Kirk Somers - EVP
Dan Mondor - President and CEO
David King - Chief Marketing and Strategy Officer
Emory Berry - CFO
Ali Motamed - Boston Partners
Concurrent Computer Corporation (CCUR) F2Q10 (Qtr. End 12/31/09) Earnings Call Transcript January 26, 2010 4:30 PM ET
Welcome to the Concurrent earnings season call for the second quarter of fiscal year 2010. At the request of Concurrent, this call is being recorded for replay purposes.
If you have any objections, you may disconnect at this time. This call is also being webcast live via the internet at www.ccur.com investor relations.
Following the prepared remarks, the company will host a question-and-answer session. (Operator Instructions). I would like to introduce your host, Mr. Kirk Somers, Executive Vice President. Sir, you may begin.
Thank you, operator and good afternoon everyone. Welcome to Concurrent's fiscal year 2010 second quarter earnings conference call for the period ended December 31, 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 provisions of the Private Securities and Litigation Reform Act of 1995. Accordingly, the cautionary statements made in Concurrent's form 10-K followed 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 the live broadcast, January 26, 2010. 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.
Thanks, Kirk. Good afternoon, everyone and thank you for joining us today. I'll lead off with highlights of our second quarter results followed by an update on our business. Continuing the format we have used in the past, David King, our Chief Marketing and Strategy Officer, will provide an update on the market roll-out of our three screen strategy. Emory Berry, our Chief Financial Officer, will provide an in-depth discussion of our financial results and I'll then conclude with some closing comments.
In the second quarter we reported revenue of 15 million with gross margins of 62% and operating expenses of approximately a 9.1 million. The sequential improvement in gross margins in part is due to the continued increase in the software content of our overall portfolio of video and media data solutions. We reported operating income of approximately $172,000 and earnings per share of $0.01.
As noted in the press release, our ending cash balance of $31 million is the highest quarter end cash balance in recent history. Our video solutions business improved quarter-over-quarter. However, our VOD business has not recovered to historical revenue levels. We anticipate our core VOD revenue will improve in the second half and our new Three-Screen video solutions will begin to contribute to the business. As such, we are reiterating our forecast for second half revenue to be better than the first half. Over the long term, we anticipate a gradual recovery in VOD spending by our top cable operator customers as the overall economy hopefully continues to improve.
We anticipate that our business will benefit in the future from the deployment of enhanced video services, notably from the increased deployment of time shifted TV, network DVR and increased high-definition video content.
As I mentioned on the prior call, our current and prospective customers are confirming that we are well positioned to capitalize on the fundamental shifts occurring in the video marketplace. Our video to the PC solution, the second screen, if you will, was introduced last fall and has begun to receive market acceptance internationally. We are encouraged about this market opportunity over the long term.
To follow up on my earlier comments on our new Three-Screen video solutions, I am pleased to report that we have recently entered into a multi-year agreement with Charter Communications, the nation's fourth largest cable operator.
We will be providing Charter a comprehensive advanced advertising, data collection and management solution across VOD, linear TV, DVR and interactive TV service platforms. This contract underlines the importance of anonymous, census level data collection to power new video delivery models and we believe we are well positioned to address the evolving market going forward.
At this time we are not able to provide additional details, however, we anticipate issuing a press release in the near future. Additionally, two North American cable operators as well as ZON TV Cabo in Portugal and a major service provider in the Asia-Pacific region have adopted our new media data managed services solutions.
Also in the second quarter we announced the partnership agreement with FourthWall Media. The partnership leverages Concurrent's industry leading media data collection and management expertise and wide scale market deployment with FourthWall Media's proven EBIF user agent software platform.
This fully integrated software solution delivers a secure, real-time audience and media data exchange for service providers and third party data stakeholders such as audience measurement firms and content providers.
Lastly, we announced the formation of a business advisory board. We are privileged to have three industry leaders join the advisory board. Vin Bisceglia General Partner with Genovation Capital and Former Chairman and CEO of Broadbus, Chris Bowick formerly Senior Vice President and Chief Technology Officer of Cox Communications and William Markey, President of Relevant C Business Group.
Each brings a wealth of experience and industry knowhow to help us expand into new markets and grow our business in our current markets. Now let me turn it over to David, who will give you an update on the Three-Screen video market and provide additional details on our progress.
