Attunity's (ATTU) CEO Shimon Alon on Q2 2014 Results - Earnings Call Transcript

Jul.24.14 | About: Attunity Ltd (ATTU)

Attunity Ltd. (NASDAQ:ATTU)

Q2 2014 Earnings Conference Call

July 24, 2014 10:00 AM ET


Garth Russell – IR

Shimon Alon – Chairman and CEO

Dror Elkayam – CFO


Don Besser – Manchester Management

Chad Bennett – Craig-Hallum


Good day everyone, and welcome to the Attunity Second Quarter 2014 Earnings Conference Call. Today’s call is being recorded.

At this time, I would like to turn the conference over to Mr. Garth Russell of KCSA Strategic Communications. Please go ahead sir.

Garth Russell

Thank you. Before turning the call over to management, I would like to make the following remarks concerning forward-looking statements. All statements in this conference call other than historical facts are forward-looking statements. The words anticipate, believe, estimate, expect, intent, guidance, confidence, target, project and other similar expressions typically are used to identify forward-looking statements.

These forward-looking statements are not guarantees of future performances and may involve and are subject to risks and uncertainties and other factors that may affect Attunity’s business, financial condition and other operating results, which include, but are not limited to the risk factors and other qualifications contained in Attunity’s annual report on Form 20-F, quarterly reports that are filed in a 6-K and other reports filed by Attunity with the SEC to which your attention is directed.

Therefore, actual outcomes and results may differ materially from what is expressed or implied by these forward-looking statements. Attunity’s expressly disclaims any intent or obligation to update these forward-looking statements.

During this call, we may also present certain non-GAAP financial measures such as non-GAAP net income and certain ratios that are used with these measures. In our press release and the financial tables issued earlier today, which is located on our website at, you will find our definitions of these non-GAAP financial measures, a reconciliation of these non-GAAP financial measures with the closest GAAP financial measures, as well as the discussion about why we think these non-GAAP financial measures are relevant to our results. These financial measures are included for the benefit of investors and should not be considered instead of the GAAP measures.

At this time, it is now my pleasure to turn the call to Shimon Alon, Chairman and Chief Executive Officer of Attunity. Shimon, the floor is yours.

Shimon Alon

Thank you, Garth, and thank you everyone for joining our call today. With me is Dror Elkayam, our Chief Financial Officer. We will begin by providing an overview of our financial results and adding some details regarding performance during the second quarter of 2014. After our prepared remarks, Dror and I will be happy to answer any questions you may have.

With that said, let’s get started. We continue to accelerate our goals, marking another record quarter for Attunity. Total non-GAAP revenue for the quarter increased 77% to $8.4 million and our flagship Big Data solution, Attunity Replicate grew license revenue by 66% year-over-year.

The clean drivers of the success are highly competitive products, expanded and productive sales team and more robust marketing strategy and the development of its stronger alliances with the partners in the Big Data markets. This growth was led by Attunity Replicate which represents the lion share of our product revenue and growth.

Some positive trends that we are seeing include a greater number of larger size deals and an increase in the third business from our partners. We’re investing more resources in the field to support and drive this growth which has proven to be very effective.

I’m pleased with the momentum and performance of our expanded global sales team, which grew from 15 to 26 people at the beginning of the year. We have seen revenue growth across all sales regions with significant growth in the region as a result of our increased investment in the territory. As an example of the success, we closed a $700,000 deal with one of the largest European insurance companies with a potential for substantial follow-on sale.

In addition, I would like to point out that the sales reps who joined the company since the end of 2013 have all established sales pipeline in overwhelming majority of already closed deals.

In response to growing customer demand, we have also established an in site sales team to assist sales rep which filled in incoming leads. This newly formed team is contributing measurably to both the funnel and the pipeline. I’m also pleased with the progress of Attunity Maestro.

Our newest data distribution and flow management solution, which was launched at the beginning of the quarter, since then we have experienced significant interest generating numerous proof of concept and demo.

I’m happy to report that we have already closed our sales deals for Attunity Maestro. This customer is one of the nation’s leading home business, the customer was struggling with various tools for distributing important data from regional offices to the headquarters. The expansion of regional hubs is more data, more people and bigger size, straining the ability of the IT operation team to effectively manage information availability.

