Concurrent Computer Corporation (NASDAQ:CCUR)
Q4 2014 Results Earnings Conference Call
August 27, 2014, 4:30 PM ET
Davina Furnish - General Counsel and Corporate Secretary
Dan Mondor - Chief Executive Officer
Emory Berry - Chief Financial Officer and EVP of Operations
Welcome to the Concurrent Earnings Conference Call for Fiscal 2014 Fourth Quarter And Full Year Financial 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 via the Internet at www.ccur.com. After accessing the webpage, please press Investors tab in the About section.
I now would like to introduce Ms. Davina Furnish, General Counsel and Corporate Secretary. Madam, you may now begin.
Thank you. Good afternoon. And welcome to Concurrent’s fiscal 2014 fourth quarter and full year earnings conference call for the period ended June 30, 2014. 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 believes, expects, estimates, anticipate 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 the broadcast, August 27, 2014. Any redistribution, retransmission or rebroadcast of this call in any form without the express written consent of Concurrent is prohibited.
Forward-looking statements made by the company are not a guarantee of future performance and 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 fourth quarter and full year results. If you have not received a copy, please contact Sandra Dover at 678 258-4112, or visit the company’s website at www.ccur.com, and find the copy in the Investor section of the website under the About tab. In addition, please contact Sandra, if you would like to arrange a call with management.
Dan Mondor will now provide an update on our business.
Good afternoon, everyone. And thanks for joining us to discuss our fiscal 2014 fourth quarter and full year results. We are pleased to report continued progress in the fourth quarter and a solid finish to fiscal 2014. In the fourth quarter we generated $17.9 million in revenue, increase of nearly 20% compared with the same quarter last year. Our operating income increased from $132,000 to over $2.1 million [not] including proceeds from the sale of non-strategic intellectual property in Q4 fiscal 2013.
In the fourth quarter, we also realized a portion of our U.S. tax assets as a result of our cumulative profitability over the past three years and expectation for sustained profitability in the U.S. Emory will review this in more detail in his remarks.
We closed out fiscal 2014 with revenue of $71.2 million an increase of over 12% from last year. For the full year we nearly doubled our operating income not including the aforementioned intellectual property sale, grew our operating cash flow over 37% and returned $4.4 million to our shareholders in the form of cash dividends.
We also gained market momentum in fiscal 2014 with new customer wins in both video and real-time and extended our relationships with existing customers. We are encouraged by the market traction we are seeing around the globe for our latest generation products and services and are optimistic as we carry this momentum into fiscal 2015.
Looking back on fiscal 2014, we focused on developing our intellectual property and extending our product portfolio of both video and real time solutions. In the video solutions business, we set a record pace for video patent awards with five patents awarded in fiscal 2014 and our most recent patent award announced earlier this month.
We have also added a number of new IT video products to our portfolio. In July, we announced a new transparent caching solution designed to boost performance of over the top streaming services such as Netflix, YouTube, Amazon Prime Instant Video and Apple TV. In addition to improving video quality for consumers, our transparent caching solutions reduces the network transit cost and creates opportunities for broadband operators to generate new revenue by offering value added content delivery services to OTT providers.
With continued growth in geographic extension of over the top services, service providers are facing a changing competitive landscape leading them to consider new business models and new ways to enhance the services they offer to customers. In some cases, this means competing more effectively with OTT providers by extending their branded video streaming services to serve subscribers on every device and launching new applications like network digital video recording.
In other cases, it means embracing internet based content and offering it along side branded services as a way to enrich and expand the diversity of content available to consumers. Concurrent is working with service providers to ensure they can support both approaches. Our solutions enable video services in every stream from a common unified content delivery architecture. In addition to supporting a wide array of video application such as live streaming, video-on-demand and network DVR, we also enable service providers to reach beyond the confines of their own network to source content from the cloud.
With our unified solutions we have positioned ourselves to fuel the evolution that is taking place in the video industry by providing our customers with a way to seamlessly migrate services overtime from classic TV, network technologies to next generation IP and cloud based architectures using one powerful software solution.
In Real-Time we have continued to expand our target markets and have identified a growing array of opportunities in the automotive testing and simulation industry. We have been enhancing our SIMulation Workbench product to meet the needs of this market introducing support for new interfaces and advanced simulation packages.
