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BroadVision, Inc. (NASDAQ:BVSN)

Q3 2013 Earnings Conference Call

October 23, 2013 05:00 PM ET

Executives

Peter Chu - Vice President of Strategy, Products & Marketing

Shin-Yuan Tzou - Chief Financial Officer

Analysts

Daniel Pellicano - First Midwest Securities

Operator

Welcome to the BroadVision Q3 year 2013 earnings announcement and investor conference event. My name is Richard and I will be your operator for today’s call. At this time all participants are in a listen-only mode. Later we will conduct a question-and-answer session. Please note that this conference is being recorded.

I’ll now turn the call over to Mr. Peter Chu. Mr. Chu, you may begin.

Peter Chu

Thank you, Richard. Good afternoon, everyone. My name is Peter Chu, Vice President of Strategy, Products & Marketing at BroadVision. Welcome to our 2013 Q3 financial results announcement and conference call.

I will first provide our standard cautionary comments on forward-looking statements and other legal matters. Next, Dr. Shin-Yuan Tzou, our CFO will review the third quarter results, which were announced in the press release earlier this afternoon. Next, I will provide products and marketing update, then wrap up with a summary. As always, we will be pleased to take your questions following the formal portion of the call.

During the course of this conference call, BroadVision may make forward-looking statements. All forward-looking statements included in this call are based upon information available to BroadVision as of the date of this call, including statements regarding our expectations of future financial results and product releases, and BroadVision assumes no obligation to update or correct any such forward-looking statements.

These statements are not guarantees of future performance and actual results could differ materially from BroadVision’s current expectations. Actual future results may be impacted by various important factors, including without limitation changes in the market, competitive environment and macroeconomic conditions.

Additional information on potential factors that could affect the company’s financial results is included in the company’s periodic reports on Forms 10-K and 10-Q, and other documents filed with the SEC. All statements and information can also be found on our website at www.broadvision.com under the Company tab under Investor Information under Press Releases page. You can also view our SEC filings and historical financial results under the Company tab, under Investor Information, under SEC Filings page.

Now I will turn the call over to Shin-Yuan.

Shin-Yuan Tzou

Thanks, Peter. Now our Q3 2013 results in terms of P&L, balance sheet and other operating highlights. Revenues; Q3 total revenues were $4.0 million with $1.3 million in licenses, $1.6 million in maintenance and the $1.1 million in consulting services. Sequentially this compares to Q2 '13 total revenues of $4.1 million, with $1.4 million in licenses, $1.8 million in maintenance and the $0.9 million in consulting services.

In comparison, Q3 '12 total revenues were $3.6 million, with $1.3 million in licenses, $1.7 million in maintenance and $0.6 million in consulting services. Q3 '13 revenues by region were 34% Americas, 26% EMEA, and 40% APJ, compared to 44% Americas, 31% EMEA, and 25% APJ in Q2 '13, and 44% Americas, 35% EMEA, and 21% APJ in Q3 '12.

On a GAAP basis, total operating cost plus cost of revenues were $5.3 million in Q3 ’13, compared to $5.5 million in Q2 ’13 and $4.9 million in Q3 ’12. In Q3 ’13, we generated a GAAP net loss of $0.8 million or $0.18 per basic and diluted share, compared to a net loss of $1.1 million or $0.23 per basic and diluted share in Q2 '13, and the net loss of $66,000 or $0.01 per basic and diluted share in Q3 '12.

Q3 ’13 results included foreign exchange gain of $525,000. The company does not engage in active currency trading. The foreign exchange gain was due to book adjustments of certain balance sheet items, primarily our deposits in Europe to reflect the dollar exchange rate fluctuations during the quarter.

Looking at our four main cost centers, first, cost of goods sold, concentrated mainly on cost of services and the cloud hosting was $1.3 million in Q3 ‘13 compared to $1.1 million in Q2 ‘13. Second R&D expense for Q3 ‘13 were $1.8 million same as in Q2 ‘13. Sales and marketing expenses for Q3 ‘13 were $1.3 million compared to $1.5 million in Q2 ‘13.

Finally, G&A expenses for Q3 ‘13 were $0.9 million compared to $1.0 million in Q2 ‘13. Balance sheet, at the end of Q3, 13 we had $47.7 million of cash and cash equivalents and short-term investments with no long-term debt compared to $49.5 million at the end of Q2 ‘13.

Account receivables were $2.6 million at the end of Q3 ‘13 compared to $2.1 million in Q2 ‘13. Days sales outstanding in Q3 ‘13 was 61 days compared to the 49 days in Q2 ‘13.

Prepaid expenses and other current assets were $1.3 million at the end of Q3 ‘13 compared to $1.2 million in Q2 ‘13. Other non-current assets were $0.5 million at the end of Q3 ‘13 same as in Q2 ‘13.