Thank you, Dan. 2009 marked another big year for video consumption. The number of viewers continues to rise across all Three-Screens and though TV still dominates as the top device for video, viewership for the PC and mobile devices continued to grow aggressively. Nielsen's third quarter Three-Screen report shows a 34% increase in online video consumption and mobile video viewing rose more than 50%. These numbers indicate that consumers are not replacing one video platform with another; rather, they are adding new video platforms to their weekly schedule.
Looking forward, viewing is expected to continue to grow as HD content increases from less than 10% today to an expected 60% in three years. Network DVR and time shifting are expanded and embraced by more providers, content release windows continue to shrink, new menus are advanced and interactive television is deployed.
To capitalize on these alternative screens, we launched our strategy to support internet and mobile devices. In September we announced our introduction of video to the PC for internet delivery of video through various protocols including live streaming and progressive download.
We have been engaged in multiple trials globally and I am happy to report that we have secured our first deployment of this technology with one of the top service providers in the world. This market leading application leverages progressive download technology to enable video on demand services to their customers over the internet. Even with the growth in video consumption, ad dollars continue to slump.
Inter public groups magna says overall ad revenue decreased approximately 14% in the past year with TV and online ad revenues falling about 3%. One of the biggest challenges for the industry is how to regain those ad dollars by taking advantage of rapidly rising video consumption. Advanced advertising is required to address this issue and data management is the foundation for any advanced advertising application.
As Dan mentioned, we are seeing traction in our efforts to support our customers with more advanced data collection and management as evidenced by the charter communications engagement.
With this in mind, we look forward to providing more detail regarding the software solution we are delivering to charter for their advanced advertising initiative in the near future.
In summary, ubiquitous access, delivery and the underlying data provides new and exciting ways to monetize video and we are pleased to be working with our new and existing customers as they roll out our solutions to meet their customers' demands.
Now let me turn the call to Emory, Emory.
Thank you, David.
And thank you all for joining us this afternoon. We finish the second quarter with 15 million in revenue, an increase of approximately 18% over the first quarter and a 17% decrease from the prior year's second quarter.
As we have discussed in prior earnings calls, the economic recession has impacted our business. In the second quarter our video business increased as compared to the first quarter. Video revenue did not return to previous year levels due primarily to the continued lower spending by cable operators.
Revenue during the quarter was comprised of approximately 8.5 million for the video business and 6.5 million for the real-time business. Gross margins for the second quarter improved to approximately 62% as compared to 61% in the prior quarter and 59% in the second quarter of the prior year.
The improvement over the first quarter was due as a result of higher software sales as well as increased volume. We reported total operating expenses for the second quarter of 9.1 million, an approximate 3% increase from the first quarter and a 6% decrease compared to the prior year's quarter as we have managed our expenses in light of the lower revenue levels. As a result, in the second quarter of fiscal 2010, we reported an operating income of 172,000 and net income of 89,000 or $0.01 per diluted share.
The operating income included the following non-cash expenses 769,000 of depreciation and amortization and 223,000 of share based compensation. We finished the first half with over 27.7 million in revenue, a decrease of 24% over the first half of the prior year.
Our revenues declined primarily as a result of reduced spending as I previously commented. Revenue during the first half was comprised of 13.9 million for the video business and 13.8 million for the real-time business. Gross margins for the first half improved to over 61% as compared to 57% in the first half of the prior year. We reported total operating expenses for the first half of 17.9 million, an approximate 8% decrease from the first half of the prior year.
As a result, in the first half of fiscal 2010, we reported an operating loss of 911,000 and a net loss of 926,000 or $0.11 per diluted share. The operating loss included the following non-cash expenses 1,535,000 of depreciation and amortization and 233,000 of share based compensation. We finished the quarter ended December 31st with working capital of over 31 million, including cash of 31 million.
Our cash position improved as a result of net income and positive balance sheet changes including an improvement in our day sales outstanding accounts receivable and the increase in deferred revenue from longer-term video and media data orders.
As a result, we finished the quarter with the company's strongest cash and working capital balance in over five years. Now I would like to turn the meeting back over to Dan.
Thanks, Emory. I'd like to conclude today's call with a few additional comments. The video market is fundamentally redefining itself and we believe we are well positioned to address merging opportunities. As illustrated by the multi-year contractor with charter.
