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Concurrent Computer Corporation (NASDAQ:CCUR)

F4Q08 Earnings Call

August 19, 2008 10:00 am ET

Executive

Kirk Somers - Executive Vice President, General Counsel, Secretary

Dan Mondor - Chief Executive Officer and Director

Emory Berry - Chief Financial Officer, Executive Vice President - Operations

Bob Chisholm - Chief Technology Officer

Jim Brickmeier - Vice President of Product Line Management

Analyst

Alan Davis - D. A. Davidson

Todd Koffman - Raymond James

Murray Arenson - Janco Partners

Rangan Natarajan - Galleon

Operator

Welcome to the Concurrent Computer corporations fourth quarter and fiscal year 2008 earnings conference call. (Operator Instructions) I would now like to introduce you host Kirk Somers, Executive Vice President.

Kirk Somers

Welcome to Concurrent’s earnings conference call for the year and quarter ended June 30, 2008. The format for this mornings call will be as follows. Dan Mondor, Concurrent’s President and Chief Executive Officer will pick up the call with some initial remarks about the year, Emory Berry our Chief Financial Officer, will provide a detail review of the financials for the year and the fourth quarter and will give some color on those financials.

Then Dan Mondor will comment on the coming year and the steps for taking to improve the business. Following our scripted comments we will be pleased to take you questions. We also have Bob Chisholm, our Chief Technology Officer and Jim Brick Meyer our Vice President of Product Line Management with us today. They will be available to answer questions following the prepared remarks.

Before we begin please let me remind you that this presentation may include forward looking statements such as believes, expects, estimates, anticipates and other similar expressions. These statements are made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995 accordingly the cautionary savings made in concurrence in 10-K filed August 31, 2007 and are incorporated herein by reference. The company’s actual results could differ materially from the forward looking information in this presentation.

The content on this webcast contains time sensitive information that is accurate only as of the day to this live broadcast August 19, 2008. Any redistribution, retransmission or rebroadcast of this presentation in any form without the express written concern of concurrent is prohibited. I caution you that any forward looking statements made by the company are not guarantee of future performance and that variety of factors could cause the company’s actual results and experiences to differ materially from the anticipated or projected results which the company may discuss on this call.

You should all have a copy of the earnings release document, if you have no received a copy please call Sandra Dover at 678-258-4112 and she will be pleased to provide you with the copy. With that said I will turn it over to Dan.

Dan Mondor

I would like to start with some comments on our progress over the past year. After Emory’s review of the fourth quarter and full year results, I will provide comments on the steps we are taking to strengthen the business going forward.

Concurrent enjoyed a year of tremendous success in both on-demand and real time. Regarding on-demand we log several major wins and expansions, the strong indication of performance and value of our products and our customer support capabilities. Activity in the North American market was robust. Early in the year we announced a long-term master purchase agreement in which Cox Communications selected Concurrent as their exclusive video server vendor displacing our competitor.

We had increased activity with Time Warner, displacing competitors at several sites including the recent win of the Los Angeles and San Diego markets which we believe will comprise the world’s largest on-demand deployment when completed.

Other noteworthy business included the Orlando and Tampa divisions of bright house. Notably we believe the deployment at Tampa is the world’s largest start over market. We also had significant back office business with the deployment of our MH BOSS back office in conjunction with expansions at Videotron in Canada and J-Com in Japan.

We are also encouraged by increased on-demand opportunities in the international markets. During the past year Concurrent captured new on-demand opportunities around the globe with wins in Asia, Eastern Europe and Latin America. Our previously announced initiatives to expand international sales and marketing efforts has began to pay-off with increased business and greater recognition in the rapidly growing international marketplace.

Our product development strategies are continuing to lead the market. Our MediaHawk Content delivery system set new industry benchmarks for performance and reliability. As a result we believe we are the market share leader for Time Warner’s, start over service due to the superior inject capabilities of our solution. The MediaCache 1000, the first commercially deployed solid state on-demand storage solution based on the flash technologies has gained strong market acceptance.

Our MH BOSS back office product is gaining traction in several new markets. We announced our NH pilot web offering platform which was deployed by J-Com in Japan. Our product development initiatives are aligned with the emerging market trends such as Network DVR, Advanced Advertising and HD content which we expect will drive inject streaming storage and analytics requirements to new levels. We are confident about our growth prospects in this market

Now on to our real-time product line, we continue to identify new opportunities including design and simulation applications in the aerospace and automotive industries. Our products were deployed for a variety of mission critical commercial and military applications with leading international businesses including Airbus, Lockheed Martin, Saab, Hyundai and the aerospace divisions of Mitsubishi and Kawasaki to name a few.