Account payables were $0.6 million at the end of Q3 ‘13 compared to $0.7 million at the end of Q2 ‘13. Accrued expenses were $2.4 million at the end of Q3 ‘13 compared to $2.0 million in Q2 ‘13.

Deferred maintenance were $1.8 million at the end of Q3 ‘13, compared to $2.5 million in Q2 ‘13. Our [earned] revenue was $2.0 million at the end of Q3 ‘13, compared to $2.3 million in Q2 ‘13. Other non-current liabilities was $0.9 million at the end of Q3 ‘13 compared to $1.2 million in Q2 ‘13.

I'll now turn to Peter for products and marketing updates. Peter?

Peter Chu

Thank you, Shin-Yuan. Our R&D efforts have been focused on meeting clinical customer needs to expand the reach and functional depth of our engagement management solutions.

Our customers have chosen Clearvale for ease of customization and deployment, get mobility coverage, social analytics and workflow capabilities. We continue to enhance our solutions to better support deal room and escalation situations, compliance management, employee and partner on-boarding and off-boarding as well as knowledge circulation.

In Q3, we have enhanced our customization capabilities to provide our partners with stronger branding and localization support. We continue to invest in the latest mobile and infrastructure technologies. At BroadVision, we invest to create greater choices and options for our valued customers.

In Q3, we conducted 20 Clearvale partner and paid customer transactions in education, manufacturing, healthcare, distribution and IT industry sectors. Clearvale customers come in all sizes, but primarily mid-size enterprises and from different verticals worldwide, including all of our key focuses in knowledge intensive, interaction intensive and service intensive industries. While most bookings remain relatively small because the customers generally start with a limited trial or something as new as social business, they could lead to considerable upsize from future growth with these customers expand their usage in the future of how successful adoption, the so called long term effect.

We also excited to report the leading accounts which include some very large organizations continue to increase their user base significantly after their first year of adoption. In Q3, we added customers through many different partners and this is the strong elevation of our partner focus.

In Japan, we made additional in rows into education, healthcare and automotive industries with more key customer such as Nissan. In China we added a new partner, CS&S, the China National Software and Service Company. A leading software develop provider in China.

Last but not least, we continue expanding our EMEA market presence with The Barnet Group and Zambon in the pharmaceutical industry. We have also expanded our local hosting capabilities into Germany in addition to our existing foot print in EMEA, that is UK, France, Benelux, Scandinavia, as well as Asia, and North American locations.

First, we continue to enhance our integrated enterprise 2.0 Suite which consists the following components, Clearvale Enterprise, the comprehensive enterprise platform of engagement. It offers a most extensible network of networks, which maximizes business returns through effective knowledge distribution and powerful workflow to get more work done.

Clearvale Express, the simplified version of Clearvale targeted for easy adoption and viral expansion. It is easily upgradeable to our enterprise solution. Clearvale Passport, our platform-as-a-service solution, created for telcos and ISPs, as well at resellers such as systems integration, hardware OEMs. And BroadVision 9 our mobile and social engagement management solution integrated with K2 e-business relationship management platform.

With respect to go-to-market strategy, we continue to invest in both direct and partnership approach. We extended our web presence through our company portals as well as launching new programs in select geographies around the world. The successful expansion of our global partners ecosystem with addition of key partners across all major continents is a strong validation of the value proposition and commitment of BroadVision’s unique partners approach.

In conclusion, we continue our development to establish BroadVision as a key player in enterprise, social network business. We continue to focus and invest in our product solutions and go-to-market strategies. The go-to-market strategy consists of a two-pronged approach to acquire lighthouse customers through direct sales efforts and in parallel the development of a valuable and global network of partners through our Passport channel program, where partners can market their own branded, cloud-based social enterprise ecosystems powered by Clearvale.

In closing, Clearvale is unique in its depth and breadth as a comprehensive platform for enterprise embracing their virtual, mobile and social business paradigm. Our compelling cloud based mobile and multi-lingual offerings will enable greater penetration of organizations across industries. Our product teams continue to enhance our enterprise social networking solutions through increased productivity and the efficiency across business processes.

The focus of our product strategy has always been to focus on four core areas of differentiation where we lead our industry. They are; one, social business processes; two, social ecosystems or the network of networks, those mimic real business relationship and processes; three social analytics for accountability and engagement adoption; and four, most partner friendly enablement platform.

With that, we thank you for listening. Now let’s open it up for your questions.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions). Our first question comes from Mr. Daniel Pellicano from First Midwest Securities. Please go ahead.

Daniel Pellicano - First Midwest Securities

Hey, guys. Congrats on a great quarter. It seems like you have definitely signed quite a few new deals. I had a question regarding the China National Software deal. I didn’t see press release on that, release during the quarter and I know from a little bit of hallmark on China National Software, they have got a pretty big footprint in social media not only in China but some of the cloud applications with the Hitachi and Oracle. What type of revenue do you see and do you see any possibility of any cross selling contracts to come from that?

