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Concurrent Computer Corp. (NASDAQ:CCUR)

F2Q 2014 Earnings Conference Call

January 28, 2014 4:30 PM ET

Executives

Davina Furnish – General Counsel and Corporate Secretary

Dan Mondor – President and Chief Executive Officer

Emory Berry – Chief Financial Officer and Executive Vice President-Operations

Operator

Ladies and gentlemen thank you for standing by, welcome to Concurrent’s Earnings Conference Call for the 2014 second quarter results. 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. After accessing the web page, please press the Investors tab in the About section.

I would now like to introduce Ms. Davina Furnish, General Counsel and Corporate Secretary. Madam you may begin.

Davina Furnish

Thank you operator. Good afternoon everyone and welcome to Concurrent’s fiscal 2014 second quarter earnings conference call for the period ended December 31, 2013. Joining me today is Concurrent’s President and Chief Executive Officer, Dan Mondor and Chief Financial Officer and EVP of Operations, Emory Berry.

Before we begin let me remind you that this conference call may include forward-looking statements such as beliefs, 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 Concurrent’s 10-K and 10-Q filings with the Securities and Exchange Commission are incorporated here and by reference. The Company’s actual results could differ materially from the forward-looking information presented on this call.

The content of this webcast contains time sensitive information that is accurate only as of the date of this live broadcast, January 28, 2014. Any redistribution, retransmission or rebroadcast of this call 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 no guarantees of future performance and that a variety of factors could cause our 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 for Concurrent’s fiscal 2014 second quarter results. If you have not received a copy, please contact Sandra Dover at 678-258-4112 and she will be happy to provide you with a copy. Alternatively, you may visit the Company’s website at www.ccur.com and find a copy on the Investors page of the website under the About tab. Additionally, please contact Sandra if you would like to arrange a call with management.

Dan Mondor will now provide an update on our business.

Dan Mondor

Thanks, Davina. Good afternoon everyone. Thank you for joining us to review our results for the second quarter of fiscal year 2014. We are pleased to report another solid quarter with continued revenue growth and higher operating income on both the quarterly and year-to-date basis. Year-to-date revenues are up 11%, operating income has improved by 50% and we reported a net income of $0.20 per diluted share versus $0.11 per diluted share in the same period last fiscal year.

We are pleased with the market traction we are seeing around the globe for our video products as well as growing demand for our latest real-time solutions. In video solutions we are beginning to see results from the implementation of our growth strategy, a few years ago Concurrent’s revenue was derived from a relatively small set of core accounts with a large proportion of revenue generated from our North American customers.

In order to generate growth and improve the predictability of our revenue quarter-to-quarter, we implemented a plan to expand the company’s market presence around the globe, add new logos to our customer list and enhance our video solutions product portfolio. We made strategic investments in our international sales and support organizations, hired additional R&D and product management personnel and focused our development efforts on new IP centric video products.

Since we initiated our plan, we have more than doubled the number of major service providers we serve, winning highly competitive deals based on the advantages of our product line, our deep experience in video and our commitment to customer service. We have started to realize meaningful revenue from a number of these new wins and we are now generating a substantially greater proportion of our revenue from our international operations.

Overall we have increased our customer base which numbers more than 20 of the worlds leading video service providers. We’ve also expanded our product portfolio to address a wider range of video opportunities ranging from classic video-on-demand, services to pure IP video and Internet-based over the top video services. Our service provider customers continue to invest in modernizing their classic video-on-demand systems and launching IP content delivery network technologies to reach subscribers on ever-expanding array of screens. We are the only video solution vendor in the market offering a unified solution that can support Pay TV operators needs to deliver commercial video services to any screen from a common software platform.

By supporting a hybrid video network that delivers both classic VOD and IP video streams from a common platform, we allow service providers to adopt their system over time without changing their foundational system architecture – solution as software based. Service providers can purchase allocate [ph] software licenses to add support for new content formats, content protection schemes and business and policy rules, enabling them to deliver revenue generating video services to any device over any network on a common platform.

Our ability to leverage the core video service capacity at MediaHawk to stream content over classic video networks, high-speed data networks, and mobile broadband networks, enables our customers to upgrade and expand our service offering on their own timetable. This is an important and key market differentiator because it fully addresses the reality of today’s video market.