In order to address the need for extensive data distribution reporting, audit and compliance, they selected the Attunity Maestro to provide centralized management and lead time monitoring for their field data flow. With Maestro, the customer now has general visibility into all replication tasks with a full audit of what data was transferred and who executed and approved each of the respective tasks.

We expect adoption of Maestro to increase based on the positive feedback we have received, and are looking forward to making these solutions available to our Attunity Replicate customers as well later this year to facilitate large-scale deployment.

At that same time, Attunity Replicate is becoming the solution of choice in delivering Big Data for biz analytics leading to increased market activities as we close larger deals on a global scale. An example of one such customer is Tinkoff Credit Systems, a leading European provider of an online retail financial services.

TCS Bank adopted Attunity Replicate to deliver information to the key Pivotal Greenplum analytic platforms allowing the company to identify potential fall activity in real time. The Bank was able to provide better customer service and make more accurate business decisions while improving performance of their transactional systems where the source data resides.

In the SAP market, we unveiled the availability of Gold Clients for SAP HANA; we did at a SAPPHIRE conference. This solution enables quick and securitization and the synchronization of data across SAP application and SAP HANA. Recently, Automobile [ph] Corporation allowed the international distribution of commercial vehicles, selected Attunity Gold Client Solution to overcome its data management and test data availability challenges figured by the growing complexity of the company SAP landscape.

With Gold Clients, the customer was able to drastically reduce the time required to prepare data from testing as well as reduce the storage and volume of data needed from their production system enabling much more effective and efficient process.

Another area in which we have seen accelerated growth is in the business and pipeline development associated with our go-to-market partners. We continue to focus on rising awareness executing joint demand generation problems and fostering field level relationship.

Having dedicated sales people now in key regions around the world has enabled us to ensure closer business relationship with our partners, representative in this area. As a result, we are experienced significantly more activity with Microsoft and Teradata for our Attunity Replicate Click-2-Load solutions for datawarehouse and Big Data analytics.

As demonstrated by the growth in reserves and partner interaction, we are a critical enabler to the partner’s success.

This is driving increased adoption of our solution among the partners’ representative who appreciate the Attunity Replicate value proposition. This is evidenced by the thousands of registrants that participated in joint webinars we did with HP Vertica and Amazon Web Services showing a clear demand for our solutions for both Big Data loading into datawarehouses and the Cloud.

In addition, Microsoft is employing the Big Data business and it’s reduced the analytic platform system which extends their large-scale data warehouse offering – Parallel Data Warehouse, PDW. During the second quarter we have seen significant increase in the referral activity for Microsoft in both North America and Europe. As a result we closed PDW related deals in Q2 as well as establishing a very good pipeline for the second half of the year.

Teradata continues to be a key partner as we collaborate on greater number of opportunities of large size. In Q2 we closed a major deal with an American communication company for $600,000 which further indicates our competitive value proposition for Teradata customers and our continued progress in closing larger deals. This customer is a large Fortune 500 broadband communication company based in the US.

When this company first engaged Attunity they were using time and labor intensive overnight batch process to load data from their operational business system to their Teradata datawarehouse. The company realized that it needed a real-time data availability across its dealing and authentication systems in order to ensure the delivery of their advanced media services. Ultimately, after seeing how easy to use, scalable and affordable the Attunity Solution in comparison with the competitive solution they had, the company selected Attunity Replicate.

Coming to the Cloud, we are seeing growth in an immediate revenue as a result of the new release Attunity CloudBeam on the Amazon marketplace. Attunity CloudBeam now allows a broader base of customers to easily access the soonest and secure deployment of scalable Big Data loading and replication in the Amazon Web Services Cloud.

Customers are now more inclined to use the service and realize its benefit leading to a growing amount of users we anticipate a steady stream of recurring revenue from our CloudBeam product. Our flexible pricing model gives customers the ability to purchase the product on an hourly rate, short-term lease or as a perpetual license.

To drive demand and adoption for our solutions, we announced a 30-day trial of the Attunity for Amazon Redshift solution. The preliminary user response has been very positive from customers such as Philips and other household names. As a result, the majority of our growth in the Cloud comes from Amazon Redshift users, and we are receiving many new referrals from each customer. We look forward to seeing ongoing success with Amazon Web Services as we continue to jointly market our product offering.

I am also excited to share with you that Amazon Web Services has recently promoted our partnership status to advance technology partner. This promotion was driven by largely by the combination of influence revenue, public facing customer success stories and our product alignment and relevance to Amazon. As an advanced partner, we expect to benefit from a broader awareness and promotion of our Cloud Solutions.