In the fourth quarter, we have continued to add premium automotive brands to our customer list, including a [Mark key] Formula 1 design and racing team. Our real-time solutions are uniquely positioned in the market to serve auto manufacturers growing investment and computer base design, simulation tools and test equipment.
Our open flexible software solutions enable customers to run more powerful simulation models more quickly and with better results than competitive solutions which are based on closed proprietary technologies.
I will discuss additional progress in the business in my later remarks. I’d like to now turn the call over to Emory to discuss our financial results. Emory.
Thank you, Dan. And thank you all for joining us this afternoon. I would like to begin by providing additional detail on the reversal of the tax valuation allowance and our fiscal fourth quarter results. Concurrent’s expectation for sustained profitability in the U.S. combined with our cumulative profitability over the past three years resulted in the reversal of the company’s tax valuation allowance in the fourth quarter.
The reversal of the tax valuation allowance resulted in a non-cash net gain of $13.7 million in the fourth quarter. On a go-forward basis beginning in July 2014, U.S. net income will be reduced to reflect our effective U.S. tax rates, however there will no cash impact as Concurrent’s net operating loss carried forward will offset cash taxes on approximately $36 million of future U.S. taxable income. I recommend that you refer to the tax footnote in the company’s fiscal 2014 annual report on Form 10-K for further details.
Our revenue in this fiscal fourth quarter was $17.9 million compared with revenue of $14.9 million in the prior years fourth quarter and $18.3 million in the previous quarter.
Turning to our product line revenue details, our Video revenue was $10.1 million, representing 56% of fourth quarter revenue and $8.6 million or 58% in the same period last year.
In the third quarter, Video revenue was $11 million, representing 60% of total revenue. The balance represents Real-Time revenue, which was $7.8 million for the fourth quarter and $6.3 million in fiscal 2013. The Real-Time revenue was $7.3 million last quarter.
Gross margin for the fiscal fourth quarter was 60%, up 57% in the prior year’s fourth quarter and 56% last quarter. The increase in gross margin is primarily attributable to the mix of products and customers.
Total operating expenses for the fiscal fourth quarter were $8.6 million, up 3% from the fourth quarter a year ago excluding the $2.4 million benefit in the prior year on the sale of non-strategic intellectual property and down 4% from last quarter.
For the fourth quarter of fiscal 2014, we reported operating income of $2.1 million, which included non-cash expenses of $527,000 in depreciation and amortization, $247,000 of share-based compensation compared with operating income of $2.5 million in the comparable period last year that included non-cash expenses of $732,000 in depreciation and amortization and $255,000 of share-based compensation.
As I mentioned earlier, the prior year’s fourth quarter operating income included a $2.4 million gain from the sale of intellectual property. The company reported an income tax benefit of $13.6 million or $1.49 per diluted share including the $13.7 million non-cash reversal of the U.S. tax valuation allowance during the quarter. For the comparable period last year, the company had an income tax provision of $190,000 equal to $0.02 per diluted share.
Overall net income was $15.6 million for the current quarter equal to $1.71 per diluted share including $13.7 million in non-cash reversal of the company’s tax valuation compared with net income of $2.3 million or $0.26 per share in the fourth quarter last year. Looking at our results for fiscal 2014, total revenue was $71.2 million compared with $63.4 million for the comparable period last fiscal year, reflecting an increase of over 12%.
Our Video revenue represented $41.4 million or 58% of our total revenue compared with $37 million or 58% of our total revenue last fiscal year. The balance represents our Real-Time revenue which was $29.8 million as compared to $26.5 million in the previous year.
Gross margin year-to-date was 57%, down from 58% in the prior year. Total operating expenses were $35.1 million, up 3% from the prior year, excluding the prior year benefit from the sale of intellectual property. As I mentioned earlier, we have increased our investment in research and development with some additional personnel to support our product and strategic initiatives.
The company reported operating income of $5.3 million, which included non-cash expenses of $2.3 million in depreciation and amortization and $1.1 million of share-based compensation expense, compared with $5 million which included non-cash expenses of $3.2 million in depreciation and amortization and $848,000 of share-based compensation.
