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CounterPath Corporation (NASDAQ:CPAH)

Q4 2014 Earnings Conference Call

July 10, 2014 11:00 AM ET


Donovan Jones - President, CEO

David Karp - CFO


Robert Young - Canaccord Genuity

Kris Thompson - National Bank Financial


Good morning, ladies and gentlemen. Thank you for standing by. Welcome to CounterPath Corporation Conference Call to discuss Financial Results for the Fourth Quarter and Year-end Fiscal 2014 Conference Call.

At this time, all participants are in a listen-only mode. Following the presentation we’ll conduct a question-and-answer session. (Operator Instructions) As a reminder, this conference is being recorded today Thursday, July 10, 2014.

I’d like to remind our listeners that today’s call and the responses to questions may contain forward-looking statements within the meaning of the Safe Harbor provisions of the U.S. securities laws. Forward-looking statements involve risks and uncertainties and undue reliance should not be placed on such statements. Certain material factors or assumptions are applied in making forward-looking statements and actual results may differ materially from those expressed or implied in such statements.

For additional information of those factors that may cause actual results to differ materially from expectations and other material factors or assumptions applied in making forward-looking statements, please consult the Company’s 10-Qs and 10-K and its other reports filed with the Securities and Exchange Commission, and its Canadian filings on SEDAR. CounterPath does not undertake to update any forward-looking statements. Such statement speaks only as of the date made.

I’ll now turn the call over to Mr. Donovan Jones, President and Chief Executive Officer. Please go ahead Mr. Jones.

Donovan Jones

Thank you, operator. Good morning everyone. I’m joining you today from Europe where I’m working with our EMEA sales team and several of our service provider customers and partners. With me today from Vancouver is David Karp, our CFO.

Our fourth quarter and fiscal year 2014 results were released this morning and are available on the Investors Section of our Web site where you can also find the financial statements and MD&A.

I’ll start today’s call with a brief summary of the quarter and review of the year, then Dave will follow with a more detailed discussion of our financial results before I conclude with some comments on our market trends and our outlook

Our Q4 results were solid. Revenue rebounded to $3.7 million, up 41% from $2.6 million last quarter, and although down from last year, we’re pleased that our refocused sales strategy is starting to deliver results. With this, gross margins increased to 84% from 80% last quarter while our cash operating expenses remain flat as we continue to manage the business. We have $7.2 million in cash at the end of the quarter, giving us plenty of runway to achieve our business plan.

On an annual basis, 2014 was a year of transition. We redefined our two main market segments to strengthen and clarify our value proposition, to support sales initiatives, and to tighten our messaging to customers and partners.

We now refer to our unified communication solutions for businesses as Enterprise Over the Top or Enterprise OTT solutions emphasizing that our technology and services enable businesses to provision their own in-house OTT services providing secured enterprise grade voice, video, messaging and collaboration solutions, connecting smartphones, tablets and computers to existing communication platforms inside the corporate firewall.

These solutions provide a superior alternative to some of the services used by employees such as Skype, Viber, and WhatsApp as they reside within the corporate firewall for better security and higher productivity.

We also now refer to our UC solutions for operators as Operator OTT solutions, highlighting our value proposition to operators who are looking to launch their own white labeled OTT services in order to combat the threat posed by third-party Internet OTT services.

We also refined our sales strategy placing greater emphasis on the large enterprise opportunity while continuing to pursue the consumer market by relationships with operators and partners. With this in mind, we expanded our sales force and took some key deals in-house, for greater control and visibility during the sales cycle.

We also revised the relationship with key OEMs and systems integrators. Our sales force is now more involved in the sales cycle, creating value for all parties. So we’re defining relationship with customers and accelerating the sales cycle [win] [ph] possible.