In order to support our growing sales force and build awareness and momentum for the Attunity brand we have increased marketing activities substantially. We exhibited in more than dozen important industry event and trade shows. We also hosted and co-hosted similar successful webinars in the Big Data and Cloud topics.

Attunity plans to continue working closely with all its partners, to continue leveraging joint customer success stories. The marketing team also develops several informational assets to help educate the market on the importance and industry trend such as industrial international sales.

In addition, the recent e-book that Attunity produced entitled "Move It- Don’t Move It" highlighting the value of timely enterprise data. This e-book was – has driven one of the – our highest rate of conversion of all our lead generation and to manage complaints across the company.

As we conclude the first half of 2014, we are excited by the effectiveness of our strategy, which is being driven by increased sales and marketing activity. When it comes to closing deals; we are now winning bigger deals as customers recognize the superiority of our solutions.

As expected, extending this sales and marketing effort has resulted in higher cost and slight loss of the period. This impact is expected to be offset by revenue growth from our Big Data product as we plan to resume profitability in the second half of the year.

I will now turn the call over to Dror Elkayam, our CFO to discuss key things of our financials. Dror, please?

Dror Elkayam

Thank you, Shimon and good morning, everyone. As reported this morning, we had a record quarter in terms of total revenue. Our total revenue for the second quarter of 2014 increased 36% to $8.3 million compared with $6.1 million last year. This included a 34% increase in license revenue to $4.4 million and a 38% increase in maintenance and service revenue to $3.8 million compared with the same period last year.

The growth for the quarter is mainly due to increased demand for our Attunity Replicate solutions with licensed revenue of $2.6 million representing an increase of 66% compared with the second quarter of 2013 and to revenues from Hayes which was acquired in December 2013.

Total non-GAAP revenue was $8.4 million representing an increase of 37% compared with the second quarter last year. We believe that the non-GAAP measure is a more accurate representation or our revenue growth since it includes approximately $100,000 of acquired maintenance revenue from Hayes that was not recognized due to business combination accounting rules.

As a result, non-GAAP total maintenance and service revenue was $3.9 million. The cost of revenue increased 52% to $776,000 from $512,000 from the same period last year. This increase is mainly attributable to the Hayes acquisition and to the amortization of Hayes acquired intangible assets.

Gross margin was 91% this quarter compared with 92% for the same period last year. Non-GAAP gross margin was 93% compared with 94% last year, which excludes amortization costs associated with acquisitions. While we try to slightly increase our investment in professional services to grow our revenue and to help customers expedite solution implementation, we expect our margins to remain high, as total revenue continues to grow going forward.

Total R&D expenses increased 35% to $2.5 million from $1.9 million in the second quarter of 2015. This increase is mainly due to the Hayes acquisition, compensation adjustments, certain one-time expenses associated with such adjustments and higher equity base compensation expenses.

Total R&D expenses were 31% of total revenue for the second quarter, of both 2014 and 2015. This is because our increased investment in R&D in 2014 was offset by higher revenue during the quarter. We expect the total R&D total expenses will slightly decrease in the second half of 2014.

Sales and marketing expenses increased by 74% to $4.9 million from $2.8 million in the same period last year. This is mostly attributable to the increased headcount for our sales and marketing teams during the year as part of our strategy to increase our global footprint.

This includes the increase in the number of quota-caring sales people to 26 in Q2 2014 from 15 at the end of the second quarter last year. The additional investment in marketing activities to support this expansion, the acquisition of Hayes, compensation adjustments and higher equity based compensation expenses.

Sales and marketing expenses as a percentage of total revenue were 59% compared with 46% for the same period last year. We plan to continue to incrementally increase our investment into sales and marketing within the second half of 2014.

G&A expenses this quarter were $1.1 million or 13% of total revenue, compared with $793,000 or 13% of total revenue from the same period last year. This is mainly due to an increase in corporate and middle expenses, mainly associated with sales, higher equity based compensation expenses any one-time hit associated with compensation adjustments.

Later this year, we expect G&A expenses to slightly decline in total dollar value, and as revenue continue to grow, decline as a percentage of total revenue.

In order to support our expansion, we are strengthening our legal and finance operation by creating an in-house team, which will accelerate the advanced spend for processing and reduce our total legal costs.

