Concurrent Computer Corporation (NASDAQ:CCUR)
Q2 2016 Earnings Conference Call
February 9, 2016 4:30 PM ET
Davina Furnish - General Counsel and Corporate Secretary
Derek Elder - President and Chief Executive Officer
Emory Berry - Chief Financial Officer and Executive Vice President of Operations
Manoj Nadkarni - Chip Investor Group
Welcome to Concurrent's Earnings Conference Call for the Fiscal 2016 Second Quarter Financial Results. This call is being recorded for replay purposes and is being webcast via the Internet at www.concurrent.com. The webcast can be found under the investors tab in the About section of the site.
I would like to introduce Davina Furnish, Concurrent’s General Counsel and Corporate Secretary. Ms. Furnish, you may begin.
Thank you, Operator. Good afternoon and welcome to Concurrent's fiscal 2016 second quarter earnings conference call for the period ended December 31, 2015. With me today is Concurrent’s President and Chief Executive Officer, Derek Elder; 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, which are made pursuant to the Safe Harbor provision of the Private Securities Litigation Reform Act of 1995. These statements are not a guarantee of future performance, and a variety of factors could cause our Company’s actual results to differ materially from the information discussed on this call. For further information please refer to our recent 10-K and 10-Q filings with the Securities and Exchange Commission.
The content of this webcast contains time-sensitive information that is accurate only as of the date of the broadcast, February 09, 2016. Any redistribution, retransmission or rebroadcast of this call in any form without the expressed written consent of Concurrent is prohibited. You should all have a copy of the earnings release for Concurrent’s fiscal 2016 second quarter results. If you have not received a copy, please visit the Company’s website at www.concurrent.com and find a copy in the Investors Section under the Company tab.
Derek Elder will now provide an update on our business.
Thank you Davina. Good afternoon everyone and thank you for joining us to review our fiscal 2016 second quarter results. In the second quarter, revenues were $14.9 million which was roughly flat to the prior year period adjusting for the sale of our video analytics product line and up 11% from the prior quarter.
Gross margins were 62.9% and adjusted EBITDA increased to [$287,000]. Sales continued to improve over the prior two quarters as we continued to win new customers and grow our existing footprint. Gross margins benefited from a favorable product mix including increased software license sales.
We are encouraged by our progress; some customer spending decisions do continue to delay. We are adjusting our full-year revenue expectations to a range of $58 million to $60 million. In the meantime, we are winning new customers and we are taking market share from our competitors in a challenging market.
In our content delivery business, we successfully displaced an incumbent competitor and a major service provider and expanded our footprint with the number of existing customers during the quarter. We are seeing emerging opportunities as our customers evaluate new architectures for IP content delivery and network-based DVR that will continue to leverage our product differentiation and drive customer CapEx over the next several years.
In our real-time business, we continue to grow our opportunities in the automotive simulation market, which has helped to offset softness in the defense and aerospace areas over the past few years. Our real-time Linux OS and SIMulation Workbench solutions are at the core of these simulators providing a more open framework that is offered by traditional vendors.
In the second quarter, we added another large European automaker to our customer list and continued to make progress with existing customers. We are also making good progress with our Aquari scale-out storage solution. We continue to achieve our internal milestones for technical validation and recently released our 2.0 version of the solution which expands our feature-set in the used cases that we can address.
We are also achieving our market validation milestones, which include expanding our customer base, sales presence and channel partner footprint. Our solution is in service at multiple customers and we are now in trials with several additional large service providers both internationally and domestically.
In the second quarter, our Aquari solution was selected by another large European cable operator to support their next-generation video services. We continued to see strong interest from customers for our solution and have begun to expand our sales force in R&D team to address new storage opportunities outside of our traditional market.
I’ll provide some additional comments in a minute. I’ll now turn the call over to Emory Berry, our CFO to review the financials.