Media data is the foundation that enables new business models in the video industry. The market is embracing our new three screen video solutions and we are excited about future opportunities as the three screen video market, including interactive television and targeted advertising continues to develop.
We are continuing to execute our plan, which is to bring innovative video software solutions to the market, while maintaining a diligent focus on the operations of our business. Thank you. We are now ready to take your questions.
(Operator instructions). Your first question comes from the line of Michael Amaly with (inaudible). Please proceed.
Could you please tell us what is the cash per share that you have in relationship to the price of the stock? It's just unbelievable.
Thanks for your question. Emory, if you can perhaps do the quick math on that.
Yes. So the cash per share is approximately $3.72 per share and our closing price was probably fairly close to that same amount.
How come (inaudible) justify that, then your closing price was 389 today, that's unchanged from yesterday, and that's it as the whole market value of your company pennies if you back up the cash.
We are in violent agreement with the sentiment.
All right, keep the good work. Hope things will improve.
Your next question comes from the line of Ali Motamed, Boston partners. Please proceed.
Ali Motamed - Boston Partners
Hi. I missed the part on the Charter discussion because I was a little late. If you don't mind kind of quickly run through it again.
Okay. What we announced today, let me just go back to my notes here. What we announced on this call is that we have a multi-year agreement with Charter, who is the fourth largest cable operator in the U.S., and what we are providing is a software solution that will give a comprehensive advanced advertising, data collection and management solution that will be applied across video on demand, linear TV, DVR services as well as interactive TV platforms. So that's the gist of it. We are not able to provide more detail at that time.
What we are providing today is what Charter is comfortable with us saying at this point in time and what we have indicated is we anticipate further detail in a forthcoming press release.
Ali Motamed - Boston Partners
Is this something, I mean, is it material? Is that why you put it out or is this just a contract that you know could turn into something, sort of material terms already associated even though you can't discuss them?
Well, we can't discuss the dollar amount of the contract. We can say it is a multi-year agreement, but we are very encouraged by the market acceptance of our media data and ad solutions and we consider this to be a very important proof point.
Once again, ladies and gentlemen, if you have a question, please press star followed by 1 on your phone. Your next question comes from the line of Andrew Hillman with MH and Associates. Please proceed.
Hey, guys. Good job on the quarter. I just have a couple of follow-up questions to, you know, the previous discussions. Now, just to clarify a little bit on the Charter, all I'm asking is this like a deal in the Everstream legacy type of deal?
What this is, is a new Three-Screen video solution, so in a way I will say, no, it's not part of an older portfolio products. It is a new advanced advertising data collection management solution and as I mentioned, it covers a wide spectrum of video services, so it was within that business unit but this is a new video solution that we had invested in the past year and we are now delivering it to market.
That's great to hear. Now, on this business advisory board, I might have missed that announcement, but what caused that board to form? I mean, what was the catalyst to get that going? Was that just an internal decision or is that something was there an event that or events that maybe caused that board to come together?
No, no, there was no, it was not driven by any particular thing other than we wanted to seek counsel and help and advice relative to our expanded market position for Three-Screen video, as you may know, as part of that expansion beyond, shall we say, traditional cable VOD into video to the PC and video to the mobile device, in addition to expansion into new markets, mobile providers, content providers and certainly web oriented content delivery platforms. There is new horizons there and so it was formed on the basis of supporting us with their market know how and certainly helping us reach the markets and grow our business.
Now, the last thing I had was you had mentioned that you're engaged in trials globally. Now, do you anticipate sales at the XUS level to maybe outpace the U.S. or are you expecting any kind of change there in the near future.
Yeah it's Dan here. We are not making any specific forecasts relative to that. What we have said is that in effect it is early in the game. The solution was introduced last fall in the September time frame, to be exact and we are encouraged by the early indications of market acceptance.
David made some comments on trials and initial are deployment, so all we are going to say at this point in time is that we are encouraged about the market opportunity over the long term, we are not going to be providing any specific guidance relative to that to revenue, for example.
It's still early in the game?
It is still early in the game.
Okay. Thank you.
There are no more questions at this time and I would like to turn the conference back over to Mr. Somers.
Thank you for joining us today. Have a good day.
Ladies and gentlemen, that concludes today's conference. Thank you for your participation. You may now disconnect. Have a great day.