We’re now engaging a number of Fortune 500 corporations in concert with our partners, including Alcatel-Lucent, GENBAND, Oracle and others; we continue to deliver strong performance. We believe this new approach will compress the sales cycle and generate higher revenue over time as it leaves us better positioned to drive follow on sales with some of our largest reference customers who to date have not deployed our products as broadly in their organizations as we’d have hoped.

We also launched our Master Distribution Program in 2014, extending our reach to include the SMB segment by a network with over 30,000 Value Added Resellers. This should lead to a steady stream of new orders as the resellers gain traction with their network of customers and high recurring revenue as we start selling our cloud based offerings to small and medium sized businesses.

We prepared to enter the Virtualized Desktop Infrastructure or VDI, and Desktop as a Service market through an initial partnership with Teradici. The solution simply transfers the image of an application software running on a central server to an office worker’s monitor and eliminate the need for a PC hence the term ‘zero client’.

We are very optimistic about this partnership as Teradici Solutions is currently sold by some of the largest OEMs in the world, including HP, Dell, Samsung and LG. So we’re entering this new segment with innovative technology and a very strong set of channel partners.

Additionally, Teradici Solutions has widened deployments within the VMware VDI and Amazon Web Services ecosystems. Teradici has already deployed over 1.5 million clients in companies across diverse markets. So we see this as a great opportunity. We expect to start to see the revenue from this initiative later in fiscal 2015 as we complete the integration and test process [inaudible] to general availability.

In addition, we prepare to expand our sales channel to the enterprise by beginning to partner with key Mobile Device Management or MDM vendors such as Citrix, Good, MobileIron and AirWatch. When fully implemented, this initiative will provide us with a direct sales channel to tens of thousands of businesses that have already implemented BYOD work programs, but are also concerned with application integrity and data security, ideal customers for our products. And according to Gartner, this is a market poised for growth as companies are resolved to manage non-company owned mobile devices and scale their use on a global basis.

This view is further supported by an AirWatch survey which found that 40% of mobile workers are using their own personal license for business purposes and that secure, scalable and easily provisioned business solutions have evolved from the nice to have category to necessity (indiscernible) enterprises.

With these facts in mind, we view the MDM channel as an important element to our enterprise sales strategy. At the same time, in 2014, we remain focused on the enormous Operator OTT opportunity and continue to move prospects through our sales funnel albeit at a slower pace than we originally anticipated. But this year was not without progress and good news.

As discussed in previous calls, we expanded our relationship with Rogers, Canada’s largest cellular operator by subscribers when we launched our clients for tablets and smartphones. With this, Rogers’ subscribers can now initiate or receive calls and messages on their home PC, their tablet, and their mobile phone using our Bria application and their original mobile number on Wi-Fi or their cellular network and these calls can be moved between networks.

The application is available for download by millions of Rogers customers and the number of downloads will ramp up quickly when Rogers promotes it’s One Number Solution with the national marketing campaign, which we expect in the coming months. We see Rogers as the leading indictor and a catalyst for other operators.

We also position the Company for growth by establishing strong relationships with a number of cable operators including Comcast and Cablemas. Comcast, the largest cable operator in the U.S. by subscribers, selected our Bria client for its SMB customers and launched services in fiscal 2014.

Cablemas, Mexico’s second largest cable operator by subscribers also elected our Bria client. Now Cablemas retail subscribers can download a white labeled Bria client and use it to make voice or video calls and to send or receive messages over Wi-Fi or other [packeteer] [ph] networks, reducing certain telephony costs.

The inroads we’re making with these large customers not only generate immediate revenue for the company, but position us for growth by providing direct sales channels to markets with tens of millions of potential end users and by further validating the quality of our products.

We believe we’re now the industry standard for Operator OTT solutions and plan to leverage these wins to achieve success with other prospects in our sales funnel.

And speaking of the sales funnel, we’re increasingly excited about the prospects in Europe where market conditions have changed for the better. The pressure on carriers to counter the threat from third-party Internet OTT applications that are cutting into top line revenue became particularly acute following the acquisition of Viber for $900 million and then WhatsApp for $19 billion.