Thank you Derek and good afternoon. Our revenue in the second quarter of fiscal 2016 was $14.9 million, compared with revenue of $16 million in the same period last year and $13.4 million in the previous quarter. Of the $1.1 million increase between years revenue from our multi-screen video analytics product lines sold in September represented almost a $1 million or substantially all of this decrease.
Turning to our product line revenue details. During the second quarter of fiscal 2016, our content delivery revenue was $8.6 million or 58% total revenue compared to $8.6 million or 53% in the same period last year and $6.4 million or 48% in the previous quarter. The balance represents our real-time revenue, which was $6.3 million for the second quarter of fiscal 2016, compared to $7.4 million in the same period last year and $6.9 million in the previous quarter.
Consolidated gross margin for the fiscal 2016 was 62.9% compared to 55.1% for the same period last year and 58.8% in the previous quarter. Gross margin improvements during the quarter were due to a favorable product and services mix.
Total operating expenses for the second quarter were $9,734,000, which were up 3.9% from the second quarter last year and up 8% from last quarter excluding the gain on the sale of the video analytics business. In the current quarter comparison over previous year's quarter consolidated operating expenses increased primarily due to our continued investment in R&D to support our new product and strategic growth initiatives.
For the second quarter of fiscal 2016, we reported an operating loss of $358,000 compared to an operating loss of $563,000 in the same period last year. Overall, our net loss was $283,000 for the second quarter fiscal 2016 equal to a $0.03 per diluted share compared with a net loss of $543,000 or a $0.06 loss per diluted share in the same period last year.
Turning to our non-GAAP metrics. We provided a reconciliation of our GAAP to non-GAAP metrics in our earnings press release, which reconciles our net income to adjusted EBITDA. In the second quarter of fiscal 2016, our adjusted EBITDA was positive $287,000 as compared to $16,000 in the same period last year and negative $554,000 in the previous quarter.
The improvement in EBITDA between years was impacted by higher gross margins from a favorable product mix in the current year. The negative adjusted EBITDA last quarter was impacted by lower revenues in that quarter. And providing some highlights from our balance sheet, the Company's financial position continues to remain strong with no debt.
We finished the second quarter of fiscal 2016 with cash of $21.3 million and $26.5 million in working capital versus cash of $25.5 million and $26.5 million in working capital at the end of last fiscal year. Lastly, during the quarter the Company continued paying a quarterly dividend of $0.12 per share.
Now, I would like to turn the call back over to Derek.
Thank you, Emory. I would like to take this opportunity to highlight that Concurrent is celebrating its 50th anniversary. Our Company was founded to serve the high-end computing market and for half a century our products have remained on the cutting edge with the hard work and dedication of our employees.
The Company's ability to continuously innovate and break new ground in emerging technology areas has enabled Concurrent to succeed decade after decade. The spirit of innovation and thought leadership has reflected today in our current growth initiatives. We are taking advantage of our long heritage and high-performance storage and operating systems to develop new business areas that will help to ensure Concurrent remains relevant and successful for the next 50 years.
I would like to extend my sincere appreciation to all of our current employees to those who have worked for the Company over the years, to the many customers who have helped to fuel our business and to the investors [indiscernible] success.
Now, Tom we’ll go ahead and open the bridge up for Q&A.
[Operator Instructions] Our first question is from the line of Manoj Nadkarni with CIG. Please go ahead.
Hi, good afternoon. Sequentially compared to the September quarter you had nice revenue gains, all of these came from content delivery segment, right?
Yes. That’s right Manoj.
Yes. Can you give some color on where you saw strength geographies wise and applications wise?
Yes. This is the way this business kind of works, it’s really project driven and the strength of the revenue we need to one of the businesses is really driven by when these projects close and these are fairly long sales cycles. So as we’ve issued the Q, it should be out on the wire this afternoon and I think you’ll see that the strength is within North America was - primarily those customers have.
