Q4 2019 Earnings Call
Welcome to de Sirens fourth quarter 2019, earning call.
All participants are they listen only mode. A brief question and answer session will solve the oral presentation. If anyone should go fire up radar systems. During the conference. Please press star zero on the telephone Keypad. As reminder, this conference is being recorded and it's now my pleasure to introduce your host Mr., Eric Bendel General Counsel. Thank you you may begin.
Thank you and welcome to fire its fourth quarter and full year 2019 actual results conference call. This call is being brought that's why it can be accessed on Investor Relations section sovereign web site.
Before we begin please let me remind you that during the course of this conference call assignments management may make forward looking statements. These forward looking statements are based on current expectations that are subject to a number of risks and uncertainties that may cause actual results to differ materially from expectations. These rents are outlined in the risk factor section.
As you see filings, including our annual report.
On form 10-K filed on March 29, 2019.
Any forward looking statements should be considered in light of these risk factors. Please also note that the safe Harbor any outlook, we present it as of today and management does not undertake any obligation to revise any forward looking statements in the future.
Also during the course of this conference call. We made a non-GAAP measures, we're talking about the company's performance reconciliations the most directly comparable GAAP financial measures are provided in the tables in the earnings press release issued today and available on the Investor Relations section of our websites. These financial measures are included.
For the benefit of investors should be considered in addition to not instead of GAAP measures. Joining me on today's call Yeah, Brett Jackson, Chief Executive Officer, and make Maestro Chief Financial officer with that I don't know hand, the call overcome Brett.
Thanks, Eric.
Like the thank everyone for joining the call today to discuss our results.
The second half of 2019 was a transition period for Cyren with new leadership, a revised strategy with a top priority to increase growth, especially in the enterprise market.
In our last earnings call I outlined the specific elements of our growth strategy and let me summarize. These for you first we'll refocus on our threat intelligence business and expand our penetration of the OEM market for more aggressive new customer acquisition, we have a broad portfolio product offerings, great customers at a large stable recurring revenue base to build the.
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Second we will expand our threat intelligence services beyond our traditional OEM market into the much larger enterprise market with a total addressable market that we estimate to be five to 10 times larger.
We will leverage existing technology, including our global view cloud platform and enhance for repackage several existing products that will enable us to bring differentiated offerings to market quickly.
Third we will bring to market. Our next generation email security Cyren Inbox security to address the growing fishing problem among officethree hundred 65 enterprise customers.
This product will provide a critical additional layer of protection be on existing secure email gateways.
I read Inbox security has been in use by early adopter customers for the last several months and based on very positive feedback, we expect general availability to be at the end of April inline with our forecast post launch we will focus on building market share as quickly as possible.
These key initiatives leverage our core strengths and are expected to drive more growth and more importantly, create new revenue streams from the enterprise market based on these initiatives, we see an opportunity to grow a our are significantly over the next three years and increase shareholder value in a meaningful way. It is important to note that our Q4 results didn't.
Flood reflect any contribution from these new growth initiatives.
Our team is fully engaged executing our plans and we are on track to achieve our Q1 milestones we expect to see initial customer traction in the second quarter with more material contribution to bookings and they are in the second half.
Let me move onto the topic that is on everyone's mind, the cobot 19 crisis and the impact on economies and businesses around the world.
We all know this is an unprecedented situation and like other businesses. We are monitoring the situation across all the countries where our teams are located.
The health and wellbeing of our team members is our top concern and we all are all working remotely for the foreseeable future and adapting to a new normal.
We fully intend on continuing to deliver a high level of service to our customers and will move forward with our strategy and plans as aggressively as possible.
Of course, we will continuously monitor the crisis and the impact that may have on our business I believe that organizations will continue to keep cyber security a high priority even in difficult economic conditions as a matter of fact, our threat research teams have noticed a significant outbreak of attacks exploiting cobot 19.
With that said, we will be prepared to make adjustments to our business, including expense reduction if and when necessary. It is important to note that management had already implemented expense reduction measures earlier this year in order to reduce our 2020 cash burn.
Last week, we announced that Cyren raised $10.25 million through a convertible debenture private placement, we made the decision to raise capital after our November rights offering fell short of target the new capital will be used to support our new strategy and key growth initiatives more importantly in light of the cobot 19 crisis.
And challenging economic conditions ahead, the additional capital will also better enable us to weather the storm and keep Cyren moving forward.
I will now turn the call over to Mike who will go through the fourth quarter and 2019 financials.
Thank you Brett and good morning, I'm pleased to present, our fourth quarter and full year 2019 financial results for more detailed results. Please refer to the earnings press release that was issued earlier today and is posted on the Investor Relations section of our website.