Operators are now showing renewed interest in deploying their own OTT solutions based on our proven technology when competing technology such as RCS are now slowing.

In response to the changing tone, we’ve bolstered our sales staff in Europe by hiring sales reps with relationships with some of the largest operators. And as a small footnote, I am at this time in Europe supporting our new team with the top to speed by joining a series of meetings with operators and to meet with the executive teams with our partners.

Based on what I’m hearing from my meeting so far with operators and partners, I see the convergence of many factors that will support increased revenue and traction of our Operator OTT solutions in Europe.

The year was also highlighted by technology achievements and recognition. We announced the worldwide availability of Bria 4.0 across multiple platforms simplifying and streamlining the user experience by offering a common user interface across many devices. We launched the new value added features that will drive new revenue streams including our optional screen sharing function, which is sold under subscription license model.

We strengthened our intellectual property portfolio with the award of the U.S patent titled “Methods and systems for reducing MAC layer handoff latency in wireless networks”. We now have 25 patents and patents pending protecting our business and creating value.

We launched Bria Cloud as a commercial product simplifying the sales process with some partners and positioning the company to generate higher recruiting revenue in the future. And we received industry awards from TMC for our leading softphone client and for our SaaS offering. We’re also ranked among the top 10 mobile technology companies in Canada by Branham Group.

So in summary, we accomplished a lot in 2014 and set the stage for return to growth in 2015 and beyond. I’m genuinely excited by our prospects. I believe we have the right sales strategy with multiple channels to market, strong channel partners and a highly skilled in-house sales team.

I also believe we have the right products at the right time as enterprises are now rapidly mobilizing their work force to cut cost or increase productivity, while operators are looking to defend their businesses from the growing Internet OTT threat. It’s all about a users identity be it the mobile numbers, the business number or the home number.

With that, I’ll turn the call over to Dave to cover the financials and return after his recap to discuss our outlook for 2015. Dave?

David Karp

Thank you, Donovan. Good morning, everyone. Please note that CounterPath uses both GAAP and non-GAAP financial measures to assess our core operating performance, evaluate and manage our internal business, and to make financial operating decisions. For a reconciliation of non-GAAP financial measures to GAAP measures mentioned in this conference call, please refer to this morning’s earnings release.

Total revenue for the quarter ended April 30, 2014 was $3.7 million, up 41% sequentially, but down 9% from $4 million in the same quarter last year. Overall, we’re fairly pleased with our Q4 performance as it represents our third consecutive quarter of sequential revenue growth and was the third strongest quarter in revenue over the last eight quarters.

Software revenue for the quarter was $2.5 million, a decrease of approximately $233,000 or 9% from the fourth quarter of fiscal 2013. The decrease is primarily due to weaker sales to service providers and channel partners which was partially offset by stronger sales to enterprises.

Service revenue for the quarter was $1.2 million versus $1.3 million for the same period last year, a decrease of approximately $118,000 or 9%. The decline was again a result of weaker sales to service providers and channel partners, partially offset by stronger sales to enterprises.

The revenue mix between software and service for the fourth quarter of fiscal 2014 was 67% to 33%. By comparison, our mix in the past quarters has been on average approximately 60% software revenue and 40% service revenue.

We again demonstrated strong diversification of our customer base this quarter. We recorded revenue of at least $10,000 each from 34 different customers; in addition, four of our top 20 customers were new.

Our gross margin was 84% in the fourth quarter versus 86% in the same quarter last year. Non-GAAP gross margin which excludes amortization of intangible assets and stock-based compensation was 85% this quarter versus 87% for the same period last year on a slight decrease in sales this year when compared to the same period last year.

