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Executives

Dan Mondor - President, Chief Executive Officer

Emory O. Berry - Chief Financial Officer

David King - Chief Marketing Officer

Kirk Somers - Executive Vice President

Analysts

Todd Koffman - Raymond James

Justin Cable - Global Hunter

Ali Motamed - Boston Partners

Concurrent Computer Corp. (CCUR) F1Q10 Earnings Call October 27, 2009 10:00 AM ET

Operator

Welcome to Concurrent Computer Corporation earnings conference call for the first quarter of fiscal year 2010. (Operator Instructions).

I would now like to introduce your host, Mr. Kirk Somers, Executive Vice President. Sir, you may begin.

Kirk Somers

Thank you operator and good morning, everyone. Welcome to Concurrent’s fiscal year 2010 first quarter earnings conference call for the period ended September 30th 2009. Joining me on today’s call are Dan Mondor, Concurrent’s President and Chief Executive Officer, David King our Chief Marketing and Strategy officer and Emory Berry, our Chief Financial Officer. Following our scripted comments we will be pleased to take your questions.

Before we begin, let me remind you that this presentation may include forward-looking statements such as believes, expects, estimates, anticipates, and other similar expressions. These statements are made pursuant to the Safe Harbor provision of the Private Securities Litigation Reform Act of 1995. Accordingly, the cautionary statements made in concurrence 10-K filed August 28, 2009 are incorporated herein by reference. The company’s actual results could differ materially from the forward-looking information in this presentation.

The content of this webcast contains time-sensitive information that is accurate only as of the date of this live broadcast, October 27, 2009. Any redistribution, retransmission or rebroadcast of this presentation in any form without the expressed written consent of Concurrent is prohibited. I caution you that any forward-looking statements made by the company are not guarantees of future performance and that a variety of factors could cause the company’s actual results and experience to differ materially from the anticipated or projected results which the company may discuss on this conference call.

You should all have a copy of the earnings release. If you have not received a copy, please call Sandra Dover at 678-258-4112 and she will be pleased to provide you with a copy. With that said, I’ll turn it over to Dan.

Dan Mondor

Thanks, Kirk. Good morning, everyone and thank you for joining us today. I’ll start with highlights of our financial results followed by an update on our business. David King, our Chief Marketing and Strategy Officer will provide an update on the market role of our Three-Screen strategy. Emory Berry, our Chief Financial Officer will provider an in depth discussion of our financial results and I will close with some additional comments.

In the first quarter, we reported revenue of approximately $12.8 million with gross margins of 60.7% and operating expenses of approximately $8.8 million, we reported an operating loss of approximately $1.1 million and a loss per share of $0.12. As discussed in our August earnings call we continued to experience reduced spending from our top two North American MSO customers. And as a result first quarter revenue was noticeably impacted. I want to reinforce comments we made on the last earnings call.

The revenue impact is due to delays in implementing new projects in combination with utilization of existing VOD capacity, not cancellation of orders or reduced market share.

In terms of outlook, we are reiterating our prior view that is, we expect an overall bottoming out in the first half of fiscal 2010. We are seeing signs of the business firming up in our second quarter. And we anticipate revenue in the second half to be better than the first half.

Now let me turn to a brief update on our business. Despite the impact on our VOD business, market data indicates year-over-year growth in consumer Video-on-Demand viewing is in the double digits. This gives further evidence that the VOD market has underlying strength. In addition, our current and perspective customers are confirming that we are well positioned to capitalize on the fundamental shifts occurring in the video market place with our Three- Screen strategy.

We announced the launch of our video to the PC solution in September, and we are working with several customers to implement trials. We continue to make progress in the evolution of our media data and advertising solutions business model to software as a service, which has been adopted by ZON TV Cabo in Portugal and one of the top five North American cable operators.

To add a bit more color to this comment, TV Cabo will deploy our media data management solutions and operational reporting services for monitoring video usage, census level, media data management and operational analytics, all of which are key components of our MDAS. As we evolve the business, we’ve also continued to introduce new products and services to meet our customer’s needs such as our Central Data Warehouse or CDW product.

I will make a few comments on two additional milestones. Firstly, we are seeing a very good opportunity for our Three-Screen video and MDAS solutions in the Asia Pacific region. In September, we announced the appointment of a new executive for the region sales marketing and business development.

I should also point out that we received two important new VOD orders from mainland China in the first quarter. Lastly, we announced the expansion of our presence in the Silicon Valley with the opening of a new office in San Jose which will serve as our West Coast development office.

Now, let me turn it over to David who will provide an update on the Three-Screen video market as well as the progress report in our roll up, David.

