your current breakeven point would be?

Dror Elkayam

In terms of expenses?

Mark Gomez - Poised To Triple Research

Yes. Based on your expense, your anticipated expense structure for the second half of the year, would you anticipate breakeven revenue level would be?

Dror Elkayam

The annual breakeven point?

Mark Gomez - Poised To Triple Research

Annual or quarterly?

Dror Elkayam

So as you saw from our financials, the expenses, the quarterly expenses are in the region of 5.5 to 5.6 every quarter. So if you multiply it by two times you’ll get the breakeven in terms of revenue.

Mark Gomez - Poised To Triple Research

So you anticipate your expense levels turning stable relatively where they are right now?

Shimon Alon

In generally, yes.

Dror Elkayam

And you can see with 5.7 and now the expenses in Q2 we were profitable.

Mark Gomez - Poised To Triple Research

And can you update us on some of your cloud initiatives and what you’re seeing there in terms of kind of how the pipeline breaks out in terms of which way the customers are interested in purchasing your products?

Shimon Alon

Yes. I guess cloud initiative is doing very well today. We focus on two areas after we initiated our CloudBeam product and engaged with many customers thanks to Amazon. We are focusing on two areas; one called the Redshift which is the data warehousing and other one is what we call X3 the storage foundation of storage capabilities of Amazon. We actually had a very nice enriching activity in both. We will start with Redshift we are allowing working of Amazon we are the only company that they invite in when talk about data integration. And they introduced us to the 100s of people registering to this webinar 100s participating we already had two or here of them where Amazon introducing us we give the demo and discuss about it. Many times and immediately after the webinar we started to see a flow of people that are calling us. We are in the midst of what we call in our language proof of concept or a modulation and it’s moving well.

We dedicated some sales and marketing people in Florida where we had the web directly with people there to focus on dealing with the customers helping them to evaluate and decide. I would say on the area of virtue definitely it’s a very large market very exciting and Amazon is saying it’s the fastest growing product for them. While they said we have to understand that many of the customers it’s new for them they are evaluating the use of ease the business how to do it and so on and we are a part of this evaluation we are very happy to have already customers that are willing to show me the name and give us calls as well. And again we see a very extractive market, however, it will take time to build a revenue because it’s a fast modem and therefore we launched license fees to get the monthly fee. Some of the engagement we have already had monthly commitments so it’s not like we pay whenever they use they give you a commitment and they use it very well.

The X3, it’s something that is just about ready and also its growing nicely. One day I would say not for you and for the others to know the other benefit we received we are getting out of the cloud is some people that’s testing us for the cloud also directly like to use our training software. So they saw it within the cloud they know what we do and they saw wow we need you to do and the license software from us we can call it (inaudible) in we have already few cases that it’s happening right now.

Mark Gomez - Poised To Triple Research

That sounds like things have to progress. So if the pipeline does materialize as you anticipate for the remainder of the year when would you expect that you might consider adding to the direct sales force in a meaningful manner?

Shimon Alon

We are planning to start to add more people to the sales force in the end of Q3 and Q4 to be ready for the growth that we plan for next year.

Mark Gomez - Poised To Triple Research

Okay so is that to say that if your pipeline for next year continues to materialize as you see at this point that would be what drives your hiring decisions?

Shimon Alon

Yes the hiring decision is twofold is one is the demand. And secondly, is the territories the sales people are so busy that we know that we need to split it.

Operator

(Operator Instructions) We will now take a follow-up question from Noah Steinberg of G2 Investment Partners please go ahead.

Josh Goldberg - G2 Investment Partners

Can you just talk a little more about the relationship with Pivotal obviously EMC was a key OEM announcement for you last year and they have gone through some transitions kind of tell us what happened at the beginning of the year or kind of what gives you the confidence that things have now moved much better in the new direction going forward?

Shimon Alon

Yeah as you said we have a very strong relationship with EMC Greenplum. Then Greenplum was the spinout to become (inaudible) together with VMware. This happened during the first quarter and we had no activity at that time that of course affected our results as we started Q2 we immediately found one of them existing sales people, new sales people started coming from VMware but the good news is we have increased activity. Today we are having more activity than we had in second and third quarter that we had even before in 2012.

Due to the fact that we closed few large important accounts for Greenplum, it is nice to go with them through sales engagement and to meet within the customers type we are getting to know exactly which orders were already close so they respect us they understand that we can help them.

You have to understand it’s a very competitive market for them as well they are competing with the (inaudible), they are competing with Excel Data they are competing with (inaudible), they are competing with Exadata, they are competing with Teradata and therefore they need a good partner to enable the users to get the highest benefit from the solution. And we are very happy that we managed to do it. We have as I said we already closed some and we have a very nice pipeline by the way both in the U.S. and outside of the U.S. as well.

Josh Goldberg - G2 Investment Partners

Anymore update on Amazon as well?

Shimon Alon

I (inaudible) asked the question I shared a lot of information about the Amazon we have services generally just want to have everybody listen to it twice we have a very strong webinars with them they are introducing us we have already customers those we are being evaluated by many and the momentum is very strong.

Operator

(Operator Instructions) There are no further questions over the audio.

Shimon Alon

Okay I would like to thank everybody that participated in the call today I just want to make one comment for everybody to be aware of how does the cycle the direct sales people sales cycle is quite fast and we have customers that will buy within weeks or months. When we join partners those cycles sets back for very obvious reason may be taking longer so when we are talking people like Teradata and others they only need to keep low to the conclusion that everything would be closed within the next two months it’s a nice pipeline going into Q3 and Q4 and I appreciate your patience. With that said I would like to thank you again. We will be ready to answer any of your questions both personally and on the phone have a nice day thank you.

Operator

That will conclude today’s conference call ladies and gentlemen thank you for your participation you may now disconnect.

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