Please note that we per night present, our financials under us GAAP accounting standards, including non operating expenses and then I will discuss certain financial metrics on a non-GAAP or adjusted basis, which excludes non operating items. Please refer to the table in today's earnings release for a reconciliation of our GAAP to non-GAAP result.
GAAP revenue for the fourth quarter of 2019 was $9.5 million, an increase at $17000 compared to $9.5 million reported during the fourth quarter of 28.
Full year, 2019 revenues were $38.4 million compared to $35.9 million for the full year 2018.
An increase of 7% year over year, and a two year compound annual growth rate of 12%.
2019 revenue was split approximately 81% in our threat intelligence, OEM business, and 19% and our enterprise business and for the full year revenue was approximately 47% in Americas, 46% in EMEA and 7% in Asia.
GAAP gross margins for the fourth quarter were 57% compared to 59% during Q4 2018 and for the full year GAAP gross margins remained flat at 59%.
On a non-GAAP basis gross margins were 68% compared to 69% during the fourth quarter 2018 and for the full year 2019, GAAP gross margins were 69% compared to 70% a year ago.
Fourth quarter GAAP net loss was $5.3 million or loss of nine cents per basic and diluted share compared to 5.6 million dollar GAAP net loss and 10 cents per share during the fourth quarter 2018.
For the full year GAAP net loss was $18 million a decrease from an that lots of $19.4 million during 2018.
GAAP operating expenses for the quarter totaled $10.7 million down from $11 million during Q4 2018.
The year over year decreasing GAAP operating expense is due to a decrease in R&D expense a decrease in sales and marketing expense.
R&D expense with $3.8 million this quarter, representing 40% of revenue compared to $4.8 million. During Q4 2018, when it was 50% of revenue.
The decrease in R&D expense is attributed to higher R&D capitalization of technology related to our new product development efforts, which are scheduled to be released during Q2 and later in 2020.
Sales and marketing expense for the quarter was $3.4 million were 35% of revenue down from $4.1 million, representing 43% of revenue during the same quarter last year.
DNA expense for the quarter was $3.6 million or 37% of revenue compared to $2.2 million or 23% of revenue during the fourth quarter 2018.
This one time increase egina expense during the fourth quarter, largely a result of illegal settlement with the former vendor that was resolved during the fourth quarter 2019 for the full year R&D expense decreased to 41% of revenue from 45% in 2018.
Sales and marketing was down to 36% of revenue compared to 45% in 2018, and Jay expense increased to 28% of revenue compared to 23% during 2018.
Total head count in the company finished 2019 at 248 employees compared to 278 at the end of 2018.
During Q1, we have taken additional steps to reduce headcount to around 230 employees in an effort to decrease overall expense in the business.
On a non-GAAP basis Simons fourth quarter 2019, net loss was $3.3 million or lots of six cents per basic and diluted share down significantly from a non-GAAP net loss of $4.4 million, an eight cents per share during the fourth quarter 2018 for the full year sirens net non-GAAP.
Net loss decreased to $15.3 million or 28 cents per share compared to $16.1 million or 30 cents per share in 2018.
Sirens non-GAAP net loss excludes a number of noncash items, including the effect of stock based compensation amortization of intangible assets and capitalization of technology.
As well as the onetime legal settlement during the fourth quarter, which was included in the GAAP results.
Please refer to the table in our press release for more details on the reconciliation of GAAP to non-GAAP results.
During the quarter, we had operating cash usage of $4.6 million compared to operating cash usage of $5.6 million during the fourth quarter of 2018 overall cash increased from $9.5 million at the ended the third quarter to $11.6 million at ended the fourth quarter as a reminder, during the fall.
Third quarter, we closed a rights offering total totaling approximately $8 million net proceeds from our existing investors.
We originally size the fourth quarter rights offering at 12, and a half a million dollars during the summer of 2019.
This offering was priced at a premium to market and as a result, we receive gross proceeds of just over $8 million or roughly $4.5 million short of our target.
We recognize that this shortfall in conjunction with the overall economic slowdown during Q1 2020 could presented liquidity challenge for the business looking out 12 months into early 2021.
For those reasons, we decided to pursue additional capital in the form a convertible debentures, which we announced in closed last week.
On March 17th we announced $10.25 million of aggregate principal amount of convertible notes in a private placement, which subsequently closed March 19th with net proceeds of approximately $9.6 million.
The notes carry a 5.75% coupon payable semiannually and cash rent or shares and have a four year term, which matures in March 2024.
The debentures have a conversion price of 75 cents per share and our convertible into 1300 33 ordinary shares per 1000 dollar principal investment.