Our ability to provide leading edge image generation simulation and data acquisition platforms to industry leading companies demonstrates the level of performance and dependability that Concurrent provides. Our RedHawk real-time Linux product continued to gain traction in the marketplace for highly deterministic and precision applications. In summary, it has been a tremendous year for Concurrent, our efforts in both on-demand and real-time resulted in significant improvement in our overall financial performance, including year-over-year increase in revenue as well as the 700 basis point improvement in gross margins over last year’s results.

We also continue to strengthen our balance sheet with over $7.5 million in cash flow from operations in 2008. I’ll now turn the call over to Emory Berry to highlight our reported financials for the year and quarter as released this morning. Emory

Emory Berry

Earlier today we reported our consolidated results for the fourth quarter and fiscal year 2008, and I would like to highlight these reported results with you. We reported revenue for the fourth quarter of fiscal 2008 of $17.6 million including $10.1 million for on-demand and $7.5 million for real-time. Our revenue reflected a 9% decrease in overall revenue from the previous quarter, it was primarily attributable to the of timing and larger on-demand customer orders.

Overall gross margins of 54% were achieved in the fourth quarter, which were inline with fiscal year’s gross margin. Our operating expenses increased slightly to $10.8 million as compared to $10.5 million in the previous quarter, a 2% increase. This slighter increase resulted primarily from sales and marketing trade activities during the fourth quarter. As a result, we ended the quarter with an operating loss of $1.3 million. The operating loss for the quarter included $879,000 in depreciation and amortization, 224,000 in non-cash share-based compensation expense and $273,000 of severance expenses.

Our fiscal 2008 results reflected revenues of 70.89, a 2.4% increase over fiscal 2007. 2008 was a point of inflection for us in so many ways and the increasing revenue profitability is our top priority. As important as top line revenues are for us gross margins are also our priority. Our focus on innovatively improving the technology of our products combined with software sales and managing our cost of products improved our gross margins from 47% in fiscal 2007 to 54% in fiscal 2008.

We continue to improve profitability by reducing our operating expenses by over $2 million in fiscal 2008, by balancing our innovation and support for our customers, whit lowering our expenses to run the business more efficiently and profitably. As a result of increase in our revenues, improving our margins and lowering our operating expenses we were able to improve the operating profit by $7.9 million in fiscal 2008.

This improvement in profitability coupled with Vicor and C-COR settlements of $3.3 million resulted in Concurrent reporting net income for the year of $0.03 per share as compared to a net loss of $1.67 per share in the prior year as adjusted for the reverse stock split.

We finished fiscal 2008 with a strong financial position, our overall cash position improved by over $6.9 million, primarily as a result of our operations which generated over $7.5 million in positive cash flow from operations, including $1.9 million in Vicor settlement. At the end of fiscal 2008, we had approximately $27 million in cash and $25 million in working capital. Our cash balance at June 30, reflects cash for each weighted outstanding share of $3.29.

In addition on June 23, our Board authorized the company to repurchase up to $2.5 million in common stock. Shortly after our earnings release, our window for repurchases will open and we have a plan in place for future repurchases.

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

Dan Mondor

As we had previously described, the Concurrent management team is focused on driving profitable revenue growth and is making transformational changes to strengthen our business. Our initiatives our designed to sharpen our go to market strategies to better address business opportunities in the near-term and to improve overall financial performance.

As mentioned, we expanded our sales and marketing efforts particularly in international markets and had new sales leadership appointments in Europe and Asia. In addition of my prior comments, we have recorded a recent significant win with a leading European cable operator in Southern Europe. We believe these changes allow us to better address new opportunities in these regions and will increase the percentage of our business to thrive from the international markets.

In order to sharpen our focus on investment opportunities, strategic partnerships and alliances to complement Concurrent’s core technologies and expand our market reach, we have consolidated marketing under the CMO office for which we are actively recruiting. As we announced in July 16, Jim Brickmeier was appointed Vice President of Product Line Management reporting directly to me.