While we’re focused on top line growth, we’re cautious of managing our bottom line as well. In Q4, we continue to manage our cost effectively against revenue performance. Cash costs were flat this Q4 compared to the same quarter last year and to the prior quarter continuing a disciplined approach to managing costs. Given this history, we will expect to have the ability to create operating leverage with our current cost base as revenues grow.

We reported a non-GAAP operating loss of $291,000 in the quarter compared to a non-GAAP operating income of $39,000 in the same quarter last year. Our net loss for the quarter was $357,000, a $0.01 per share versus a net income of $102,000 in the same quarter last year. On a non-GAAP basis, our net loss was $34,000 or $0.00 per share.

Now looking at our financial results on an annual basis, revenue for the year ended April 30, 2014 was $11.7 million compared to $15.2 million in fiscal 2013, a decline of 23%. We generated $7 million in software revenue for the year compared to $9.2 million in fiscal 2013; a decline of again 23%.The decline in software revenue was primarily a result of lower sales to service providers and channel partners partly offset by higher sales to enterprises.

Service revenue for the year was $4.6 million compared to $6.1 million in fiscal 2013, a decline of 24%. The decrease in service revenue on the year was primarily a result of a decrease in customization sales to service providers and channel partners, partially offset by increased sales of support and Software as a Service.

Geographically sales in North America fell by 18% year-over-year, while sales in Europe fell by 30% and sales elsewhere fell by 39%. With this, we recognized the need for higher sales support in Europe and Latin America and efforts to address this are underway.

The net loss for the year was $5.9 million or $0.14 per share compared to net income of $0.5 million or $0.01 per share for fiscal 2013. Non-GAAP net loss for the year was $4.8 million or $0.11 per share compared to a loss of $266,000 or $0.01 per share in fiscal 2013.

Our balance sheet remains strong. At year-end we had no debt and had cash and cash equivalents of $7.2 million compared to $11.2 million at April 30, 2013. The decrease in cash during the year primarily reflects the impact of lower revenue generated during 2014. During the year, we invested approximately $238,000 in CapEx mainly for server and hosting infrastructure and equipment.

We also purchased approximately $251,000 of our common shares in the market under our normal course issuer bid. Our working capital declined to $6.7 million at April 30, 2014 from $12 million at April 30, 2013, primarily reflecting an approximately $4 million decrease in cash and a $1.2 million decrease in accounts receivable.

That concludes my review of the financial results. I’ll now turn the call back to Donovan for his concluding remarks. Donovan?

Donovan Jones

Thanks, Dave. I want to close up the call today with the Company’s priorities for 2015, which are, to continue developing the enterprise side of our business, where we see a fantastic opportunity by bolstering our direct sales force, by fostering relationships with our current channel partners while also developing new sales channels.

To continue establishing our leadership in the Operator OTT segment by adding new wireless cable and VoIP operators to our customer list. To continue to invest in our sales and marketing teams generally, particularly in Europe, where we see enormous opportunity as carriers are going towards proven SIP based solutions such as ours. To continue investing in our sales and marketing teams in Central and South America, where we already have strong footing with some large enterprise and operators that see promising opportunity for growth.

To increase our recurring revenue, by moving the sale of our hosted provisioning and Bria SaaS offering would simply the procurement and deployment process for end customers and simplify the sales cycle for our channel partners and to continue innovating and developing our intellectual property portfolio.

We are confident that success in these areas will turn the Company to growth in 2015. As discussed earlier, we have historically experienced quarter-to-quarter fluctuations in revenue based largely on seasonality and the timing of customer deployments. We do expect this behavior to continue in fiscal 2015.

In summary, we’ve adjusted our sales strategy, bolstered our sales teams, brought some key deals in-house for greater control and visibility during the sales cycle. Based on this transition we anticipate better sales as this new strategy begins to deliver results.

We have an exceptional customer reference list and strong relationships with numerous wireless carriers and enterprises, meaning which thirdly in their deployment cycles. We have industry leading partners like GENBAND, Alcatel-Lucent and Oracle who are marketing our products. With strong IP portfolio, we continue to grow and we have solid roadmaps that are aligned with the sectors technological and market migration.