Peter Chu

Yeah. So CS&S is a very significant reseller partner relationship that we have put into place. And putting this into place we're not in a position to discuss the actual financial outlooks on such things. But at this time as you see we moving to a lot of the different geographies, this is a very, very big piece of a market that we wanted to have a significant presence and CS&S represents I think a significant move in that direction.

So, it's just a beginning of -- we talked about Strong Union before and we have CS&S, it's a way of really building out a strong platform in China and good things will come from that.

Daniel Pellicano - First Midwest Securities

Yeah. It seems like -- I was just surprised that there was no press release for deal of that size.

Peter Chu

I do know that very large entities, it takes time to get the official CR vehicles going in place. For instance we’re working on that and that will come when we can put the material statement together in the press release.

Daniel Pellicano - First Midwest Securities

Okay. And I also noticed that you had a pretty significant drop from your current liabilities quarter over quarter. Does that explain some of the burn rate with the decrease in the cash position or is that unrelated?

Shin-Yuan Tzou

There are two parts of the liability. One part obviously is the money that we are accrued and we need to pay in the future. The other part of the liability was related to prepaid maintenance and the sort out subscription. And we have some reduction in maintenance, the maintenance revenue that’s the liability and that’s reduced during the quarter.

Daniel Pellicano - First Midwest Securities

Okay. I definitely understand. And secondly it seems like you guys are very close to the coming cash flow positive event, I mean I know these losses have been getting smaller and smaller, over the next 6 to 12 months do you project that having a positive earnings quarter anytime soon?

Shin-Yuan Tzou

I think, it’s too early to say. And as you know we have been burning cash in the past several years and I anticipate that in 2013, we’ll continue to burn cash and I see that going on in the near future. We do not see yet, a time that we will become cash flow positive in the near term.

Daniel Pellicano - First Midwest Securities

Okay. Do you see that possibly is…..

Shin-Yuan Tzou

We don’t see a time yet, it’s very hard to bet. As you know that the company is still investing heavily in our R&D in our social networking business. So in that regards, we are using our cash to build out our future rather than trying to become cash flow positive in the very short-term.

Daniel Pellicano - First Midwest Securities

Okay.

Shin-Yuan Tzou

So it’s going to take a while.

Daniel Pellicano - First Midwest Securities

All right it’s just going to take a little. Yeah, and I guess more importantly in my question is based upon the fact that you have such a stronger cash position which is about $10 a share and there are obviously many, many companies that are losing money, why do you perceive that Wall Street gives you guys no enterprise, zero or negative enterprise value. Is that from lack of exposure for you guys or maybe attending some investor conferences, it just seems to me that in the universe of stocks I cover, you just don’t see that too often when you see a company trading out of below cash or it’s just a lack of confidence from investors?

Shin-Yuan Tzou

This is a very good question and usually we ask the question the other way around because it is the Wall Street that is telling these investors, we are….

But I can get to few reasons on, if we have a very strong cash position, we got negative enterprise value and then put it more, we have a very large net operating loss carried forward over $500 million which was a lot of tax value, but we can lead out our tax asset. So these things add out to be on our values.

On the other hand, establishing a very large company, we were off the Internet level and then the bubble burst and we crashed and we came down, and we...

Daniel Pellicano - First Midwest Securities

But you survived?

Shin-Yuan Tzou

We survived, but we wanted to restart ourselves. We are still yet to prove ourselves to the Wall Street. In other words, we succeeded once, we crashed. And we need to work hard to earn our credibility back. And that’s one reason that we are not receiving the high validation because we crashed once.

Daniel Pellicano - First Midwest Securities

You know I think you guys are doing a good, I mean from, I was impressed to present on deal, the China National Software I think would have, that’s definitely in my mind from what I cover you guys significant signing and I think that’s a big positive. I just would love to see if Wall Street recognizes some value in this because I do have, at First Midwest, we do have a pretty significant stake in this thing. And I would just love to see you guys get out there and spread your message a little more by maybe attending some of these small cap conferences or maybe seeing you can come up some institutional type of ownership when we talk, like a dog and pony type of show you get out there you obviously have a viable product, you’re survivor, not many companies could say they went through the crash like you guys did and are still functioning business with employees.

So I just think that if you were to maybe put a little effort whether it was a small dividend maybe a very small buyback even a million share buyback done over three years, I think would give all the world to the stock price, even if it’s smaller or even if that you guys at BroadVision a little insider buying I think could go a real long way based upon the people I know that far to the stock.

Shin-Yuan Tzou

Well, thank you for the support, Dan. I think Dan as you’ve heard or seen earlier is that we are actually investing actually quite significantly in the technology because we believe seen that socially is actually still early market with --. So thank you for being on the same side of that.