This new organization is responsible for product line strategy and lifecycle management. A strong product management organization is essential to drive revenue growth, fuel innovation and increase profitability. On August 5, we announced Emory Berry has been appointed as Concurrent’s CFO and EVP of Operations. Emory had been serving as Concurrent’s Chief Financial Officer since March 2007, through a contract with Tech CFO. Emory has been instrumental in improving the financial and operational performance of the company over the last 18 months. We are delighted to have him on board and look forward to his continued contributions.

Our professional services organization responsible for the implementation and commissioning of Concurrent products has been realigned to provide increased value to our customers. The transformation of our professional services organization is an important step to being more response of the customer needs.

Service is the key differentiator for Concurrent and we expect to better leverage it going forward. Under the realignment and creation of the office of the CMO as previously mentioned, we are focused on the development of a long term strategic plan. This is being supported by several industry related business consulting firms who are providing expert guidance in the area of new market assessments, product strategy and financial analysis. We will provide updates as we progress through this process.

Our strong market position and demonstrated expertise in the on-demand industry has positioned us to participate in emerging advanced advertising opportunities. Our on-demand and Everstream products are very relevant to the delivery of targeted advertising content. Advanced advertising of strategic initiative within the cable industry has received much attention in recent months especially, with respect to the new initiative. Our products are an excellent fit for this emerging industry and we are engaging with several customers as they develop their advanced advertising plans.

In addition, we are actively evaluating opportunities beyond cable in particular for Internet applications. As part of our strategic planning discipline, we identified two products that did not want further investment. This included our SUSE Linux Enterprise-Real Time and storage master. We determine that the resources applied to these projects would create more value, if utilize elsewhere within the company.

In conclusion, we are optimistic about our prospects for the upcoming fiscal year. There continues to be a strong market demand for Concurrent’s products and services globally. We have made structural changes to strengthen our ability to address opportunities and to drive sustain growth. We expect continued revenue growth and operating profit improvement in fiscal ‘09 compared to fiscal ’08. These improvements are expected to be stronger in a second half.

That concludes my prepared comments. We will now take your questions.

Question-and-Answer Session

Operator

(Operator instructions) and your first question comes from the line of Alan Davis of D. A. Davidson. Please proceed.

Alan Davis - D. A. Davidson

Just a couple questions here. First, could you breakout product sales for on-demand and real-time?

Emory Berry

It was $10.1 million for on-demand and $7.5 million for real-time.

Alan Davis - D. A. Davidson

And in the quarter and for the year, could you update us on Aegis 2 revenues?

Emory Berry

Aegis 2 revenues, we’ve got overall software sales in excess of the $1 million which Aegis is included in that piece.

Alan Davis - D. A. Davidson

Okay and Everstream is a book of that?

Emory Berry

No, there is no Everstream in that number.

Alan Davis - D. A. Davidson

Okay, what was the Everstream for the quarter?

Emory Berry

Everstream’s for the quarter was just under $1 million.

Alan Davis - D. A. Davidson

Okay, and just in terms of the, obviously your not giving guidance but in terms of expectations. Obviously it sound like storage mastered, those product plans are cancelled, but in terms of the averaging patents in targeted advertising, may be if you could just talk about expectations for the upcoming year for those, as far as monetizing those assets?

Dan Mondor

Its Dan here let me provide some commentary. So as I mentioned in our strategic planning effort we are focusing on assessing our assets in an electro property to deliver value to the shareholders and we believe that it’s best served by leveraging those assets for commercial products applications in order to grow the company. So, that is the focus of our attention and as I mentioned earlier those are centered on the advanced advertising initiatives relative to cable and as I also commented we are investigating the leverage of those assets for web based services as well. So that’s the area of our focus at this point in time relative to intellectual property.

Alan Davis - D. A. Davidson

And, meaningful this year, is that more of a fiscal 2010?

Dan Mondor

I think you know as we look at Advanced Advertising, clearly there is the (Inaudible) that we are heavily engaged in and well positioned and there are individual cable operator plans for advanced advertising initiatives. It’s too early at this point in time to provide a view on that in terms of timing and so we’ll see through the course of year how those develop and keep everyone informed.

Alan Davis - D. A. Davidson

Okay and then one last one here, maybe you could just update us on kind of the landscape in terms of the cable operator space, how the outlook for spending there and on-demand looks, or may have changed the last three months, how you’re positioned there and then lastly related to that does the Cablevision appeal when our network DVR change things or really are the people going to wait for that to be of help before they really accelerate spending on network DVR applications?