Operating income in the prior year included the $2.4 million gain on sale of intellectual property. Net income was $18.5 million or $2.04 per diluted share, which included a tax benefit of $13.4 or $1.48 per diluted share, primarily as a result of the reversal of a non-cash tax valuation allowance in the fourth quarter. This compares to net income of $4.2 million or $0.48 per diluted share, which included a tax provision of $369,000 or $0.04 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 fourth quarter with cash of $28.1 million versus cash of $27.9 million at the end of last fiscal year. Also the company continued paying a quarterly dividend of $0.12 per share in each quarter of this fiscal year.
As of the end of fiscal 2014, the company has now paid cash dividends of over $12 million in the past two years. Lastly, we finished the year with working capital of over $29.9 million.
Now I’d like to turn the meeting back over to Dan.
Thanks Emory. I would now like to highlight some additional key accomplishments in fiscal 2014. In the Video business we added five new marketing customers including a global tier one telecommunication operator, a major Canadian telecommunication operator and several cable operators. In fact, we have more than doubled our customer list in the past 36 months with many new global accounts.
We’ve also extended our business with several existing customers including Time Warner Cable, Cox Communications, Charter and NOS. NOS formerly known as ZON launched a network DVR system with us in fiscal 2014. This system is currently deployed to more than 1 million customers across Portugal.
This is the first of the kind solution in Europe, and has demonstrated our ability to support the high transaction rates and demanding performance requirements of nDVR in a light field environment.
NOS continues to enhance and evolve their system, and we continue to work closely with them to support their growing subscriber base. We are also selected by Get in 2014 to provide their IP-content delivery networks solutions throughout Norway. Like a growing number of service providers in Europe, Get is facing competition from OTT services like Netflix.
Concurrent has worked cooperatively with Get to support their multistream strategy and expand their presence on new devices. Our experience working with Get helps us to serve other operators in the region who are facing the same challenges on our in the search of a solution. We believe, we are well positioned to assist service providers in crafting their response strategies and deploying solutions that can help them compete more effectively.
In May, we announced our support for Ultra High-Definition video content on our video solutions. Ultra HD is a technology that enables much better picture resolution on compactable televisions and consumer electronic devices. 4K Ultra High-Def content requires upto 4 times the storage and streaming capacity as that of Standard High-Def content. And Ultra High-Def with 8K resolution requires upto 16 times that of Standard High-Def.
Consumer demand for higher quality video [growing] which is driving our customers to prepare for the new content formats. According to IHS, Ultra High-Def TV shipments are projected to grow to 14.5 million units this year up from just 2 million in 2013 and a survey of U.S. and European consumers conducted by strategy analytics found that greater than half of the survey population intended to buy an Ultra HD television in the next two year.
The adoption of Ultra HD content by service providers will translate into substantial increase in streaming and storage capacity required to support these higher resolutions and we have enhanced our products to support this trend.
We also introduced a new training program for customers to help them launch over the top video services and provide better service to their customers. Concurrent has extensive expertise in both classic and IP video technologies and is uniquely positioned to assist our customers in every stage of planning and execution for new and expanded service offerings.
In Real-time as I mentioned earlier, we added a number of the worlds leading automotive companies and several formula one racing teams extending the range of simulation applications powered by our real-time solutions. We also saw increased opportunities in the energy sectors, specifically in wind power. Our solutions enabled complex systems to be modeled, tested and optimized in a lab rather than in the field saving cost and improving the efficiency of the overall system design.
Our project from the energy sector was recently completed for Clemson University. Clemson is using our SIMulation Workbench solution to power test rigs used to test next-generation wind turbine and understand the efficiency of blade designs. In summary, we are pleased with the solid progress we made throughout fiscal 2014.
And our final note, Concurrent will be at the IBC 2014 Trade Show in Amsterdam on September 12 through to 16 and at the Cable-Tec Expo in Denver, Colorado on September 23rd to the 25th where we will showcase our new transparent caching solutions, our unified content delivery system and our video analytics software. We hope to see you there.
Thank you all for joining us this afternoon and for your continued interest in our company. Operator, we will now conclude the call. Thank you.
Thank you. That does conclude our conference for today. Thank you for your participation and for using the AT&T Executive Teleconference Service. You may now disconnect.
[No Q&A Session for this event]