Daniel Pellicano - First Midwest Securities

No problem at all, I just think if you, I think there would a point here soon where Clearvale on a standalone would be a spin-off for the way with the progress you are making, I really think that you can substantiate much higher share price despite getting out there and trying to spread your message a little bit. And I really would just, I know that you are trying to save your cash and make sure that you weather on new storms and expand the business. But I have done a lot of PR work and I have been around this and I think if you would even some small inside of purchases from you guys to steal some confidence of Wall Street would not take much to get the stock to 20. I’ve been in it before when it made that move to 50 in the past and I know that you guys are more worried about the day-to-day, but I would really think you should consider see if you could run up a little bit of insider buying at the company. I think this would really add quite a bit of value for the shareholder price.

I have individual clients right now who own more than you guys do, my clients that have blocks of 20,000, 30,000, 40,000 shares. And I believe it at long-term, but I had a client the other day asked me, why is it some of these, I own more shares than some of the insiders do?

Shin-Yuan Tzou

Points were taken and again thanks for your support.

Daniel Pellicano - First Midwest Securities

All right, I’ll continue to support it, but I would definitely suggest if you can put your money where your [mouth] is and buy some of, makes some individual purchase in the open market, I think it would instil a lot of investor confidence. So I’d really like to see you guys, now I’m invested, I’ll continue to invest, but I probably buy some of it everyday, I’m responsible for between myself and my other employees in this office at First Midwest. We’re responsible for getting probably 10% or 15% sometimes 20% of the volume, but I think if you want to get out there and put some of your money where the amount is, I think you support may, definitely you keep supporting the stock price and getting on these conference calls with you.

Shin-Yuan Tzou

We'll pass that along. Thank you.

Daniel Pellicano - First Midwest Securities

Alright. I'll talk to you soon guys.

Shin-Yuan Tzou

You bet, Dan.

Operator

Thank you. Our next question on line comes from Mr. Danny [Phil] from IBI Mutual Funds Management. Please go ahead.

Unidentified Analyst

Hi guys. Congratulations on a good quarter. I have two questions, the first is, can you give any update about the contract you signed with NTT during the second quarter? And the second question is about the Clearvale product. Can you tell us what differentiate this product from the competition and what companies compete with it?

Shin-Yuan Tzou

Okay. Mr. (Inaudible) thank you very much. I think let me take the second part first is that, I think that we, as the product stays down in the market, the longer it's been out there then whatever we're doing in the marketing. We're actually getting very good resonance, people are starting to appreciate the depth of the product. And this is a company this is a product of our company that has been serving enterprises for over 20 years.

And so the details that we take to embracing and understanding customers with true enterprise needs and not the very, very fast rapid deployment of social tend to be a very fast process both in terms of adoption, as well as just the way people build product. But I think we build something that's very, very deep. And we're being not in the market for a few years, people are starting to understand. To your point to your question that, that in terms of how we do things such as access control, this is everything for the enterprise. If enterprise is going to entrust their knowledge, their entire employee base and maybe their partners and customers on to a network, since getting access control which means we should see what is key and that’s something we believed for over 20 years.

And when it comes to scalability when it comes to just making it easy for customers to view this from an enterprise perspective, I think we've done the really, really solid job in that. And we did on top of that thing such as social analytics. Now when you want to do work with enterprise social network as opposed to doing a lot of reading, getting great information which are all good things, but what we do is we make social processes and making people conduct more collaborative communication collaboration within the enterprise this is a true differentiation. And to put that piece in the public, those are pieces that I just talked about together we have a very solid social analytics which is to give the enterprise its feedback on the adoption, the usage and why aren’t they really getting on to the system.

So when we have a very well put together thoughtful solution people takes a little time as we did for a few years, the people are now really getting it and we're very, very comfortable having this solution going to a lot more places than we've seen before. So that’s on the differentiation side.

I think NTT is very, very large and promising partner of ours. As you know, we've gone up on a great start. It’s been two quarters, they are both doing, they’re doing a lot of work in making the product something that they embrace and they’re pushing out both internally and externally. So there is a lot of projects has been kicked up both internally and externally. And one that the new highlight I mentioned briefly is also just getting a customer like [Nissan].

So we're starting to see the early let’s say I don’t want to call it success, but really good progress moving in a very large organization like NTT and we hope to see a lot more from NTT and all the other partners that we've invested heavily in.

Unidentified Analyst

Okay sir. Thank you very much.

Operator

(Operator Instructions). And at this time I’m showing no further questions.

Shin-Yuan Tzou

Okay. If there are no more questions, we want to thank everybody for their participation in Q3 conference and we’ll look forward to seeing you in other quarters soon.

Operator

Thank you ladies and gentlemen. This concludes today’s conference. Thank you for participating. You may now disconnect. Speakers please standby for your post conference.

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