Dan Mondor

Yes, so I’ll provide some comments and maybe ask Jim if he wants to add to those, but if you look at certainly the Cablevision initiative and network based DVR in general. I mean we certainly look at it as positive development for Concurrent in other words it’s in our sweet spot and by a way of example that are start over capabilities which have already been deployed. So, I think as that plays out and moves forward we are very well positioned to benefit from that trend towards network based DVR.

I think in general if you characterizes it certainly has efficiency and effectiveness relative to the set-top box base and so we have solutions that satisfy the result of that, which we believe will be very high interest rates and storage capacity. So I would say in general we are very well positioned to take advantage of that. Dan, do you want to add?

Jim Brickmeier

Sure. We have made a variety of conversations with the operators and feedback we are getting as tot they are going to proceed cautiously on the NDVR applications, but as Dan mentioned, we are well positioned for that, and the common feedback that we’ve receive is that it does make a lot of sense to maintain a centralized storage architecture rather than placing hard disk drives in every home.

So there are a lot of advantages to this and assuming everything continues to be successful with respect to that verdict we expect that the cable operators will probably look strongly at NDVR application.

Operator

Your next question comes from the line of Todd Koffman of Raymond James, please proceed.

Todd Koffman - Raymond James

Thank you very much. Dan, if you look back at Concurrent’s last five or six years that the video-on-demand side really hasn’t ever grown and the companies is kind of perpetually been in this mode that it seems like there is an upgrade cycle and you’ve got a nice install base of equipment and you get every now and then some displacements in some upgrade activity and the commentary from the company is always been that it is a growth business, but it’s always typically about six months away.

Most earnings releases usually have the word timing issues in there, including this one and your comments suggest that you kind of now falling in the same view that about six months from now you think that the business, if I heard you correctly in your opening remarks will start to grow again. Historically, that’s never happened, why might that happen now with a fresh start in a fresh view from yourself as to why maybe the business could get on a growth path going forward? Thank you.

Dan Mondor

Okay, I appreciate your question. I think it’s a couple of things in terms of a response. There is no question the North American market is a tough and very competitive market for on-demand. Now having said that we certainly with respect to Cox and Time Warner as well as couple of other initiatives have certainly more than want our fair share and it is a timing related phenomena as those operators develop their projects and rollout product in the network.

So, there is timing related aspects to that, but the other part I wanted to highlight is that having recognized, if you will our dependence in the North American markets and in fact overall on an on-demand quite strongly. So, we are developing our plans and investing for growth internationally and I provided comment on that quite frankly purposely in that regard. So in terms of Europe and Asia we are very much focused on growth in those sectors and we expect overall down the road there would be a more balanced mix of business between North America and rest of the world as a result of those initiatives. Naturally, they are going to take time, but that is our strategy to mitigate if you will, the phenomena in our business profile in the past years.

Todd Koffman - Raymond James

This is a follow-up to that, since Concurrent’s are relatively small company with limited reach internationally and usually it’s somewhat expensive for a small company to chase those opportunities. Will you be doing that on your own or will you be seeking any partnerships or is that yet to be determined?

Dan Mondor

Well I think specifics are not, we’ve obviously not announced, so let me give some comments in general. As you know in Europe we have the existing relationship with Alcatel and we are placing increased emphasis on that partnership to develop business with the PTTs in Europe. I mentioned a couple of wins in Eastern Europe and our most recent one in Southern Europe with a major cable operator and that is the result of efforts with the direct sales activity reflecting some of the changes we made there.

So in Europe it would be certainly as a combination of partners and direct sales force, but even in that regard with partners you do have to spend attention to via direct sales with the partners. The other activities in Europe not yet announced in terms of increasing channel-to-market with partners. As you know in Japan we have a presence there in Tokyo and are actually looking at using that as a springboard to address at other parts of Asia, and in China and in Korea for instance and Taiwan.

We have had some success in Taiwan, but by and large in the market in China will be via partnerships and we have an executive in place there, who is a Chinese national and is developing our strategy for that. So, as you go around the world it is a combination of direct activity as well as partnerships appropriate to the market.

Operator: And your next question comes from the line of Murray Arenson of Janco Partners. Please proceed.

Murray Arenson - Janco Partners

Couple of questions. One, can you update us on just where your at in terms of start over deployments, how many markets and what you think that looks like opportunity wise for you over the next year and maybe comment on some of the individual major market opportunities you mentioned LA. Can you give us more color on that San Diego as well?