David King

Thank you Dan. Over the last quarter, we’ve seen even greater increases in Three-Screen viewership as consumers actively explore new ways to experience their favorite content. The Nielson Three-Screen Report for the second calendar quarter of 2009 reports that the mobile video audience increased 70% from the year prior.

And time spend watching online video increased 46%. Traditional TV consumption continues to grow and has hit an all time seasonal height. One of the greatest drivers in Three-Screen viewing is the proliferation of online video. And not just user generated content, but on demand and live broadcast video, online viewership is growing significantly with industry analyst firm S&L Keigan predicting that close to 60% of professionally created paid content will be viewed online within the next ten years.

It is with this in mind, the Concurrent announced the launch of our video to the PC solution in September. The latest innovation in our video solutions portfolio, video to the PC allows broadband operators to utilize their existing infrastructure to deliver commercial grade video through high-speed internet connections.

From a subscribers’ perspective, Concurrent’s video to the PC solution makes it possible to access both live broadcast video and on demand content through PC with no additional hardware requirements. As we discussed previously, Concurrent’s mission is enabling broadband operators to monetize their portfolio of video services by bundling their full video offerings to both the TV and PC through a single video solution for both storage and delivery.

With the proliferation of Three-Screen video consumption. We believe the industry will face the challenge in collecting and correlating viewership and operational data. By extending our media data and advertising solutions to encompass online broadcast and on-demand video consumption Concurrent will be providing the first complete intelligent solution for collecting and correlating Three-Screen viewership data.

As such, our central data warehouse or CDW provides access to the four dimensional data views such as, subscriber utilization, content consumption, operational reporting and advertising campaign performance [Inaudible] Three-Screen. with CDW operators can leverage their real time senses level data to deliver accurate reporting to their valued stakeholders, who in tern can make informed decisions regarding content consumption and advertising effectiveness across multiple services in screens.

Finally as I mentioned in August, we are actively promoting these Three-Screen solutions. In September we demonstrated all of these capabilities at IBCN Amsterdam, the leading International form for the electronic media industry.

Starting tomorrow, October 28 and running through the 30, we will be in Denver for the Society of Cable Telecommunications Engineers or FET. This technology expo is demonstrating all of these solutions to the North American cable industry. In summary, Concurrent is moving quickly to provide the new solutions required to extend our video leadership beyond the television and into the web and mobile markets.

Now let me turn the call to Emory. Emory.

Emory O. Berry

Thank you David, and thank you all for joining us this morning. We finished the first quarter with approximately $12.8 million in revenue, a decrease of 20% over the fourth quarter of the prior year, and a 30% decrease from the prior years first quarter.

As we’ve discussed in the prior earnings calls, the economic recession has impacted our business and as a result two of our top North American MSO customers have reduced their spending, revenue during the quarter was comprised of approximately $5.4 million for the video business, and approximately $7.3 million for the real time business. Gross margins for the first quarter improved to over 60% as compared to 59% in the fourth quarter of the prior year and 56% in the first quarter of the prior year.

We reported total operating expenses for the first quarter of $8.8 million, an approximate 3% decrease from the fourth quarter of the prior year and a 9% decrease compared to the first quarter of the prior year as we continue to manage our expenses while maintaining our focus on strategic investments. As a result in the first quarter of fiscal 2010, we reported an operating loss of a $1,083,000 and a net loss of a $1,015,000 or $0.12 per diluted share.

The operating loss included the following expenses, 766,000 of depreciation and amortization, 10,000 of share-based compensation and a $183,000 in severance expenses. We finished the quarter ended September 30th with working capital of over $28.5 million including cash of $27.2 million. We continued to be in a strong financial position to execute on our Three-Screen video strategy.

Now I would like to turn the meeting back over to Dan.

Dan Mondor

Thanks Emory. I would like to conclude today’s call with a few additional comments, as highlighted on the call, the latest market made to illustrates that the growth of Three-Screen continues at an impressive rate. It is clear that the video market is fundamentally redefining itself, and we believe we are well positioned to capture these new opportunities.

We are having good traction with our current and prospective customers as we roll out our new video, immediate data solutions. We continue to review and prioritize our strategic investments to bring the necessary products to market and develop the channels to reach those markets. While maintaining a diligent focus on the operations of the business. Thank you, we are now ready to take your questions.

Question-And-Answer Session

Operator

(Operator Instructions) Your first question comes from Todd Koffman - Raymond James.