I look forward to updating you on our progress again soon. That concludes our formal remarks for the call. I’d now like to open the call for questions. Operator?

Question-and-Answer Session


(Operator Instructions) Your first question comes from the line of Robert Young with Canaccord Genuity. Your line is open.

Robert Young - Canaccord Genuity

Hi, good morning. Just first question for me would be, is there any other -- any more color you can provide around that expectation that you’ll return to growth in 2015? Would that be backend loaded, would you expect that to start and then continue through 2015 and is there any sort of a growth range you can put around that or is there any other help you can provide?

Donovan Jones

Well, Rob, we’ve -- I think what you’re going to see is with this changed sales strategy you’re going to start to see momentum from some of the sales teams we’ve put in place. And in addition, I think you’re going to see that the pressure that the operators are under to deploy solutions is going to turn into increased revenue per month from the royalty report perspective. And when you add that to the enterprise customers that we’ve been working with including the work we’re doing with the MDM partners like, Citrix, AirWatch and MobileIron I think you’re going to see a good solid performance from the company in terms of what the growth is going to be and to give you a number, I don’t think we’re prepared to do that right now.

Robert Young - Canaccord Genuity

Okay. And then -- you also suggested there was potential for operating leverage. Is there any guidance you can provide over where you think that the OpEx is going to be over 2015? Are you expecting it to be relatively flat with where it is now?

Donovan Jones


David Karp

Donovan, maybe I’ll take that one. Yes, Rob, we don’t again provide forward guidance on revenue or OpEx. We can tell you that over the last eight quarters our OpEx has been between $3.8 million and $4 million, so it's been very flat. And as we go forward we wouldn’t expect that to grow at anywhere near the rate of growth in revenue implying the leverage. We look at employees. We’ve got about a 100 employees, about 20 contractors. And as we look forward we’d be looking to add maybe 10 to 15 employees over the next year, to give you a sense as to what some of our costs might be.

Robert Young - Canaccord Genuity

Okay. So, we should probably model some growth particularly in sales but also R&D?

David Karp

Well, to be clear, we’re not giving guidance that we are growing. We’re not giving that guidance or guidance on expenditures.

Robert Young - Canaccord Genuity

Okay. And then, maybe talk about - the gross margin is reasonably this quarter. Is that product revenue driven or is there some mix in there that supported that? Anything you can provide there will be helpful.

David Karp

Again it's at 84% or 85% non-GAAP. It's very much in line with what our operating margins have been in the past. So, I would say it's more a return to normal.

Robert Young - Canaccord Genuity

Okay, okay. Yes, the strongest I think in the last year or so, that’s good to see. And I guess, the service revenue -- the service component of revenue I’ve always seen that as being a bit of a leading indicator, but it's been flat for the last several quarters, and I was wondering should we think about that as being a leading indicator or are there projects that you think might start to flow-in in 2015 related to the operator over the top opportunity, maybe should I associate that with more with the operator opportunity than the enterprise opportunity? Couple of questions there. Sorry.

Donovan Jones

Yes, no problem. I’ll take the front of this Dave, and then you can finish off. So, I think it is a leading indicator. We’ve always got ourselves into pretty big multi-quarter projects with some of these large operators, and it's really no different with some of the larger enterprises. Albeit it's a slightly different take on the same solution.

In the case of what we can say going forward, we are involved with several large operators and large enterprises. Some of this work we’re doing is going to be development work, will fall under this services category and that tends to be a bit lumpy as we end up delivering in recording revenue with delivering acceptance. The nice part about CounterPath which has always been part of the strategy is we own all the IP in a lot of the work we’re doing here, so we can use it over and over again. So, the work we do once we can use again on a similar basis with another operator or enterprise that has similar requirements or similar needs. This is all about the roadmap and it's all about building out the roadmap.