The video market is evolving towards all-IP, rather than undergoing an overnight transformation, which means service providers must support multiple networks and multiple video formats for many years to come. Concurrent’s video solutions paid the way for Pay TV operators to seamlessly transition services from network-to-network and device-to-device according to their business needs using our flexible software based approach.

Turning to real-time, we continue to enhance our portfolio of high performance software applications targeted that the automotive, aerospace and defense markets. We recently added the number of new capabilities and features to our premier simulation application, called SIMulation Workbench, which addresses the specific needs of the automotive market. Our latest software enables automotive companies to test new componentry more quickly and efficiently by allowing users to run multiple test scenarios, generated from different modeling tools simultaneously. By reducing the amount of time it takes to complete test cycles and shortening time to market for new automotive designs SIMulation Workbench provides compelling return on investment.

We continue to make headway in Q2 with the receded new orders from a variety of leading automotive companies and Formula 1 racing teams. We are encouraged by the growing interest in our workbench applications. And believe we are well positioned to expand further into the automotive simulation and testing market.

In addition to our gains in the automotive market we recently shipped iHawk solutions to a major locomotive supplier to run hardware-in-the-loop models for its engine control units. Our systems help this customer meet global environmental protection requirements for railway transportation systems while providing their customers with improved fuel savings. Overall we are pleased with our progress in the business and are encouraged by the overall increase in our market engagement in the higher levels of sales activity in both established and new accounts.

I will discuss some additional highlights for the quarter after Emory reviews our financial results. Emory?

Emory Berry

Thank you, Dan. And thank you all for joining us this afternoon. Our revenue in this fiscal second quarter was $17.8 million compared with revenue of $17.2 million in the first quarter and $16.6 million in the prior years second quarter, which is an increase of 7.5%. Turning to our product line revenue detail, our video revenue was $10.1 million representing 57% a fiscal second quarter revenue in fiscal 2014 and $9.7 million or 59% in the same period last year.

In the first quarter video revenue was $10.1 million representing 59% of total revenue. The balance represents our real-time revenue which was $7.7 million for the fiscal second quarter of 2014 and $6.9 million in 2013. The real-time revenue was $7.1 million in our first quarter fiscal 2014. Gross margin for the fiscal second quarter 2014 was 56%, down from 58% in a prior year fiscal second quarter and up from 55% in the first quarter of the current year.

Total operating expenses for the fiscal second quarter were $8.8 million, up 2% from the second quarter a year ago, and also up 1% from the first quarter of fiscal 2014. For the second quarter of fiscal 2014 we reported operating income of $1,133,000 and non-cash expenses of $546,000 and depreciation and amortization and $238,000 of share-based compensation compared with operating income of $876,000 in the comparable period of fiscal 2013 which included non-cash expenses of $812,000 and depreciation and amortization and $200,000 of share-based compensation.

The company reported an income tax benefit of $19,000 during the second quarter equal to less than $0.01 per diluted share. For the comparable period last year the company had an income tax provision of $6000 equal to less than $0.01 per diluted share. Overall net income was $1,089,000 for the second quarter of 2014 equal to $0.12 per diluted share compared with net income of $673,000 or $0.08 per share in the comparable period last year.

Looking at our results for the first half of fiscal 2014 total revenue was $35 million compared with $31.6 million in the first half of fiscal 2013 reflecting an 11% increase. Our video revenue represented $20.3 million or 58% of our total revenue compared with $18.6 million or 59% of our total revenue last fiscal year. The balance represents our real-time revenue which was $14.8 million for the first half of fiscal 2014, as compared to $13 million in the previous year's first half.

Gross margin for the fiscal first half of 2014 was 56%, down from 58% in the prior fiscal first half. Total operating expenses for the fiscal first half were $17.5 million, up 3% from the prior year’s fiscal first half of $17.1 million. The company reported operating income of $1,933,000 which included non-cash expenses of $1.3 million in depreciation and amortization, and $629,000 of share-based compensation expense compared with $1,289,000 which included non-cash expenses of $1.7 million in depreciation and amortization, and $369,000 of share-based compensation.