Todd Koffman - Raymond James

Dan, can you just clarify what you said in your opening remarks about demand, I think I heard you say, you expect demand to bottom in the first half of your current fiscal year and then I think I heard you say you expect your second half of the current fiscal year to be greater than the first half, and so is that suggesting that you haven’t yet seen the bottom, thank you.

Dan Mondor

Well what we said in our comments is that we expect an overall bottoming in the first half, in addition, we are indeed seeing signs of the business firming up in our second quarter. It’s too early to call relative to timing, but there is some encouraging signs we see in the second quarter and our belief relative to firming is that that will continue going forward as I mentioned the utilization levels are certainly there, so we expect to see that kind of improvement going forward.

Todd Koffman - Raymond James

Did you say you expect the second half of your fiscal year to be greater than your first half of your fiscal year?

Dan Mondor

Yes.

Todd Koffman - Raymond James

Just one last follow up on this, with the Video-on-Demand segment now at about, I think you said $5 million in revenue, and I think this is sort of a relative new sort of low level of investment in this area for quite some time, can you give a broader view of what the customers are saying and doing now that your legacy your long time video on demand equipment is at such a low level?

Dan Mondor

Thanks Todd, 5.4 for video on the first quarter, so we are not going to comment directly on our customers business, however, what we have seen is as I mentioned a slowing down of orders and the scrutinizing in the areas of storage and screening.

There is in there we believe utilization of existing capacity if you will, just in time inventory management, so in other words, requirements for our products coming in if you will, just at the point they are needed as opposed to building network infrastructure on a prior basis, and then the other thing that we see is that our MediaHawk are principal bought product, scales the streams and the storage and the in-just so the customers can purchase these independently.

So we see purchasing of if you will, just the components of the system as they are needed as opposed to as I said, previously an infrastructure stand on complete systems. So, that’s what we are seeing in terms of the purchasing corners.

Operator

(Operator instructions) Your next question comes from Justin Cable - Global Hunter.

Justin Cable - Global Hunter

Curious to know about these projects that have been delayed, what is the magnitude of these projects, and how much visibility do you really have going into this second half of your fiscal year?

Dan Mondor

Well hi, it’s Dan here, we are not going to comment directly as I mentioned in terms of our customers’ business but as you know, forecasting in this environment is still difficult some have called definitive end of the downturn, there is still a great deal of scrutiny on project spending, and spending on an as needed basis.

As I mentioned before, we are seeing encouraging signs, we are relatively early in our second fiscal quarter, but that is indeed encouraging. And as I mentioned earlier, the growth levels in terms of VOD viewing are in the double digits, and so the underlying strength is there, and that is why we anticipate and are beginning to see a resumption in spending.

Justin Cable - Global Hunter

Okay. And you probably touched on this on the last call maybe earlier as well, but what were the main reasons for those delays?

Emory O. Berry

Well, it really boils down to scrutinizing of the project bills, in other words as I said, it is utilizing the capacity that is in place to the extent it is there, and purchasing only the components, be it screening or storage that are needed when needed. Somewhat of a change I think in spending patterns of the past, which would be complete infrastructure bills and then an absorption of the capacity over time. I think that plus utilization levels in a more conservative set of engineering rules towards capacity designs and purchasing is the result.

Justin Cable - Global Hunter

Would you say that this sort of run rate is kind of a new normal for your business, and/or maybe a new baseline for your business?

Emory O. Berry

No, it’s not. What we are saying is this is certainly because of the customer spending patterns currently, again as a function of the economic environment, this is a bottoming out, is our view, the bottoming out is occurring in the first two quarters of this fiscal year. And as I said, we are seeing some encouraging signs now early in the second quarter.

Justin Cable - Global Hunter

Okay. And on the competitive landscape, has there been many changes in the last quarter that would impede or maybe put you in a better position competitively, going forward?

Emory O. Berry

Well, the competition is obviously always fierce, I did in my remark say that the current phenomenon is not due to cancellation of orders nor is it due to loss of revenue share. So, in other words when you think about market share, excuse me, when you think about that you always think of the wallet size. So what is your share of wallet certainly competitively you can control your wallet share, that’s the competitiveness of new products and services, you can control of course the size of the wallet.

So, we are not seeing a shift or a loss of market share. We are doing very well with our Three-Screen strategy as I mentioned, we launched many of the PC in September, and we are now engaging in trials with customers both nationally and internationally. So, I think we are doing very well competitively, and we certainly expect to do that with our Three-Screen solutions.

Justin Cable - Global Hunter

Okay, and you commented earlier about getting some awards out of China and some other countries, so were these for the initial testing projects or were these for the more deployment?