We talked earlier about Teradici. This is -- there is engineering work in integrating and building in support for that platform. We also talked a little bit about the work we’re doing with the MDM partners. A lot of when we think about MDM, you need to think about, this is a container model and these containers have been adopted by very large enterprises, so Good or Citrix or MobileIron have been engaged ahead of us with some very large enterprises. Some of the work we’re doing will be recovered from these large enterprises, and others we’re just doing as part of the roadmap. So, hopefully that provides you a little bit color. Dave, maybe you want to finish that up.

David Karp

And I thought that was a good overview. Donovan, I would just say the last quarter the service revenue again wasn’t that low when you look at the last six quarters. And as Donovan said it also can be lumpy, so you can’t necessarily look at any one quarter and draw significant conclusions from that.

Robert Young - Canaccord Genuity

Okay. Maybe one last question for me and I’ll pass the line, just maybe, I’m not sure if you’ve touched on it, but maybe update on the channel partners Oracle, Genesys, how GENBAND is doing, maybe those ones?

Donovan Jones

Sure. Dave, I’ll take that. I’ll talk about, I’ll segment this slightly differently, but it will certainly answer your question. The call center market for us is very strong. So all of our channel partners that are involved in call center deployments and in really IP technology refreshes here in the call center market are doing really well. So certainly Genesys falls into that category. Some of the enterprise OEMs or partnerships, they’re starting to see -- we’re starting to see some large deals where we’re coming into very, very short strokes on trying pulling in the revenue. And things like the Acme partnership that we had via Oracle. Yes, I think they’ve sorted itself out. Now it's taken some time, but I think that’s going to start to build momentum back into some organizations on the enterprise side that we’ve been focused on.

And then with respect to GENBAND and some of the other partners that’s focus on operators there’s been a bit of a stall as we’ve talked about before as really the operators get their stories under them in terms of whether they’re thinking about RCS or whether they’re thinking about OTT and certainly the pressure that they’re all under as a result of what the market is seeing in terms of people like Viber and Skype and WhatsApp and others really driving tremendous user bases, and a reasonably complete user experience albeit certainly not as good as an experience as an operator could provide in terms of quality and your true mobile number and things. And so, I think you’re going to start to see GENBAND and others start to drive more revenue for us.

We are doing the model a little bit differently, we’re working with them, with a lot of our partners as opposed to behind a lot of partners and I think we talked about that before, and I think that’s going to help give us more visibility as well as into the deals and into the opportunities, but also give us a little bit more assurance as we grow and invest ourselves in a roadmap.

Robert Young - Canaccord Genuity

Okay. Thanks a lot. I’ll pass the line.


Your next question comes from the line of Kris Thompson with National Bank. Your line is open.

Kris Thompson - National Bank Financial

Thanks. Donovan, just on the product roadmap, can you give us an update. Are you guys still deploying some RCS products later this year or early next year and are the carriers asking for that?