Dan Mondor

It’s Dan here. I’ll provide a couple of comments and then maybe Jim you could provide some in addition. So, as you know we mentioned Bright House Network's in Tampa and Orlando and certainly some of the Time Warner properties that are moving forward with that deployments. So, I guess firstly from a competitive point of view, I believe we are very well positioned and are leading the industry in that regard, maybe Jim, if you wouldn’t mind doing a little bit of around, Robin on the deployments and targeted deployments through the market?

Jim Brickmeier

Sure, we previously announced the Oceanic and Columbia, South Carolina as well as the Tampa deployments. We have a variety of other accounts about four other accounts here that are proceeding forward with start over deployment. We’ve seen a lot of activity within Time Warner on at front. They are definitely making a push towards getting this new application out there. So, we expect that all the divisions that currently have the Concurrent platform will be moving forward, will start over shortly.

Murray Arenson - Janco Partners

Okay and then can you also just clarify on your discussion on Novell real-time stuff are you banding in the NightStar tools as well?

Dan Mondor

No, that comment was specific to the relationship with Novell.

Jim Brickmeier

Yes, the NightStar tools offering will continue to work on that, that’s been a sort of a product that’s under go to our support and services organizations for a longtime.

Operator:

(Operator instructions) and your next question comes from the line of [Rangan Natarajan of Galleon]. Please proceed.

Rangan NatarajanGalleon

I had a quick question on the press release you’ve talked about the orders being flipped from this quarter. Doesn’t it mean that we should expect these orders kind of in the next fiscal quarter?

Dan Mondor

Maybe Emory you could provide some comment on that.

Emory Berry

Sure, yes as far as the timing certainly there are opportunities that moved from one quarter to the next, but just as we’ve announced with the Time Warner, San Diego and Los Angeles wins, the timing of those has happened over a period of time. So, certainly there is some in this quarter and then following on, so nothing dramatically shifting in one particular quarter, but rather the lump sum throughout fiscal 2009.

Rangan NatarajanGalleon

Right, I also wanted to follow up on some Todd’s questions which is it always seems like the recovery is indeed six months out and during the call you talked about thinking about ways to enhance shareholder value, have you considered looking at strategic partnerships potentially putting the company up for sale because the company really has gone nowhere in the last two to three years?

Dan Mondor

Well, we can’t really comment on that for say, we are focused on executing the business and I think as indicating we are winning more than our fair share. There are certainly challenges as the cable operators execute their project plans of rollout product, but I think through that its not a scenario competitive won, lost it’s a scenario of timing and so we have the business won and we are obviously working with the cable operators to achieve timing deployment.

Sometimes it doesn’t all work for the schedule you anticipate, so that’s the bad news but the good news it isn’t business lost. So we just have to execute and follow the plans in concert with our customers.

Rangan NatarajanGalleon

Well let me just push back a little bit, your revenues were downtown 10% sequentially. If I look at your revenues over the last three years you’ve had negative growth rates, so this is on a one quarter phenomena and I guess I would just be curious whether you have been approached by other parties to see whether the space to be consolidate has it been strategic discussions of other parties approached here?

Emory Berry

This is Emory, I think Dan’s already reiterated we can’t ever comment on those type of activities right but…

Rangan NatarajanGalleon

No I understand, but I would hope that in such a case you would let shareholders know if you have been approached, so we could make the right decisions. Because its sounds like the company might not have its interest inline with shareholders, so I just want to make sure that we’re all on the same page on that?

Emory Berry

I think that you’ve seen the progress that we have made in fiscal 2008, maybe that something that you’re not interested in focusing on but we improved revenues in 2008, and we improved margins in 2008. We lowered operating expenses in 2008 and we were overall profitable in 2008. The balance sheet was strength and cash flow was improved there has been progress, there has been an active effort to continued to drive the business to continue to grow the business and as Dan stated, we are looking into grow revenues profitable in 2009, we are focused on that we’ve taken initiatives on that, we have the strategy for that and so we are moving to that end.

Rangan NatarajanGalleon

I guess the question would it be. Would it fair that if the company was approached by strategic buyer you would make that aware to shareholder, so we could both in the best interest of all shareholders.

Emory Berry

Ranga we are simply not going to comment on that, thank you for your question on that matter.

Operator

And gentlemen you have no further question at this time.

Dan Mondor

Thank you for joining us on today’s call. We think we're well-positioned to move forward and we're excited about our prospects. Thank you and have a good day.

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