Emory O. Berry

I made comments relative to two new VOD orders from Mainland China. These are for deployment of systems. We also referenced if I can take it from your question, we referenced some other activity, one was ZON TV Cabo who is a VOD customer, previously that was announced last year is now deploying our MDAS solution in the software as a service model. So that is new if you will, area of business for us.

Justin Cable - Global Hunter

Got it, okay. And what is your presence in China? And do you work with direct partners, do you have sales force and should we expect to see more developments there?

Emory O. Berry

Yes, I guess, sort of the last question first. Fundamentally the business model, the go to market model in China is through channel partners. In terms of our presence we have an office in Beijing and we also serve Hong Kong service as the headquarters if you will for our Asia-Pacific region. Non-Japan as the executive appointment, I referenced in my comments, the new executive in charge of the Asia-Pac region that was announced in September will be based out of Hong Kong, and is responsible for sales marketing and business development for all of the Asia-Pacific region.

Operator

Your next question comes from Ali Motamed - Boston Partners.

Ali Motamed - Boston Partners

I was wondering if there was any sort of metrics that you had on utilization as your top two customers because I know sort of they were building out and now they are waiting to sort of fill up that capacity. Do you follow that, do you have any visibility into that, and also in to the channel because I was wondering if there was any sort of consumption of any channel inventories that may have happened that reduced your sale in the quarter?

Dan Mondor

Yes, thanks for the question. I don’t want to comment on design utilization level, specific levels for our customers, that is their networks, their designs. But what we have seen is newer designs, newer builds at lower utilization levels than they were in the past, and again, we see that as part of the scrutinization of their, how they are implementing their storage and streaming. And also, so that’s one thing, that’s the design.

The reference to the other part of your question is, yes, we are seeing because of the spending levels and holding back on that is utilization of existing capacity. So both of those phenomena work in combination, and I think it’s somewhat of a double whammy relative to the impact it had on us in terms of what we have seen in the past. But having said that, we are confident going forward that the viewing levels, which are increasing year-over-year double digits, the numbers are well in the teens in terms of percent year-over-year increase.

VOD viewing is increasing dramatically, and so ultimately what that does is that increases the streaming requirements and the terrific expansion, the large expansion of HD, HD is now the norm in terms of channel viewing options, it increases the storage. Both of those are strong underlying fundamentals. And coming back to those is why we have called the bottoming in our first half, and I think as I have mentioned we are starting to see an uptick occurring now in our second quarter.

Ali Motamed - Boston Partners

Then one other follow-up on China, can you talk about the competitive situation and a little bit about the opportunities that maybe there?

Dan Mondor

Well, let me talk to, it’s a long story, so I will try to make it short. The market in China is certainly evolving, there is implementation thereof what’s known as next generation broadband, so there is government oriented initiatives to increase and enhance their telecommunication services.

Certainly there is an increase in terms of openness of content on the networks, and so in our engagements there we are seeing quite a great deal of activity to enhance the cable infrastructure, to enhance the content, enhance interactivity as that economy basically opens up. So there is very promising opportunities there, it is very much of a channel partner market in terms of channel to market I should say. And that is what we are pursuing.

Ali Motamed - Boston Partners

How about competitively would you say that what’s the dynamic are there a lot more participants?

Dan Mondor

There is certainly some of the, if you will, North American vendors that participate in that market. There are Chinese companies that are obviously major players in the global market. So it is the usual mix, there is different flavors there relative to the domestic Chinese suppliers, but again, I think it’s a market that represents a good opportunity for us, we believe. So that’s why we are making these efforts to penetrate the market and early indications are certainly promising.

Operator

Your next question comes from Todd Koffman - Raymond James.

Todd Koffman - Raymond James

Just a quick follow up; I was looking at Arris’s VOD segment results and they’ve got a bunch of other stuff in there, but their VOD business is also kind of been bumping along for quite some time, and I was wondering if some of these North American operators are finally looking at in deploying some alternative technology by some of the newer or different vendors than the incumbent long time suppliers of VOD servers, thank you.

Dan Mondor

Yes, thanks Todd. Well, we haven’t seen that. We just haven’t seen that. So, again I can't comment on some of our competitor’s position, but I think what we are seeing is a spending phenomena if you will, rather than a competitive displacement phenomena.

Operator

That does conclude today’s question and answer session. I would now like to turn the call back over to Mr. Kirk Somers for closing comments.

Kirk Somers

Thank you all. Have a good day.

Operator

Thank you for your participation in today’s conference, this concludes the presentation. You may now disconnect. Have a wonderful day.

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Source: Concurrent Computer Corp. F1Q10 (Qtr End 30/09/09) Earnings Call Transcript.
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