Donovan Jones

It's interesting. And I’m in Europe. I’ve been here for a couple of weeks now working with some very large operators and half way through the dialogue with all of them, we started talking about RCS. In terms of -- let’s just start talking about the technology side of it. So, from a messaging perspective the protocols that people think of when they think about RCS or things like MSRP in what we would typically use which will be something like SIMPLE or XMPP. So the MSRP is in the product today. We are building more support for that, and so you’re going to see from a messaging perspective we’ll be compliant. We’re -- and then let’s move to, what some of the operators are thinking. RCS is again -- if you ask the question, when is RCS coming? I think you’re sort of almost missing the point in that. This is a technology that adds little value in the features and functions capability, because you can already do everything you can do with RCS with the technology out today. The difference of course is with RCS is this requirement for all the operators to work very nicely together. And that’s why, that’s what we call joint initiative. But I think that RCS will be something that will be deployed. Will there be as much buzz and momentum around it? I’m really not sure. I think it will just sort of -- it will maybe [ph] [lint in], if you wanted my opinion. But what we’re seeing from the operators right now is, has been looking to deploy services today and not necessarily waiting for the interoperability requirements that come with RCS. And this is not just the operators we’re talking to here. We’re also talking with the very large IMS vendors that have a lot to gain from RCS. No one is saying RCS is going away. Everyone is saying maybe there is a transition phase where we do something where you might want to call evolution versus revolution, where you put in place something like what Rogers has deployed, the second is a very successful compelling set of used cases for end users and then you slowly evolve the protocols to be more RCS like and that’s our strategy with MSRP. I think that the interest that I’m seeing is more on, what can we do today to take back users to leverage a strength we have which I think like the mobile number and integration with directories and existing services. Looking over the top application as opposed to waiting for technology to catch up with the user experience that people like Viber and WhatsApp and Skype have already put in the market.

Kris Thompson - National Bank Financial

Okay. And in your prepared commentary you mentioned that some of your larger customers had not deployed to your plan. What happened there and when you think that might change?

Donovan Jones

No, and this is -- I think I mentioned this twice in the prepared script, and certainly it's driven our -- our results have more or less reflected some of this in the past quarters. I think there’s really two things. The first is, thus wait and see attitude gets around sort of the marketing of some of the operators that we’ve deployed with. And I think that the more pressure they’re under from the over the top guys the more they’ll start to market, the more they’ll start to communicate the message which will drive user adoption. And subsequently we’ll get quarterly royalty reports which will start to grow and start to mount. I think the other piece that we’re seeing is, I think I’ve always said this before, our revenue tends to be sort of tip of the iceberg revenue where we get pre-deployment revenue. We get some initial professional services, some initial as we build the application and then we sort of wait until scale hits. And once things start to scale then our revenue starts to turn. We haven't seen the scaling in various customers and including some enterprise customer to be quite honest. But I think we’re going to see in the coming quarters from everything what we’re seeing out here in Europe that the carriers are very much looking to get going quickly, and it's a sort of renewed sense of interest versus more of the wait and see attitude like we saw last year. So I think that we’re going to -- from what I’m hearing the technology that we’ve already put in place with some of these operators and some of these enterprises and publics tip of the iceberg revenue, I think we’re going to start to see some deployments. We’re going to start to see some marketing. We’re going to start to see some interest, and I think that translates into revenue for us.

Kris Thompson - National Bank Financial

Okay, great. And Dave, I might have missed this, but on the segmented revenue, did you disclose the percentage of your total revenue between enterprise and service provider and also direct or a channel?

David Karp

It wasn’t in the script Kris, but I can tell you generally what the mix was.

Kris Thompson - National Bank Financial


David Karp

This last year we had two to the channel, we sold about 31% of revenue to the channel. Service provider was about just under 40%. And interestingly our direct to enterprise was just over 30% this year proportionately where as last year it was proportionately just over 20%. So, on a proportional basis and on an absolute dollar basis our direct to enterprise was up this year not withstanding the fact that overall revenues as you know were down. So, I think that to your earlier question, we are seeing enterprises. Our customer’s deploying more and more of our softphones. We would have said it was early days in the enterprise last year, customers like Bosch and Citi and we’re seeing 80% of our revenues are repeat customers, and we’re certainly seeing activity in the enterprise side.

Kris Thompson - National Bank Financial

Okay, that’s helpful. And maybe some parameters around guidance, I know you don’t want to give guidance, but what would your kind of expected mix of operators and enterprise revenues be for say fiscal 2015?

David Karp

Donovan, do you want to take that call generally with perhaps your upward numbers on it, but just talk generally to that question?