Net income for the six-month period was $1,823,000 or $0.20 per diluted share, which included a tax provision of $20,000 or less than $0.01 per diluted share. This compares to net income of $998,000 or a $0.11 per diluted share which included a tax provision of a $113,000 or $0.01 per diluted share for the same period last fiscal year. And providing some highlights from our balance sheet, the company’s financial position remains strong with no debt. We finished the second quarter with cash of $25.1 million versus cash of $27.9 million at June 30. The company continued paying a quarterly dividend of $0.12 per share in the first and second quarters. In addition, we finished the recent quarter with over $27.8 million in working capital.

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

Dan Mondor

Thanks, Emory. Now I would like to highlight a few of the market trends that are fuelling our progress. First in video solutions, we are seeing renewed interest in classic video-on-demand. According to Nielsen classic VOD services are now available in more than 60% of American households, up from 37% just five years ago. By comparison only 50% of households have a DVR.

In addition to being more accessible than ever VOD services have evolved beyond offering exclusively movies-on-demand content and are now hosting a much richer array of video content. Service providers are rapidly expanding TV-based programming as part of their VOD libraries in order to compete with OTT services and to serve a new wave of interest from consumers who want to watch TV on their own schedule.

Many subscribers are now bypassing Live TV and their DVRs in favor of watching TV on-demand. In fact, Comcast has indicated that 40% of their VOD usage is related to TV programming content. The business case for VOD is also getting stronger with the introduction of VOD advertising. It has been shown that consumers watch more advertisements on VOD than they do when they watch on DVRs or watching Live TV. The study conducted by Nielsen, in December found that on-demand viewers, users watching a 30 minute program of advertisements watched an average of 28 minutes compared with 23 minutes for digital video recorder users and 20 minutes for live viewers.

Needless to say content providers and service providers are increasingly interested in using video-on-demand services to drive more viewership and generate more advertising revenue. With growing demand for content storage base and streaming capacity service providers are beginning to replace legacy VOD platforms with next generation solutions that can support more cost effective scaling.

Concurrent is leading the way with our CDN Assisted VOD platform, which combines Internet CDN technology and classic VOD technology to create an entirely new class of VOD product. By using Internet-based content distribution technology to support classic VOD, Concurrent is able to provide a more scalable and flexible platform to our customers that will meet their needs today and in the future.

Once installed and with simple software upgrades it can support full scale IP video services to mobile devices, PCs and streaming media consoles. As further evidence of our leadership in the VOD market, we’re once again ranked as the leader in on-demand video servers by independent research firm, Current Analysis in our January 2014 report.

Of course, we also see upward trends in the video market for pure IP-based video solutions we are well positioned to serve this growing market opportunity. With Netflix announcing new investments to expand our presence in Europe and continued subscriber growth in the U.S., service providers around the world are motivated to accelerate the deployment of IP video services to reach new screens.

In fiscal Q2, we announced the number of new products than addressed the IP video streaming market. In December, we announced the new Intelligent Request Router for our IP CDN solution. This product improves the scalability of our IP video solution and enables us to meet the demand of Tier 1 service providers. We also released a new version of our origin server solution that support virtualized environments and cloud hosted content delivery architectures that leverage Internet-based storage services like Amazon’s S3.

We believe strongly that our continued investment in software-based solutions and the cloud technologies will continue to differentiate our solutions from competitors and to serve our customers evolving needs. In the real-time business, we continue to see favorable trends developing in the simulation and training market, with constraint government budgets and the high expensive live field testing a growing number of companies are turning to our simulation solutions as a way of lowering the cost associated with the designing and testing of new systems.

In Q2, we saw new simulation opportunities in the space program for our iHawk systems and to illustrate we shipped real-time systems to United Launch Alliance and Orbital Sciences Corporation for their space programs.

In conclusion, we are pleased with our progress and the solid contributions from both the video and real-time businesses in Q2. We appreciate your continued interest in our company and thank you again for joining us this afternoon. Operator, we’ll now conclude the call.

Operator

Thank you. Ladies and gentlemen that does conclude your conference for today. Thank you for your participation and for using AT&T executive teleconference. You may now disconnect.

Question-and-Answer Session

[No Q&A session for this event]

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