Net operating loss for the second quarter was $1 million compared with an income of $108,000 for the same period last year. Non-GAAP operating loss was $201,000 which excludes $793, 000 in expenses and amortizations associated with acquisitions and equity-based compensation expenses. This is compared with non-GAAP operating income of $434, 000 for the same period last year, which excluded $326,000 of similar expenses.

Net loss was $1.2 million or $0.08 per share, compared with an income of $180,000 or $0.01 per diluted share in the second quarter of 2013. Non-GAAP net loss was $418, 000 compared with a non-GAAP net income of $371,000 for the same period last year.

Non-GAAP net loss excludes a total of $741,000 in expenses, mostly attributable to expenses and amortization associated with acquisition RepliWeb and – Hayes and equity based compensation expenses. Non-GAAP net loss for the same period last year excluded $191,000 in similar expenses, associated with acquisition of RepliWeb and equity-based compensation expenses.

As of June 30, 2014, our headcount was 148, compared with 141 at the end of Q1 2014, and includes an increase of 32 people from the end of the second quarter of 2013, mainly in sales and marketing.

Moving to the balance sheet, our cash and cash equivalents amounted to approximately$18.1 million, up from $16.5 million as of December 31st, 2013. Our accounts receivable remained within our target range with DSO at 55 days as we continue to collect effectively.

Our shareholder’s equity amounted to $29.5 million as of June 30, 2014, compared with $30.1 million as of December 31, 2015.

Now, I’d like to turn the call back over to Shimon for some closing comments

Shimon Alon

Thank you very much, Dror. In summary, we have laid the ground rules for accelerated growth as we further penetrate the Big Data in cloud markets on a global scale. We are closing larger deals; gaining more customers and seeing our large scale partners reap the benefits of our solution. Attunity Replicate, Attunity Maestro, Gold Client, and CloudBeam.

As we progress, we will continue to introduce new innovative technologies in the areas of Hadoop, the Cloud, and the large scale data distribution.

Before we conclude our prepared remarks, I would like personally to thank investors, customers, and partners who share their support over the last few weeks. Most importantly, due to our geographic location in Israel, our office and employees there are safe and the business for Attunity remains stable with no interruption.

I would like now to open the call for questions, operator.

Question-and-Answer Session


[Operator Instructions]. And we’ll take our first question from Donald Besser with Manchester Management, your line is open.

Don Besser – Manchester Management

Hi, good morning, couple of questions here. The size in the Maestro deal, can you give me some raise as to what raise that was in?

Shimon Alon

This is the first one, it was – I would not look at it as indicative of our pricing as this was more for promotion the range of our proposals. Right now, run between $50,000 to $700,000 depending on how many nodes the customers has. And this would be the pricing going forward.

Don Besser – Manchester Management

In the latest quarter, have you ever disclosed how many customers you sold licenses to, like for example in the latest quarter?

Shimon Alon

We do not disclose new licenses although we said overtime we have over 2,000 customers. And about half of them are stayed maintenance so that’s what we are sharing.

Don Besser – Manchester Management

And finally, what – for a salesman, what’s your sales quota that you expect from a salesman?

Shimon Alon

Okay, fully ramped up sales person who join the company over a year ago, we expect him to do at least to $1.2 million this quarter, depending on the territory and the country, but anywhere between $1 million to $1.2 million. I can tell you that some last year on a unit basis did much more than this. As new sales persons will join this year, we expect him to do between $800, 000 to $1 million as they –. The good news is everybody that joins the company, in the beginning of this year, is ramped up to 6 months in delivery.

Don Besser – Manchester Management

One more thing here, the sales to EMEA , what percent of sales was that?

Shimon Alon

We do not – first of all that was the record quarter for EMEA and they represented a growing percentage of our revenues. We do not share the breakdown of the different territories.

Don Besser – Manchester Management

Okay, great. Thank you very much.


And next we’ll take Chad Bennett with Craig-Hallum, your line is open.

Chad Bennett – Craig-Hallum

Hey guys, good morning. Nice quarter, yeah so I guess in looking forward, considering now that Replicate is approaching 60% of overall license revenue and growing above 60% to 70%. And we have Maestro coming onboard, which should accelerate growth, is there, I guess is there any reason the growth rate – overall revenue growth rate you saw this quarter in the high 30s, why we should think anything differently going forward in terms of growth rate relative to what you just did?