The conversion price may be subject to adjustment based on the price and timing on future equity offerings and other customary adjustments.
We believe the cash proceeds from the debentures will provide us ample liquidity to operate the business until mid to late 2021, despite the economic slowdown associated with the ongoing Togut 19 crisis.
The investor presentation that was used in the offering was included in our 8-K filing on March 17, and a copy of the presentation is available on the Investor Relations section of this hiring website.
I'll now ask the operator to open up the lines for Q anyway.
Thank you will now be conducting a question and answer session. If you would like to ask the question. Please press star one telephone keypad.
Information tone would indicate your line is in the question Q.
Chris start to see but your with your question from the Q for participants do you think speaker equipment, maybe necessary to pick up your handset before pressing the star Keith one moment. Please.
Your questions.
Our first question comes from the line of Chad Bennett with Craig Hallum. Please proceed with your question.
Great guys. Thanks for taking my questions.
Brett.
Maybe for you first just on the.
And the enhanced focus or strategic sows focus with the threat intelligence products into the the OEM market.
I know you've you've certainly talked about this.
Certainly after that time he joined.
Where are we in I guess, how should we think about that OEM business.
Maybe from our our growth rate standpoint, not necessarily revenue rack.
As we kind to get into the second half of the year here.
I think.
First off I think the.
We are the company was not as focused on new customer acquisition in the prior several years in the OEM space. So the opportunity we see is to be far more aggressive we think theres a bigger market opportunity there.
And I don't see dramatic growth in that space, but I think there will be the opportunity for good growth good a our growth.
It just takes we know well we've got a good brand and we think there's a lot of additional opportunity the more important point I think related to the threat intelligence shed is.
The our desire to expand into the enterprise market, which is of far larger market.
We think we are well suited to participate in and I think that market opportunity could have a much higher or our growth rate.
And Brian is.
When you talk about expanding into the enterprise market.
Hi, I assume you mean your direct.
Branded product.
And what would change relative to the company's previous strategy of UBS.
Approaching the direct market.
So the company has not.
Ever had a real effort to two to take its threat intelligence services into the enterprise.
As you know the Companys threat intelligence business has been one where we ended our services into our Oems products. So the enterprise opportunity is an opportunity to leverage our same technology and offerings.
Take them to market directly to enterprise customers.
So do you have from an infrastructure standpoint will I guess, specifically sales and marketing will that take increased investment from from where you are today or how should we think about that.
No increased investment for 2020, we have our go to market today is is set up to address.
Both markets, both the OEM and enterprise markets. So we have a dedicated go to market team for the OEM market and we have a separate and dedicated team for the enterprise market. So our enterprise team will sell whatever products, we have in our enterprise product portfolio, including threat intelligence services.
And then maybe maybe one last one for me Brett can you give us an update on on the Microsoft relationship in progress there specifically the windows defender ATP integration and.
Kind of roll out there. Thanks.
So we are.
We are GA ready. So so cyren is ready to go the integration has been completed.
Microsoft has been spending time, serving their customers.
We've gotten very positive feedback, which I think we have reported in past calls we have received several hundred leads directly from Microsoft customers, who are interested in the capability. We've had multiple inbounds from Microsoft bars, who would like to take the our product into their customer base and.
And we are I think in the final stages of conversation with Microsoft on how exactly Microsoft would like to deliver our product capabilities to their customers. So.
This is going slower than we had hoped.
But I think we're getting close our work is done from a product standpoint, and we know there there is demand in the market.
And we're eager to.
To address that demand, we've just got to finalize the the go to market with Microsoft.
Got it.
And then maybe one last one for Mike Mike How should we think about you indicated some additional.
Head count reductions in cost cuts I think in the since the year flipped over.
How should we think about.
Run rate Opex from where you were in the December quarter, and then I'll hop off thanks.
So we finished the year with around 248.
Employees, both full time and part time employees.
We since brought that down to about 230 employees. So.
A reduction of less than 10% it cuts across multiple departments.
Some technical positions as well as some.
Some turnover on sales and marketing side as well so.
We're looking at additional.
Expense reductions as well with some of our other outside services and vendors, but at this stage. It it would be considered less than a 10% decrease of of Opex from the Q4 run rate.
Got it thank you guys.
Thank you there are no further questions at this time I'd like to turn the call back over to Mr. Jackson for any closing remarks.
Thank you all for joining us on the call today, we look forward to keeping you updated on Simon's progress over the coming quarters.
Thank you. This concludes today's teleconference. You may disconnect. Your lines at this time. Thank you for your participation and have a wonderful that.
Thank you.