Donovan Jones

Sure, I think that, I said this sort of in the prepared script. We have been putting a lot more focus on direct to enterprise. A lot of this has come as a result of inbound activity. The work that we’ve been doing with the MDM or the Mobility Management Groups has given us a little bit more visibility into what some of the financial services markets are doing, into what some of the government organizations are doing, what some retail, what some healthcare. Certainly the sales team that we’re going to need to do direct to enterprise is a little bit different. And scaling is going to come through VARs, VADs and [ph] [SIS] and we’ve put in place, series of distributors are going to help that. I think typical with sort of the CounterPath sort of strategy, we tend to build and understand a few enterprises first and then grow the channel sort of around what we understand. I think you’re going to see through 2015 even a little bit more growth from a proportional basis to what you saw with the numbers Dave gave in 30%. So, I think you’ll see enterprise grow even more on a proportional basis. However, we’re also going to see some good over the top carrier growth as we see. We believe that we’re going to see some marketing and some deployments from these enterprises. The channel business for us is, in terms of the OEMs and things, this has been one of the struggles I guess I’ll call it over the past year in terms of whether we go behind a partner and sort of be hidden from view if you will from the customer or whether we go in tandem or side by side. And I think the side by side model is going to carry through 2015. So, hopefully Kris that gives you a little bit of color. Dave, if you want to sort of add to it, then go ahead.

David Karp

No. I think that’s fine.

Kris Thompson - National Bank Financial

Okay. Dave, I think you said about 80% of your revenue in 2014 was from existing customers, did I hear that right?

David Karp

It's around 75% to 80%, yes Kris.

Kris Thompson - National Bank Financial

Okay. So, for 2015 I guess what would your expectations be generally, do you think you’re going to drive growth from the existing customers or are you more looking to get some traction from some I guess larger potential customers that you have in your pipeline?

David Karp

Yes, I think we would see more and more growth from newer customers in 2015.

Kris Thompson - National Bank Financial

Okay. And just my last one then on the visibility of those new customers, I know Donovan maybe you can touch on the sales organization. I think you’ve got about 43 people on sales and marketing, services and support versus 40 last year. What changes have you made in that structure, and how do you think that’s going to achieve some revenue momentum this year?

Donovan Jones

Yes. So, we’ve actually added, I think we’re up another four on the sales side just in the last couple of weeks, I guess, just under a month as we’re having more people. I think that there’s really two ways to answer this. The first is, we’re really upping our game on the sales team. What we’re looking to bring on now are people that have sort of extensive relationships with some of these larger organizations. So, as we do a little bit more business direct to enterprise to sort of start to evaluate, if you will around momentum to help our VARs and VADs, we’re going to need a little bit more capability here and so we’ll pay a little bit more to some of the sales people. But I think the return is going to be seen a lot quicker. I think in Europe for example, it's not just around sales people, it's also around sales, engineering and support. And so we’re going to add a little bit more there. It's the one I’m seeing so far the kinds of relationships that these guys that we brought on, and I’m working with several of them over the last couple of weeks here allows us to get into places we just don’t normally get into with some of these operators and enterprises. So, where we typically might talk to a product manager, we’re now talking to the Vice President Engineering or in some cases the CEO of a reasonably large operator. And it really helps sort of set better cadence. And this is something we’ve never really done at CounterPath, because we’ve always had sort of a lot of inbound. And we’ve sort of done is by grade and technical merit. We’re now stepping up our game and I think you’re going to see that translate into better visibility and better traction with -- from a revenue perspective.

Kris Thompson - National Bank Financial

Okay. Thanks for taking my questions guys and all the best.


There are no further questions at this time. Mr. Jones, I’ll turn the call back over to you.

Donovan Jones

Thanks everyone and once again for participating in today’s call. We appreciate your continued interest in CounterPath. I look forward to speaking with you again when we announce our Q1, 2015 results.


This concludes today's conference call. You may now disconnect.

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Source: CounterPath's (CPAH) CEO Donovan Jones on Q4 2014 Results - Earnings Call Transcript
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