Shimon Alon

While we see a great success and very nice growth and accelerated growth and you’re right, our Replicate now become over 60% of our total licensed revenue and it’s growing at 66%. In front of us we have two quarters, Q3 a solid quarter and Q4, which typically is a very strong quarter. Timing is very critical and therefore I will not, right now, try to change anything. I think we have to look again at the beginning of the fourth quarter to see how much of the opportunities that we have in front of us, we closed during the quarter.

Chad Bennett – Craig-Hallum

Okay, I guess is it – are you seeing pipeline growth, both early and kind of stuff moving through the pipe. Okay I assume it’s progressing at a normal pace, are you seeing that growth in excess of what your revenue growth is?

Shimon Alon

You know that the question divided in to two are we seeing an increase in pipeline, the answer is yes. Are we sure we can move all of them within the quarter; we don’t know yet. We’ll give you an example, Chad a few days ago, either one of very large deal from a healthcare provider – we heard from him, he called up and say, we decided that you are the vendor of choice.

We know that we’ll get it. There is a meeting with the customer this week. We have no idea when and how long it will take us to get the order from the customer, if it will be Q3 or Q4, we definitely believe it will be in the next two quarters, we want it to be Q3, but with the experience we have, sometimes it takes longer.

Chad Bennett – Craig-Hallum

Okay. And then a couple of other ones for me. So, how should we think about overall OpEx going into this quarter and next quarter? I think directionally you gave some idea by line item R&D and sales and marketing and so forth, but, should we see R&D overall pick up sequentially, I’m sorry – OpEx overall pick up sequentially both in the September quarter and the December quarter?

Dror Elkayam

I will answer it in a different way, well I explained that we expect that the non-sales, what is not associated immediately with sales will not grow and even may decline. As we sell more, and we expect obviously to sell more, mainly in the commission area we spend more, okay. So, I want to believe this addresses your question. On R&D, the expenses will go as I see it ,will go down a bit, same applies to G&A, as you sell more mainly sales and marketing will go up as a direct result of selling more licenses. Okay.

Chad Bennett – Craig-Hallum

So, are we planning on material headcount adds to the sales force from here till year end?

Dror Elkayam

No as we said before, our target is to reach 27 sales people, the 27 sales person was identified and I assume, will join us in the next two weeks. And this will be the last hire for this year. We wish – start [ph] to claim our 2015 hires at the beginning of the fourth quarter and we may start to execute that.

Chad Bennett – Craig-Hallum

Okay. And then in terms of what you’re seeing out there in new deals, Shimon, I guess it’s still the, the main competitor kind of legacy, kind of manual based processes or for moving data around your legacy ETL Solutions and something like that, or – or I guess what I’m saying is there still a tremendous amount of green field out there for what you’re seeing every day?

Shimon Alon

Yes there are two areas, one is the what you call the legacy – then on ETL, that’s why the manual involvement and we do very, very well that’s very light to us. The second area is all [indiscernible] of data warehouses. It’s a new market; people are buying it all the time, they are buying it for Microsoft PDW from Teradata, from Pivotal EMC. They buy it from HP Vertica. Sometimes we feel few of it are from IBM. This is a very competitive and a fast growing market.

People now realize, same is we shared with you about the communication company in the US, they need the real-time data, do a batch file [indiscernible] it doesn’t give them the right information for analytics for better services and so on when it comes to real-time loading of datawarehouses we would be the selected product most of the time for two reasons. First the superiority of our technology, and second the relationship we’ve developed with the vendors of the datawarehouses.

Microsoft always will bring us. Vertica will there nine out of ten times. And the same happened with Pivotal and Teradata and others. Now the more we success – the more we succeed, the more success stories we have, more activity we seek. So it’s very nice to see this market of loading data into datawarehouses. I will take this opportunity once again to say that towards the end of the year we are coming with a good solution for datawarehouses, and this will open for us a much larger market going into 2015.

Chad Bennett – Craig-Hallum

Thanks guys, I appreciate.

Dror Elkayam



[Operator Instructions] And we have no further questions in the queue. At this time I would like to turn the call back over to Mr. Shimon Alon for any closing remarks.

Shimon Alon

Okay. Thank you everybody who joined the call today. We will continue to be available to answer any questions you may have here in New York or any other place; we’ll be in few conferences during this quarter, and have a great day. Thank you.


That concludes our call for today. Thank you for your participation.

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