Okay. Very good. Regarding your real-time solutions you have some strong product offerings for automotive applications and in parallel there’s so much work going on for self-driving cars, which need real-time processing. So are there any of your products being used for this application. And secondly, in general what are your thoughts about applicability of your real-time products for self-driving?
So we really look at the automotive market as three different markets, where we’re most successful today is man-in-the-loop simulation where which is primarily driving simulation and test where there is a human involved in testing the system. The area that we see as a growth opportunity for us is hardware-in-the-loop simulation, which is where subsystems of the automotive system are tested together against the electronic control units of the car and that's a much larger addressable market than man-in-the-loop.
The third phase is exactly what you're talking about which is the autonomous vehicles and in all three of these solutions depend on hard real-time operating systems, hard real-time hardware and when we talk about hard real-time we talk about basically processors being able to make decisions in 50 microseconds or less and you can imagine a car that might be about to go off a cliff or run over someone being able to make a decision in 50 microseconds or less is really important.
So we have an initiative, an internal initiative with our RedHawk operating system to target the embedded market for autonomous vehicles. It's going to be some work to get there because the work we do today in man-in-the-loop and hardware-in-the-loop is big iron and the autonomous vehicle work while the fundamental technology is the same as embedded. So we have work going on to target the market today.
Very good. And so in terms of customers in the automotive market can you elaborate, you have customers in the United States or Europe or…
You can look on the website I don’t have the list of customers up here now, we have a number that are unnamed. I think we mentioned in – more in the prior calls we had 20 of the global automakers and we’ve added more since then. So we have most of the big guys and we are doing a lot of work with them as I mentioned in there man-in-the-loop driving simulation is they are developing their cars, they run the car models and simulation that are attached to steering wheels and gas pedals and clutches as you can imagine and test the driving feel of the vehicles.
So that’s where we’ve been really successful today and the next area is getting a lot of focus from us is extending from the man-in-the-loop simulation to hardware-in-the-loop which is a couple of hundred million dollar addressable market opportunity as a very linear progression of our success in that market and then the upgrades are little bit further to classes is in the autonomous vehicles.
Good. Could you Derek give us some qualitative – if you could make qualitative comments on what you see for your two major business segments, content delivery and real-time for the calendar year 2016?
So we’ve provided high-level guidance that shows we expect growth in the second half. I think the growth is balanced across the businesses candidly. I think that the pipeline in the real-time business is developing nicely as well as in the content delivery business. So I don’t think in the balance for the second half we really see one business really outperforming and the business underperforming or vice versa I think we’re going to see kind of balanced performance as what it looks like in the second half and then the storage business has started to get its legs under it in the second half a little bit as well.
And when you say second half you're talking about fiscal year or calendar year?
I speak in fiscal year. I’m talking about through June 30.
Okay. And then I had just one question for Emory. Did you have any stock compensation expense and if so how much?
We did. We had about $215,000 of stock compensation expense in the quarter.
And you can see that in the press release under the non-GAAP adjusted EBITDA reconciliation in the press release.
All right. Thank you.
Thank you so much.
End of Q&A
[Operator Instructions] And there are no questions in the queue. Please continue.
Okay. Well, thank you Tom. Well in conclusion, I’d like to highlight will be exhibiting our latest content delivery in Aquari storage solutions at the National Cable Television Cooperative’s Winter Educational Conference & Technology Showcase in Phoenix, Arizona on February 15 and 16. We’ll also be exhibiting our real-time simulation technology in Aquari storage solution at APEX Users Conference in New Orleans on February 22 through 25. So if any of you were there we look forward to seeing you. Thank you very much for joining us today and Tom will now conclude the call.
Ladies and gentlemen, this conference will be available for replay after 6:30 PM Eastern to midnight on February 23, 2016. You may access the AT&T teleconference replay system at anytime by dialing 1-800-475-6701 and using access code 385227, international participants please dial 1-320-365-3844. Those numbers again are 1-800-475-6701 and 320-365-3844, access code 385227. Thank you for your participation and for using AT&T teleconference. You may now disconnect.
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